Compagnie Noga D'Importation Et D'Exportation SA v Australia & New Zealand Banking Group Ltd & Ors [2004] EWHC 2601 (Comm)

[2004] EWHC 2601 (Comm)Case No 1999 Folio 4041999 Folio 4052004 Folio 630
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 18/11/2004
Before
THE HON. MR JUSTICE LANGLEY
Between
COMPAGNIE NOGA D’IMPORTATION Et D’EXPORTATION SAClaimant(1) AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITEDDefendants(2) Mrs MARYAM ABACHA and Mr MOHAMMED SANI ABACHA as Personal Representatives of GENERAL SANI ABACHA deceasedDefendant(3) CHIEF ANTHONY A. ANIDefendant(4) ALI ABACHADefendant(5) MECOSTA SECURITIES INCDefendant(9) ABUBAKAR BAGUDUDefendant(10) MOHAMMED SANI ABACHADefendant(13) STANDARD ALLIANCE CORPORATIONDefendantAnd OthersDefendant
Miss V. Selvaratnam QC (instructed by Stephenson Harwood) for ClaimantsMr R. Bright (instructed by Allen & Overy LLP) for 1 st DefendantMr P. Stanley and Miss J. Mance (instructed by Byrne and Partners) for Defendants (5) (9) (10) and (13)Mr A. Aderemi (instructed by Lawson Adefope Solicitors) for 3 rd DefendantHearing Hearing dates: 1 st and 2 nd November 2004
JudgmentThe Hon. Mr Justice Langley :The Applications
[1]The major applications to which this judgment relates are: i) An application by Nessim Gaon (“Mr Gaon”) to be joined as a claimant on the basis that the present company claimant (“Noga”) has assigned the claims to Mr Gaon. ii) Applications by the first (ANZ) and fifth, ninth, tenth and thirteenth defendants for security for costs against Noga and, if he is joined, Mr Gaon.[2]The fifth, ninth, tenth and thirteenth defendants are referred to as “The Byrne and Partners Defendants” after the name of their solicitors. In Case No 1999 Folio 404 the only other active defendant is the third defendant, Chief Ani, who was Finance Minister in the Government of the late President of Nigeria, General Sani Abacha. The other named defendants have either not been served or the proceedings against them have been stayed or discontinued. In Case No 1999 Folio 405, it is Noga’s belief that the first defendant, the Government of the Russian Federation, has been served in accordance with an Order made by Colman J dated 26 March 1999. Chief Ani was represented at the present hearings but made no submissions on the applications. The Russian Government was neither present nor represented.

The Issues

[3]The applications raise both questions of principle and issues which require some detailed factual analysis. They may also have to be re-visited as the claims proceed if they do proceed. The defendants challenge the joinder of Mr Gaon and submit that, even if permitted, permission should be conditional on the provision of security. They seek orders for the provision of security against Noga pursuant to CPR 25.13(2)(c) and Section 726(1) of the Companies Act 1985 (inability to meet an order for costs) and against Mr Gaon pursuant to CPR 25.13(2)(f) (nominal claimant unable to pay costs) and/or (g) (taking steps in relation to his assets that would make it difficult to enforce an order for costs against him). Noga and Mr Gaon submit that any order for security would stifle their claims, and that in the case of Mr Gaon the circumstances do not meet the provisions of either 25.13 (2)(f) or (g), and that there is no power to make joinder conditional on the provision of security. CHRONOLOGY Introduction

CHRONOLOGY

[4]Whilst what follows has been derived from the evidence before the court and is, I think, sufficiently reliable to enable the issues to be addressed, it is not intended to suggest that it is necessarily wholly accurate or capable of proof at any trial of the substantive issues between the parties.

The Ajaokuta Steel Project and the Bills of Exchange

[5]In the late 1970s a Soviet entity (“TPE”) contracted to build a steel project in Nigeria. Payment included 20 bills of exchange drawn by TPE and accepted by the Nigerian purchaser payable to the order of the Bank of Foreign Trade of the USSR. The bills were payable on various dates between April 1983 and October 1992. Each bill was numbered. The present proceedings concern bills numbered 8-15 and 18-20. The obligations of the Nigerian purchaser and payment of the bills were guaranteed by the Federal Government of Nigeria both to TPE and government to government between the Federal Government of Nigeria and the Soviet Ministry of Foreign Economic Relations.[6]By the early 1990s some of the bills had become overdue and been rescheduled; others remained unpaid and overdue.[7]The steel project contract provided that the bills were not negotiable and that the rights under the contract were not assignable save with the consent of the other party.

Noga

[8]Noga is a Swiss company incorporated in 1957. In witness statements served on behalf of Noga and Mr Gaon for the present hearing Mr Gaon has been described as the “principal” shareholder in Noga. However, in the course of the hearing, Miss Selveratnam QC told the court, on instructions, that the share capital of Noga was held as to 12,497 shares by Mr Gaon, 12,500 shares by his wife and 1 share each by their 3 children. Joel Herzog, a son-in-law of Mr Gaon, was a director of Noga.[9]Noga built up a substantial trading relationship with the USSR and subsequently the Russian Federation. The major trade involved the supply of goods by Noga in exchange for crude oil.

The July 1992 Agreement

[10]An Agreement dated 22 July 1992 was signed by Noga and the Ministry of Foreign Economic Relations of the Russian Federation representing itself, TPE and the Bank of Foreign Economic Affairs of the USSR. Noga thereby agreed to purchase the bills of exchange numbered 8-15 and 18-20. The Agreement was subject to Swiss Law. The total face value of these bills with interest exceeded 2.125 billion German marks. The price to be paid by Noga was 75% of the face value of the two overdue (18 and 19) bills and 62% of the face value of the other bills (some 1.138 billion German marks).[11]The July 1992 Agreement provided that it would come into force upon signature and fulfilment of certain conditions precedent including the consent of the Nigerian Government to the sale to Noga and payment by Noga of a sum of about 413m marks. It also provided, by Clause 15(b), that: “This Agreement shall not be assigned without the written consent of all Parties hereto”.[12]Neither condition precedent was fulfilled. It is Noga’s case, and the foundation of Noga’s claim in Folio No 404, that it acquired an equitable proprietary interest in the bills. Noga alleges that the want of consent from the Nigerian Government was caused by “bad faith and misconduct on the part of corrupt servants and/or agents in positions of power in the Governments of Russia and Nigeria”, and that, as a matter of Swiss law, the existence of such bad faith and misconduct means that Noga is entitled to treat the condition as if it had been satisfied. Noga says it discovered the bad faith and misconduct in 1995. It relies in particular on Clause 12 of the July 1992 agreement which provided that:
“The Parties hereto further agree that any and all payments … if any, made by the Employer and/or by [Nigeria] in relation to the bills of Exchange … after the date hereof shall be promptly transferred in German marks to [Noga] …. Until so paid, the Ministry, [TPE] and the Bank shall hold such amount in trust for [Noga].”

Noga and Russia

[13]By mid-1992 Russia was in default in making deliveries of oil to or for the account of Noga which Russia was required to make under the terms of various loan agreements with Noga. In the course of an arbitration between Noga and Russia, which resulted in a final Award dated 13 March 2001, it was Noga’s case that these breaches by Russia of the loan agreements had caused Noga very substantial damage by depriving Noga of the means to earn substantial profits. It was Russia’s case that Noga’s business had already started to decline before it had any dealings with Russia. The Arbitrators found that Noga’s undoubted financial difficulties in 1992 and 1993 were not caused by Russia’s default but “resulted from a pre-existing difficult financial situation combined with engagements of a much larger size than Noga had the resources to manage in a new market (Russia) which looked very promising but turned out not to be sufficiently stable for such big undertakings by a company without the necessary capital”.[14]On 14th December 1992 Noga declared Russia in default under the loan agreements. In 1993, Noga obtained a freezing order over certain Russian assets in respect of debts said to be owed by Russia totalling some USD280m. Attachment orders were obtained in Luxembourg on Russian assets held by some 30 local banks. The attachments are opposed and, until resolved, Luxembourg law does not enable Noga to know what, if any sums, have in fact been attached.[15]In June 1993 Noga commenced an arbitration against Russia. The seat of the arbitration was Stockholm. The claim by Noga at that time was for sums due under the loan agreements but not for the damages referred to in paragraph 13.[16]At various times between August 1993 and August 1994 Noga assigned to a number (4) of banks various amounts the subject of its claims against Russia in the arbitration. In late 1994, Noga and Russia negotiated a settlement of the arbitration. The arbitrators eventually held, contrary to Noga’s case, that the settlement never became final and binding.

The 1996 Transactions

[17]In 1996, the sixth defendant, a company called Parnar Shipping Corporation (“Parnar”) obtained bills 8-15 and 20 from the Russian holders. Noga alleges Parnar paid only 19.06% of the face value of the bills to acquire them. Although named as a defendant in Folios 404 and 405 Parnar was dissolved in 1997 prior to the issue of the proceedings. There is only limited evidence before the Court as to who controlled or was interested in Parnar.[18]Parnar sold the bills on to Mecosta Securities Inc (“Mecosta”) for 26.25% of their face value. Mecosta is one of the Byrne and Partners Defendants and is a company entirely owned and controlled by two other Byrne and Partners Defendants, Abubakar Bagudu and Mohammed Sani Abacha. Mohammed Abacha is the eldest son of General Sani Abacha who was in 1996 the President of Nigeria. General Abacha became President in 1993.[19]Mecosta sold the bills on to the Federal Government of Nigeria for 53% of their face value thereby achieving a profit of 26.75% of that value. Nigeria paid Mecosta some 973m German marks in two instalments, one in May 1996 and the other in April 1997. Mecosta converted much of the money into Nigerian Par Bonds.[20]ANZ is said to have “broked” the transaction between Parnar and Mecosta. There are issues about the extent to which ANZ may have been aware of or involved in the sale on by Mecosta to the Nigerian Government. ANZ received and disbursed the 486m German marks paid in the May 1996 installment and retained a fee of over 36m marks.[21]It is Noga’s case that the transfers in 1996 and 1997 were corrupt intended to benefit those who were behind Parnar and Mecosta.

Noga’s Administration

[22]On 12 September 1995, a Court in Geneva ordered deferral of a declaration of Noga’s insolvency and appointed administrators to supervise the company “and restore its financial stability”. At the end of January 1997 the court refused a request by the administrators for a further deferral and Noga requested an adjournment to enable it to make an arrangement with its creditors. In June 1997 the Court granted an adjournment for that purpose.

The first two Awards

[23]In February and May 1997 the arbitral tribunal published a first and supplemental award in the arbitration between Noga and Russia. Noga was awarded over USD51m, consisting of a principal sum of USD27m and the balance as interest. The tribunal also reserved a right in favour of Noga to claim damages. On 31 July Noga did claim damages of USD535m. That claim was the subject of the third (final) award in March 2001.

Noga’s composition with its creditors and Mr Rouche

[24]To quote from a translation of the decision of the Geneva Court of Appeal following a hearing on 18 December 1998:
“In the late summer of 1997, it became apparent that the Russian Federation was using all means at its disposal to delay payment of the sums due; at that time Jean Rouche, a French manufacturer, took action jointly with Nessim Gaon, Noga’s principal shareholder and director, to resolve this adverse situation. On 19 December 1997, United European Bank made available to Jean Rouche the sum of 33,000,000 francs, with which the French manufacturer took over a number of unsecured debts owed by Noga for a total sum below the nominal amount outstanding.”
Mr Rouche funded the payment of a dividend of 12.82% to Noga’s creditors. The total cost was of the order of CHF36.1m (some £16m).[25]On 6 March 1998 the Geneva court extended the adjournment until 29 May “deciding in substance that the company’s economic situation had improved”. On 30 September the court refused to approve a composition with creditors but, on appeal, at the hearing on 18 December, a composition was approved. The terms of the composition included: i) The payment of the dividend to unsecured creditors; ii) The banks that had accepted assignment of the Russian debt were entitled to be paid in full but only from the proceeds of the awards; iii) Mr Rouche’s claim to a dividend was postponed. He was to be entitled to payment out of the proceeds of the awards after the banks; iv) Mr Gaon, Noga’s shareholders and “companies in the Noga group” waived their claims to debts. Those concerned are listed. Apart from Mr Gaon and members of his family there is no evidence before the court about the six other entities shown as waiving the debts due to them from Noga.

Folios 404 and 405

[26]On 18 March 1999 Noga issued these proceedings. It also obtained freezing and disclosure orders from Colman J. In its evidence, Noga attributed “its present financial situation” to non-payment by Russia for goods delivered but said it was solvent and “would be good for an award of damages on its cross-undertaking”.[27]The claims in Folio 404 are tracing claims for delivery up of bonds or other assets derived from the payments made by Nigeria for the purchase from Mecosta of the bills of exchange and claims against what may loosely be described as the non-bank defendants for declarations that they were liable to Noga “as a constructive trustee on the grounds that [they] knowingly received trust property and/or knowingly participated in or assisted in a dishonest and fraudulent scheme designed to take and/or conceal trust property”.[28]The basis of the claim is that Noga acquired an equitable proprietary interest in bills numbered 8-15 and 20 derived from the July 1992 Agreement and the bad faith referred to in paragraph 12.[29]The claims in Folio 405 were brought against the same defendants but with the addition of the Government of the Russian Federation named as first defendant. Noga seeks leave to enforce the arbitration awards against Russia in the same manner as a judgment. Whilst asserting its “primary contention” to be that money paid by Nigeria for the bills and its proceeds “belongs to Noga” pursuant to the July 1992 Agreement, Noga claims, in the alternative to the claims in Folio 404, that Russia has a superior title to the money and proceeds on the basis that the bills were held for the benefit of Russia and the money and proceeds had been taken “pursuant to a fraudulent and dishonest scheme involving corrupt individuals acting in breach of their … fiduciary duties owed to the Russian Government assisted by others with knowledge of this”.[30]On this hypothesis, the relief sought by Noga against the defendants in Folio 405 is, in effect, an order that Noga should be permitted to recover the amount of the awards against Russia by execution against the proceeds of the bills as an asset of Russia.[31]Points of Claim in Folio 404 were served on 5 May 1999. It is alleged that at the time of the 1996 transactions bills 8 to 15 and 20 were worth “not less than about 65% of face value ”. It is also alleged that the fee ANZ retained of over 36m German marks or 2% of the face value of the bills was “extraordinary” and “not … in the ordinary course of banking business and was not referable to such banking services as were rendered”. It is in issue whether any claim was made against ANZ on this basis or any basis other than tracing. ANZ, with some support, I think, from the terms of the relief claimed, submits not. But that is a matter more material to a contested application by Noga to amend the claim against ANZ which is to be heard in January 2005. Defences were served by ANZ and the Byrne and Partners Defendants in June 1999. Folio 405 has not progressed beyond the Claim Form.

The June 1999 Order

[32]On 16 June 1999 Toulson J ordered by consent (so far as material) that Noga provide a bank guarantee in a form reasonably acceptable to the “Allen & Overy Defendants” in the sum of £112,500 to cover security for costs and fortification of the cross-undertaking in damages given by Noga as a condition of the freezing order. The reference to the Allen & Overy Defendants was a reference to ANZ and three of the Bank’s former employees and a company who were then also named as defendants in Folios 404 and 405. The proceedings against those defendants were discontinued in June 1999. In July 2004 it was agreed that Noga would pay a sum of £14,000 on account of their costs by 15 September 2004. The sum has not been paid.

The hearing before Rix J in July 1999

[33]On 30 July 1999, Rix J dismissed an application by the Byrne and Partners Defendants (then referred to as the “S J Berwin defendants”) to discharge the freezing order.[34]In the course of his judgment, Rix J recorded that the Byrne and Partners Defendants had not put in issue that there was a good arguable case against them of fraudulent breach of trust in respect of the May 1996 and April 1997 transfers. The issues raised were that there was no substance in Noga’s claim based on the July 1992 Agreement, that any cause of action in Folio 405 belonged to TPE and not Russia, and allegations of material non-disclosure in the obtaining of the freezing orders. Rix J decided that Noga had a good arguable case in relation to establishing an equitable proprietary interest in the bills of exchange and their proceeds.

The Settlement Issue

[35]On 30 September 1999, Moore-Bick J ordered the trial of issues as to whether the claims made in Folios 404 and 405 (and a further claim by Nigeria against Noga) had been settled by Noga and the Byrne and Partners Defendants. There had been settlement discussions between them in Nigeria during July and August 1999. Directions were given for trial of the issues. The trial took place before Rix J between December 1999 and June 2000. Judgment was approved as from 30 May 2001. The judgment gave rise to a number of Orders which, so far as necessary, will be referred to in their appropriate place in this chronology. It was held that there was no binding settlement.

The American Proceedings

[36]In early 2000 Noga commenced proceedings before federal courts in Kentucky and New York seeking to recover the arbitration awards from Russia. Those proceedings are now consolidated and are continuing in New York.

The Damages Award

[37]On 13 March 2001, the arbitral tribunal issued its Final Award addressing Noga’s damages claim against Russia. The claims had finally been advanced in an amount of some USD 506m plus interest. Noga was awarded USD 25,348,865 with simple interest at 6 months Libor plus ⅞ per cent per annum from June 25, 1993 to payment. Each party was left to bear its own costs and to pay 50% of the costs of the arbitration. I was told that to date, with accrued interest, this award totals some USD 44m. It was in this Final Award that the arbitrators found that Noga’s financial difficulties in 1992 and 1993 were not caused by Russia’s default: see paragraph 13.

The Noga Hilton Hotel Geneva

[38]The Noga Hilton in Geneva was owned by a company called Societe Anonyme du Grand Casino (SAGC). At least until April 2002, Mr Gaon was the “ultimate shareholder” in SAGC. SAGC mortgaged the hotel to various banks for CHF 400m. The banks sought to enforce their security and the hotel was put up for sale by auction in May 2001. Mr Gaon sought to postpone the sale. He says he was trying to raise a loan in the Far East to support a bid for part of the hotel. Mr Gaon and his family occupied 4 penthouse apartments in the hotel. The loan was not raised. The hotel was sold. There followed attempts by SAGC and Mr Gaon to challenge the sale and he and his family were eventually evicted and SAGC ordered to vacate the hotel which it had continued to manage. After the sale SAGC still had debts due under the original borrowing. The company was declared bankrupt in January 2004. Miss Selveratnam submitted that these events in particular served to demonstrate that Mr Gaon truly lacked access to any substantial sums. Otherwise, it was said, he would have been bound to have used them to secure the homes of himself and his family. But the Hotel apparently provided insufficient security for the loans from the banks secured upon it. That suggests it would have cost more to pay off the banks than the hotel was worth and vastly more than would be involved in any order for security for costs.

Decisions and Orders on the Settlement Issue

[39]On 23 October 2001 Rix J (now Rix LJ) finally concluded the first instance proceedings relating to the preliminary issues ordered to be tried by Moore-Bick J. He held there was no settlement. Noga lost on the law but won on the facts. Rix J considered the Byrne and Partners Defendants’ conduct of the case to be such as to justify not only an order that they pay 50% of Noga’s costs but that they do so on an indemnity basis. It had been alleged by the Byrne and Partners Defendants that Noga’s claim was “a falsely dishonest one from beginning to end” whereas Rix J found the opposite to have been the case. To quote from the Order made on 23 October, it was declared that whilst the Byrne and Partners Defendants had “not entered into a binding settlement agreement with Noga and are not indebted to Noga in the sum of $100million … a figure of $100 million was agreed.” Rix LJ granted Noga permission to appeal against this declaration and the Byrne and Partners Defendants permission to appeal against (among other things) the inclusion in the declaration of the fact that there was an agreement. Rix LJ also ordered a “standstill” in both Folios 404 and 405 on the basis that Noga would expedite the appeal.[40]Although the detail and timing of the payment has not been referred to, I was told that the costs order made against the Byrne and Partners Defendants has been paid. Mr Herzog says that the sum involved was approximately £1m which was “one of the main sources of the recent funding” of the present claims. Miss Selvaratnam submitted that the judicial condemnation of this conduct on the part of the Byrne and Partners Defendants was itself material to the exercise of discretion whether or not to award security for costs and that the conduct had materially contributed to Noga’s financial problems by increasing the costs of the proceedings. So far as the former is concerned I think it is of diminishing relevance in view of the passage of time; so far as the latter is concerned I think the court marked its displeasure and its assessment of the cost to Noga by the order for costs it made. Noga itself unsuccessfully pursued appeals thereafter.

The 2002 Russian Settlement Agreement

[41]On 29 October 2004 Noga’s solicitors wrote to Byrne and Partners and Allen & Overy enclosing a copy of an agreement between Russia and Noga dated 31 July 2002 to which Mr Herzog had referred in his first Witness Statement dated 15 September 2004. Mr Herzog there stated (in paragraph 7) that:
“Following attempts at the enforcement of the arbitration awards, the Claimant and the Russian Federation reached terms of settlement of all outstanding debts due to the Claimant, however, there was still no payment made in respect of the outstanding debts. Pursuant to a decision of the Tribunal of First Instance of Geneva dated 7 July 2003 … the Russian Federation’s opposition to the pay order notified by the Claimant, based upon the prior terms of settlement, was rejected and the Claimant’s title to the debt was recognised in the sum of CHF1,185,600,000 plus interest at the rate of 5% per annum. Following the decision of the Tribunal, the Claimant carried out an initial seizure of Russian assets on 22 December 2003 and this seizure remains in force. Again, this is referred to in the annex to the 31 December 2003 accounts. The Claimant is doing its best to enforce the judgment and is optimistic that the full amount of the Russian debt will be recovered before the end of the trial of these actions.”
[42]The agreement is signed by a Genevan Avocat on behalf of Russia. It records (in translation), in clause 2.1.1, agreement to settle the disputes between Noga and Russia on the basis that the debt payable to Noga by Russia is irrevocably fixed “at the contractual sum of” USD 800m in principal. The agreement was governed by the law of Luxembourg. An Annex to the agreement set out the various loan agreements (to be repaid by deliveries of oil) made between Noga and Russia. It was the disputes arising out of these agreements, including the awards and the attempts at execution by Noga, which were to be settled by the agreement in clause 2.1.1.

The July 2003 Geneva Judgment

[43]On 7 July 2003 (referred to in the passage quoted from Mr Herzog’s Witness Statement) the Tribunal of First Instance of Geneva gave a judgment which on its terms (in translation) appears to have decided that Russia was not entitled to stay “a summons to pay” CHF1,185,600,000 with interest at 5% from 31st July 2002 “by application” of the 2002 Russian Settlement Agreement. The amount was the CHF equivalent of USD800m. A Summons to pay seems to be analogous to a statutory demand. Russia had made (and still has made) no payments to Noga pursuant to the Settlement Agreement. It only emerged in a letter dated 27 October 2004 from Noga’s solicitors that Russia had challenged the validity of the 2002 Russian Settlement Agreement on the grounds that the Avocat had no authority to sign it. This court was told that this issue had been referred to an I.C.C. arbitration. Nonetheless it was said on behalf of Noga that the challenge did not affect the validity or enforceability of the July 2003 Geneva Judgment.

Noga’s 2002 Accounts

[44]Noga’s audited accounts for the year ended on 31 December 2002 were dated 4 December 2003. The accounts showed “a balance sheet profit” of CHF52,547. They noted that if the Russian debt was not recovered it would be impossible for Noga to continue trading. The auditor’s report also recorded that during the year Noga’s cash flow problems had been “covered by some of its shareholders” and that a “letter of support … signed by a number of shareholders or close relatives” should enable Noga to meet its commitments. There is no further evidence about this support.

Noga’s Provisional 2003 Accounts

[45]The Provisional Accounts for the year ended 31 December 2003 referred to the arbitration awards then, with interest, in a total of some USD 112m. The accounts included a provision of more than CHF 20m for the costs of the dispute with Russia.

Appeals on The Settlement Issue

[46]On 23 July 2003 the Court of Appeal had dismissed appeals by both Noga and the Byrne and Partners Defendants against the decisions and orders of Rix J. The Court continued the standstill pending any appeal by Noga to the House of Lords. On 25 February 2004 the Appeal Committee of the House of Lords refused Noga’s petition of appeal and the standstill ordered in October 2001 ended.

The Security for Costs Order dated 2 July 2004

[47]The security ordered by Toulson J in The June 1999 Order was dealt with in a somewhat unsatisfactory manner. Noga put forward a Bank Guarantee but the terms of the Guarantee were not acceptable to Allen & Overy largely because they were subject to Swiss law. Nonetheless, insofar as security was provided, it was provided on the terms put forward by Noga. Those terms included a provision that the guarantee would remain in force until December 25, 1999 and would be renewed for six month periods thereafter “on written demand made” by the Allen & Overy Defendants.[48]Whilst it seems, as Noga’s solicitors confirmed the Guarantee was still in force on 31 July 2001, that the Guarantee was renewed for some period or periods after 25 December 1999 it had lapsed by the time Allen & Overy came to enquire about it in June 2004 prompted by the revival of the claim following the decision of the House of Lords. The proceedings then came before me on a restored Case Management Conference on 2 July 2004. ANZ had not been involved in the settlement issue and had last been involved in the proceedings in late 1999.[49]There was argument on 2 July about which party, if any, was responsible for the security lapsing. But it was not then suggested that its reinstatement would stifle Noga’s claim and, of course, Toulson J’s order made by consent was still in force. Nor was there then any intimation of an intention to assign the claim to Mr Gaon. I gave directions intended to progress the actions up to and including disclosure and for evidence to be served relative to the defendants’ applications for security for costs from Noga. The present hearing was fixed. I also ordered Noga to provide ANZ with a bank guarantee in accordance with Toulson J’s order by 4pm on 30 July 2004 “with liberty to apply”. There is a dispute about what the “liberty to apply” was intended to reflect. I do not think it matters as such liberty would be available for any application whether to alter or set aside the security or to extend the time to provide it. Noga now seeks an order that my order that the guarantee be provided be revoked.[50]I do not, however, think it would be right to infer from the liberty to apply that the court had in mind that Noga might not be able to procure the security at all. I am fortified in that opinion by the correspondence which took place between solicitors following the order (see below and the first paragraph of Allen & Overy’s letter of 13 August) and the fact that delay in its provision would have risked making it of no comfort to ANZ for the present hearing.[51]On 30 July, the date by which the guarantee should have been re-instated, Noga’s solicitors wrote to Allen & Overy expressing regret that Noga “had not yet managed to arrange the bank guarantee” but adding “negotiations are ongoing and Noga informs us that everything should be in place in the next two weeks”. In their reply dated 13 August Allen & Overy objected to the failure to provide security and sought agreement in principle to the provision of further security for the revived litigation. Allen & Overy continued to press. On 24 August Noga’s solicitors wrote to “confirm that our client is doing everything it can to put the security in place, however, it is experiencing some delay and matters have not been helped by the recent holiday period. Our client is very mindful of its obligations and we hope to be able to revert to you in the near future”.[52]A few weeks later the Deed of Assignment was entered into. No bank guarantee (or other security) was or has been provided. On 29 September, after the Assignment, Mr Herzog stated that Noga was currently in discussions with a major insurance company in New York concerning the provision of a guarantee for £112,500. That also came to nothing albeit there is no further detail provided. 2004 Folio 630[53]On 30 July 2004 Noga issued a further Claim Form against ANZ. The objective was to meet a possible time bar defence available to ANZ in respect of amendments put forward by Noga to the claim in Folio 404 which explicitly alleged “dishonest assistance” and “knowing receipt” against ANZ. It is Noga’s case that those claims can properly be made by amendment because they are said to arise out of the same facts or substantially the same facts as the claims which are already the subject of Folio 404. It is ANZ’s case that they cannot. Although it was originally intended that this dispute should be addressed at the present hearing that proved wholly unrealistic. The two day estimate was barely sufficient for the issues addressed in this judgment. The amendment issues are now themselves the subject of a two day estimate and are to be heard in January 2005.[54]Mr Bright, for ANZ, was concerned to emphasise that ANZ considered the amended and existing claims against them to be close to, if not completely, hopeless and that normally such considerations would, if established, be material factors in applications for security. That was a submission he was to make in addressing the proposed amendments. But he was realistic enough to acknowledge that the court should nonetheless determine the present applications despite the lack of an opportunity for him to make this case. The court must, I think, proceed on the basis that the claims have a real prospect of success but also of failure.

The Noga Hilton Cannes

[55]The Noga Hilton in Cannes is owned by Noga Hotel Cannes SA which is said to be effectively owned by Mr Gaon but there is no information on the nature of his ownership. In 1995 a Bank loan of 625m French francs (some £68.25m) was secured on the Hotel. The creditor Bank sought to auction the Hotel. The auction was cancelled when terms were agreed in August 2004 with the Bank. What those terms were is not in evidence, save that it is said the Bank agreed to allow more time for repayment and no cash was paid. Mr Herzog has said that the debt to the Bank represents only a quarter of the value of the hotel. Noga’s solicitor (Mr Baker) has said the terms of the Bank’s security do not allow further indebtedness to be secured on the hotel.

Mr Gaon’s bankruptcy proceedings

[56]On 19 August 2004, the Court of First Instance in Geneva pronounced the personal bankruptcy of Mr Gaon. It did so, if the Press Report and its translation on which the Byrne and Partners Defendants rely is accurate, “within the framework of accelerated proceedings applied in particular in the case of fraud to the prejudice of creditors”. The sum involved was CHF 470,000 (about USD 395,000). A cheque for that amount was delivered on the day of the hearing.[57]It is Mr Baker’s evidence that the Court found that the creditor was largely secured by way of mortgage and that Mr Gaon was not insolvent. It is also said Mr Gaon had no personal knowledge of the debt and that now it has been paid “through the intervention of one of Mr Gaon’s personal friends of very many years’ standing”, Mr Gaon is confident of success in his appeal against the order.

Noga’s Indebtedness

[58]At 2 September 2004 the records of the Geneva Debt Collection Office show that Noga was facing “summonses to pay” in a total amount of nearly CHF 1.262m. Further some CHF 219,000 of assets of the Company had been seized.

The Deed of Assignment from Noga to Mr Gaon

[59]The Assignment is made by Deed dated 14 September 2004. It was executed by Mr Herzog on behalf of Noga. It recites these proceedings (“the relevant actions”) in Recital (A) and that until Russia pays the debts owing to Noga neither Noga (the Assignor) nor Mr Gaon (the Assignee) “are in a financial position to provide the Defendants in the relevant actions with security for costs either from their own resources or from any other source”. Other recitals include:
“(E) It is highly likely that an order for security for costs in favour of the Defendants in any of the relevant actions will stifle the claims in that action; (F) Both the Assignor and Assignee are desirous to ensure that the relevant actions are not stifled and that the Assignor and Assignee are not deprived of access to justice by reason of an order for security for costs which cannot be complied with; (G) Recognising that the Assignee is, and has at all material times been, resident in Switzerland, which is a Lugarno Convention Contracting State, and therefore entitled to prosecute the relevant actions without providing security for costs; (H) Recognising also that the Assignee is in reality the principal beneficiary of the claims in each of the relevant actions; (I) Bearing in mind all of the above considerations, the Assignor wishes to effect an equitable assignment to the Assignee of each and every one of the Assignor’s causes of action arising out of or in connection with or concerning bills of exchange numbered 8-15 and 18-20 which are the subject of an agreement between the Assignor and certain Russian entities dated 22 July 1992, or the fruits or proceeds of such bills of exchange, (hereafter referred to as “the relevant causes of action”), including the causes of action against each of the defendants in each of the relevant actions and the Assignor’s rights, title and interest in the property which is the subject of those actions, in consideration of (i) the Assignee’s agreement to assume responsibility for paying the legal costs of Stephenson Harwood and (ii) the Assignee’s agreement to reimburse the Assignor by 31.12.2006 in respect of all the costs which the Assignor has incurred in connection with each of the relevant actions to date, including the costs of the trial of the settlement issues in the Actions referred to in sub-paragraphs (a) and (b) of Recital A above and in Action 1999 Folio No 831, to the extent that those costs have not been recovered from any other party to the aforesaid actions; (J) The Assignee is willing to be joined as a Co-Claimant to each of the relevant actions and to provide the consideration required by the Assignor as stated above; (K) The Assignor and Assignee are also willing to undertake to be jointly and severally liable to pay the Defendants’ costs if the Court orders costs to be paid to the Defendants or any of them by the Assignor or Assignee;”
[60]Action 1999 Folio No 831 was the claim by Nigeria against the Byrne and Partners Defendants. The agreement itself, following the recitals, then records:
“1. The Assignor hereby equitably assigns each and every one of the relevant causes of action. Including the causes of action against each of the Defendants in each of the relevant actions, together with the Assignor’s rights, title and interest in the property which is the subject of those actions, and the right to receive any sums or other property recovered in any of those actions, whether as a result of any judgment or binding settlement or otherwise, to the Assignee. For the avoidance of doubt, the Assignor remains the legal owner of the aforesaid relevant causes of action, holding the same as a bare trustee for the benefit of the Assignee. 2. The Assignee agrees to provide the consideration identified in Recital (I) above. 3. The Assignor and Assignee agree to be jointly and severally liable to pay the Defendants’ costs if the Court orders costs to be paid to the Defendants or any of them by the Assignor or Assignee. 4. The Assignee hereby gives his consent to being added as a Claimant in each of the relevant actions. 5. The Assignor and Assignee agree to do all things necessary to enable the Assignee to be joined as a Co-Claimant in each of the relevant actions. 6. This Deed shall be governed by English law and any disputes hereunder shall be the subject to the exclusive jurisdiction of the Commercial Court in London. 7. This Deed constitutes the entire agreement between the parties and there are no agreements, understandings, promises or conditions, oral or written, expressed or implied, concerning the subject matter which are not merged into this Deed and superseded hereby. This Deed may be amended in the future only by Deed.”
[61]The evidence suggests that the Banks which were assignees of part of the sums payable by the awards were not made aware of and did not consent to this assignment. There is no evidence that Mr Rouche consented to it although he, too, as a result of the composition had claims on the awards.

The Supplemental Deed of Assignment

[62]On 28 October 2004 Noga and Mr Gaon entered into a supplemental deed of assignment to “clarify the mutual understanding concerning action 1999 Folio 405 and the effect of the Deed (dated 14 September).” The Supplemental Deed makes clear what Noga and Mr Gaon say was in any event implicit that any recoveries from Folio 405 should be applied in accordance with the composition with Noga’s creditors so that any recoveries would be paid first to meet the arbitration fees, second to the banks and third to Mr Rouche “with Mr Gaon being entitled to recover the balance, if any, after those prior claims have been satisfied”.[63]In summary, the Assignment was unashamedly intended to avoid an order for security for costs against Noga by assigning the claims to Mr Gaon against whom it was believed, because of his place of residence, no such order could be made. The consideration for the assignment (which was in any event made by deed) was payment by Mr Gaon of Noga’s incurred and future costs and the costs of the defendants should they have to be paid. Although Mr Gaon was described as “in reality the principal beneficiary of the claims” not only is that not accurate as a matter of ownership of the shares in Noga but also, on the face of it, it ignores the claims of Noga’s creditors to any surplus after payment of the banks and Mr Rouche.[64]Indeed it was the submission of Mr Stanley that on the figures it might very well be that once the costs and the debts to the banks and Mr Rouche had been met there would be no surplus left in the claims on the awards. Those submissions, as he acknowledged, turn on the amount of the costs, interest rates and obligations, and the exchange rate between Swiss francs and US dollars. None of those factors are certain and I think it would be wrong to conclude that there was “nothing” to assign. It is, however, demonstrable that the greater interest in the awards is an interest of the banks and Mr Rouche rather than of Noga or Mr Gaon. It is Mr Baker’s evidence that the value of the awards totals some CHF 160m which exceeds the recoveries assigned to third parties by some CHF 30m.[65]It also appears that Noga is continuing to seek to enforce the arbitration awards against Russia in its own name in New York; yet it is those awards and their enforcement which underlie Folio No 405 in which the claims have been assigned to Mr Gaon.[66]Finally, and for reasons which are not difficult to understand, Mr Molino (the Swiss lawyer instructed by ANZ) says that it is possible that the Assignment will be challenged for want of sufficient consideration in the event of Noga’s bankruptcy in order to secure the benefit of the claims for the company and its creditors. It is the case of Noga and Mr Gaon that the claims were effectively worthless in Noga’s hands because it could not fund them or find security for the costs of the defendants. But that assumes that Mr Gaon can fund them and that a court might have ordered security against Noga despite the submission that to do so would stifle the claim.

Mr Gaon’s Debts

[67]At 27 October 2004, Mr Gaon had personal debt collection and bankruptcy proceedings outstanding in the enormous amount of CHF 694m (about £314m) albeit several of the debts are disputed. Some creditors have seized Mr Gaon’s assets. There is evidence from Mr Molino that it is possible (depending on whether Mr Gaon disclosed the assignment and on the value of the assets seized) that the claims assigned to Mr Gaon by the Deed of Assignment have been seized. The effect of such a seizure would be that whilst Mr Gaon would remain the owner of the assets he would not be able to sell or assign them without the consent of “the debt collection officer” but he would remain entitled to pursue the claims provided the rights of creditors were not jeopardised. The seizure appears to have included all 25,000 shares in Noga.[68]It is Mr Gaon’s evidence that he had no knowledge of the seizure proceedings at the time when he entered into the Deed of Assignment. There is, however, exhibited to the first witness statement dated 29 October 2004 of Ms Boulton, a partner in Byrne and Partners, a debtor’s declaration prepared by the Debt Collection Office in Geneva which appears to show that Mr Gaon was present on 3 June 2004 but refused to sign the declaration. Mr Gaon did not have sufficient time to respond to this evidence prior to the hearing. SOME CONCLUSIONS Noga’s Financial Position

SOME CONCLUSIONS

[69]There is no dispute, indeed it is the basis of the applications for security for costs and the Deed of Assignment, that Noga itself would be unable to meet any costs order were one to be made against it now. It was, however, Miss Selvaratnam’s submission that there were good prospects of a recovery against Russia before any or any substantial costs exposure might arise and so that at such a time Noga would be well able to meet such an order. The basis for this submission was that Russia had recently confirmed that the ICC arbitration did not constitute an “action for liberation of debt” under Swiss law and “Noga’s view is therefore that title under the Geneva judgment is thus unchallenged”, and that, as the claims against Russia were now being funded by a third party, the prospects of recovery were much improved.[70]I do not accept this submission. Since 1992 Noga has been attempting to obtain sums it claims from Russia. The awards and the Genevan judgment have been achieved but remain wholly unsatisfied. The claims have been pursued at considerable expense. There is nothing to suggest that the ‘new’ funding is likely to be any more effective at achieving payment than the old. The existence of the ICC arbitration must serve to complicate the position yet further.

The cause of Noga’s Financial Position

[71]It is part of Noga’s case on the present applications that the Byrne and Partners Defendants (and ANZ) caused or substantially contributed to Noga’s financial plight. In my judgment that case has not been made out in the evidence. Not only was Noga in financial difficulties before any of the material events involving the bills occurred (paragraph 13) but those difficulties were plainly magnified by Russia’s defaults under the loan agreements (paragraphs 14 and 26). It also needs to be remembered that on Noga’s own case the July 1992 Agreement required Noga to pay Russia 62% of the face value of the bills (paragraph 10). There is no evidence as to the source of funds to meet this commitment. In any claim for damages based on the bills it would at the least seem probable that credit would have to be given for this cost.

Other Funding

[72]It is the case of ANZ and the Byrne and Partners Defendants that, despite their apparently overwhelming financial difficulties, Noga and Mr Gaon have managed to finance costly litigation and to discharge some substantial liabilities from sources which to a great extent remain unknown or not fully explained. There is, it is submitted, an inference that when the crunch comes or a benefit is perceived, money appears but otherwise the coffers are empty.[73]In a chronology attached to Mr Stanley’s Skeleton Argument on behalf of the Byrne and Partners Defendants, Mr Stanley set out a summary of what was then known about the needs for and sources of funding of Noga and Mr Gaon.[74]The costs incurred (and not recovered) by Noga in the English litigation are said to be of the order of £3.4m. No member of Noga’s legal team is acting on a contingency fee. Funding is said to be “significantly in arrears”. There is no evidence as to the source or timing of the funding which has been and is being made or as to the extent of any arrears.[75]The proceedings in America, Luxembourg, Sweden and Geneva against Russia to recover under the awards and the 2002 Russian Settlement Agreement were addressed in paragraph 12 of Mr Baker’s Fourth Witness Statement dated 25 October 2004. Mr Baker said:
“Noga has recently obtained third party funding of its efforts to enforce its rights against the Russian Federation. This funding covers all the foreign enforcement proceedings …. The funding involves no financial outlay by Noga and will involve payment by Noga only out of the net proceeds of any recovery. The funder has already stated that it is not interested in financing any recoveries from the Defendants in the London actions.”
There is no information as to the identity of the funder, the amount involved, or why enforcement against Russia should be preferred to pursuit of the present proceedings save for Mr Baker’s statement that they are “very different in type”. This court was told during the hearing that the funding extended to the ICC arbitration with Russia: paragraph 43. It was also told that the funding became available from the beginning of 2004.[76]The arbitration proceedings had cost over CHF 20m at 31 December 2003: paragraph 45. Whilst the assignee banks paid a $100,000 deposit in connection with the damages award, the source and extent of the further funding is unknown.[77]Mr Rouche funded the substantial (in total) dividend paid to Noga’s creditors in the composition: paragraph 24. Mr Baker has been told that Mr Rouche is “unable” to provide any further funding. Nothing is known about Mr Rouche or his assets.[78]“A personal friend” lent Mr Gaon CHF 470,000 in the hope that Mr Gaon could avoid a bankruptcy order being made against him: paragraph 57. There were recent positive statements about restoring the security ordered by Toulson J: paragraphs 49 and 51. These statements remain substantially unexplained.[79]The purpose of the Deed of Assignment was expressly said to be to ensure that Noga’s claims in these proceedings were not stifled by an order for security for costs. The inference must be that Mr Gaon, unlike Noga, can at least find the funding required to pursue the claims. Yet on the evidence adduced by Noga and Mr Gaon that would seem to be impossible unless another funder appears on the scene. Mr Baker’s evidence is that the banks will not provide any further funding.[80]There is a lack of information about other companies in the “Noga Group” (paragraph 25(iv)) and about the equity interest in the Noga Hilton in Cannes (paragraph 55).[81]There is a considerable amount of information about Mr Gaon’s debts. There is almost no information about his assets nor the assets of the other shareholders in Noga. There is a bare assertion that none of the shareholders could provide security for the costs of the defendants. QUANTIFICATION OF COSTS Byrne & Partners

QUANTIFICATION OF COSTS

[82]A skeleton bill of costs served by Byrne and Partners amounts to nearly £830,000. It extends to service and consideration of witness and expert statements but not trial costs. The bill has been subject to a detailed critique by Mr Baker and a costs draftsman. That critique puts forward as appropriate, if security were to be ordered, a figure of just less than £200,000.[83]I do not think it useful to address the details of this critique. The exercise cannot be a scientific one. It is contended that any security ordered now should not extend beyond disclosure, thereby reducing the bill by some £350,000. I do not agree. I think this is litigation which should now be pressed forward to trial and the completion and consideration of the evidence is a sensible cut-off point. I also think the critique fails to make proper allowance for the undoubtedly complex and serious nature of these proceedings and the sums apparently involved in them.[84]In my judgment, if this were a straightforward case of fixing an appropriate figure for security to the stage claimed, that figure would be £500,000. It is Mr Stanley’s submission that if it were thought to be right to divide the security between Folios 404 and 405 the appropriate proportions would be 70:30. Miss Selvaratnam submits that attributes too much of the weight of costs to Folio 405. She (rightly) points to the fact that no attempt has been made by the defendants to divide the costs between the two claims. If the court were to order security only in Folio 405 it would be either because it took a particularly jaundiced view of Noga/Mr Gaon’s chances of success in that claim or because there was only jurisdiction to order it in that claim. The first is not sensibly open to the court in view of Rix J’s judgment. The second, as will be seen, does not arise. Nonetheless as it may have some relevance hereafter, I think on the information currently before the court the appropriate apportionment would be Folio 404, 80% and Folio 405, 20%. ANZ[85]ANZ’s evidence is that the costs incurred to 23 August 2004 amount to almost £200,000. The estimate of costs to be incurred to exchange of witness statements (including experts) takes the total to that stage to a figure of some £895,000. This estimate (which includes the £112,500 already ordered) has also been subjected to a detailed critique by Mr Baker and a costs draftsman. An appropriate figure is said to be a sum of slightly more than £250,000. The critique again objects to any security for work on witness statements, but I do not agree. There is an added difficulty arising from the contested application to amend. If the amendments were to be disallowed the issues in Folio 404 would be narrower and ANZ might not be involved in Folio 405 at all. The estimate has been prepared on the basis that the amendments will be allowed.[86]As I have said, I think the critique fails to make proper allowance for the complexity and nature of the issues. If the amendments are allowed I see no real basis for differentiation between ANZ and the Byrne and Partners Defendants in the appropriate figure for security and therefore would order £500,000 to the stage claimed. If the amendments were to be refused I think it would be right to reduce that figure substantially to a figure of £250,000. Pending resolution of the amendment issue, and subject to the timing of that hearing and for the provision of any security should it be ordered, I think the lower figure would be appropriate for any order if one were now to be made on the straightforward basis to which I have referred in paragraph 84. In each case the figure would include the amount of £112,500 presently ordered.

Method of providing Security

[87]Miss Selvaratnam submitted that if (contrary to the primary case of the claimants) an order for security were to be made it could take the form of a second priority security over “the Russian receivable”. That, she submitted, would have the benefit of a reasonable prospect that Noga would be able to provide it. Whilst I would not expect such a proposal to have much attraction for the defendants in principle, particularly so after the late revelation of the ICC arbitration, they had no real opportunity to comment upon it. In view of the overall conclusions I have reached there is no need to consider further how security might appropriately be provided. THE JOINDER OF MR GAON The Rule

THE JOINDER OF MR GAON

[88]CPR Part 19.2(2) provides that:
“The court may order a person to be added as a new party if- (a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or (b) there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings and it is desirable to add the new party so that the court can resolve that issue.” (a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or (b) there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings and it is desirable to add the new party so that the court can resolve that issue.”
[89]In Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2AC 1, which concerned the predecessor rule of the RSC, the House of Lords addressed the discretionary nature of that rule [RSC Ord. 15 rule 7(2)]. CPR Part 19 also uses the language of “may”, acknowledging the same discretion. Like any discretion, it has to be exercised judicially: see Lord Hoffmann at page 17 F to G. Does rule 19.2(2) apply? The Deed of Assignment

Does rule 19.2(2) apply?

[90]Mr Bright for ANZ submitted for a number of reasons that it was not desirable for Mr Gaon to be joined in the proceedings. It was part of those submissions that the Deed of Assignment from Noga to Mr Gaon was of doubtful validity for the reasons suggested by Mr Molino (paragraph 66) and that it was not effective to assign any rights Noga might have under the July 1992 Agreement without which Noga’s claim to an equitable proprietary interest in the bills must fail (paragraphs 10 to 12).[91]I do not think, in the absence of any challenge to the assignment by the creditors of Noga, Mr Molino’s evidence would justify ignoring Mr Gaon’s apparent present rights under the Deed of Assignment.[92]Mr Bright’s submission about the effectiveness of the assignment was that the claims predicated an equitable proprietary interest of Noga in the bills derived from the July 1992 Agreement. So, too, the assignment purported to be an assignment only of equitable rights in the causes of action in respect of the bills including the causes of action before this court: paragraphs 59 and 60. But there is no evidence that any of the Russian counterparties to the July 1992 Agreement have given any consent to the assignment. Clause 15(b) of the Agreement required consent (paragraph 11) and the probability must be that no consent has been given.[93]Mr Bright submitted that absent such consent, any equities arising from the 1992 Agreement could not validly be assigned. He referred me to Chitty on Contracts, 29th Edition at paragraph 19-043 and Linden Gardens Trust v Lenesta Sludge Disposals [1994] AC 85 in particular per Lord Browne-Wilkinson at 106 C to D. But I think the principle there expressed is that a purported assignment in such circumstances is invalid against the debtor or the other party to the original contract. Moreover the July 1992 Agreement is governed by Swiss law and the Deed of Assignment purports to assign a proprietary interest not the contract. At the least I think Mr Gaon has a real prospect of establishing that as between himself and Noga the Deed of Assignment is effective and as between himself and the defendants he is entitled to pursue the claims as assignee of their benefit. That would suffice to justify joinder.[94]I have already commented upon (and rejected) the submission that the claims in Folio 405 could not be assigned because they had been assigned to the banks and there was no surplus left (paragraph 64) and I think the Supplemental Deed of Assignment serves to address the failure in the original Deed to acknowledge the prior interests of the banks and Mr Rouche.[95]In my judgment, therefore, the various submissions made by the defendants about the validity and effectiveness of the Deed of Assignment are not such as to justify a refusal of Mr Gaon’s application to be joined as a Claimant.

The terms of the Rule

[96]Mr Bright also submitted that there was “no need” to add Mr Gaon in order to enable the court to resolve the matters in dispute. As he put it, the issues would remain precisely the same. But the question the rule asks is whether it is “desirable” to add Mr Gaon. In my judgment it plainly is desirable to do so. The assignee of a claim has a more compelling interest in it than the assignor. A defendant needs to know who he has to pay (if he does) and to obtain a valid discharge. If, as there are in this case, there are issues about the validity and effectiveness of an assignment it is all the more important that they should be resolved in a manner such as to be binding upon both assignor and assignee. It is too simplistic to say that there are no risks for the defendants because Noga and Mr Gaon have the same solicitors and pursue the same interest. Those interests may well, as the defendants themselves submit, part company.[97]The decisions of the Court of Appeal in Walter & Sullivan Ltd v J. Murphy & Sons [1955] 2QB 584 and Three Rivers District Council v The Bank of England [1996] QB 292 are, I think, clear authority that in a case such as this the claims should only proceed with the equitable assignee a claimant in them.

The Discretion

[98]Both Mr Stanley and Mr Bright submit that if the court is minded (as it is) to permit Mr Gaon to be joined as a claimant in the proceedings it should only be on terms that he provide security for costs or, at the least, as Mr Bright submits, that he should assume the existing obligations of Noga as regards security (paragraphs 32 and 49) and the agreement to meet costs of the other Allen & Overy defendants apart from ANZ (paragraph 49).[99]There is, as Mr Stanley and Mr Bright acknowledge, a formidable obstacle in the way of this submission: the decisions of the Court of Appeal in Eurocross Sales Ltd v Cornhill Insurance [1995] 1 WLR 1517 and of the House of Lords in Norglen.[100]In Norglen the House of Lords decided that: i) An assignment is not invalid because it deprives defendants of the right to apply for security for costs under section 726 of the Companies Act 1985:
“For better or worse, the law entitles a defendant to be protected against incurring irrecoverable costs in litigation brought against him by an impecunious company but not by an impecunious individual. But that cannot prevent companies from assigning property to individuals.” per Lord Hoffmann at page 16F. ii) There was jurisdiction to impose conditions in relation to the joinder of a party, whether against the existing claimant (the assignor) or the new claimant (the assignee) and it would be a proper exercise of discretion to impose conditions “to ensure that the joinder does not put the defendant in a worse position as to costs than he would have been if the new party had been in the action from the beginning”
. But whilst the new party “may be ordered to pay or give security for additional costs caused or thrown away by the joinder … the discretion cannot be used to ensure that joinder does not put the defendants at greater risk as to costs than they would have been if no joinder had taken place. Having to litigate against an impecunious individual plaintiff is a risk of litigation which has to be accepted”: per Lord Hoffmann at page 20 B to C.[101]The second of these decisions was founded on the decision in Eurocross. In that case the plaintiff company brought a claim against Cornhill. It then sold its assets including the claim to its director and major shareholder, a Mr Sood. Cornhill sought security for costs against the company. Mr Sood sought to be substituted for the company as plaintiff. Mr Sood’s application was refused by a district judge who ordered the company to provide £5000 by way of security. The security was not provided and the company’s claim was stayed.[102]Mr Sood appealed. The judge ordered that he be added as a co-plaintiff but on terms that he paid the £5000 into court. On appeal to the Court of Appeal the Court held that there was no justification for imposing the term that Mr Sood provide security as a condition of joinder. Sir Thomas Bingham MR said at page 1524H to 1525A:
“Had Mr Sood been ordered to pay, and give security for, the costs occasioned by or thrown away as a result of his joinder, there could in our judgment have been no sustainable objection to the order. But we can find no justification for the order in fact made. If there had been no basis for a security order against the company, we cannot imagine that an order against Mr Sood would have been contemplated. We see no reason why the making of an order against the company, which had the practical effect of paralysing the company’s action, alters the position.”
[103]This decision is binding upon me. It decides that whilst orders for security may be made and be effective against the impecunious company claimant they cannot be made against the personal claimant under the disguise of a condition imposed on joinder. The Court of Appeal does, however, appear to have accepted that in a case in which both company and individual are to be co-claimants where appropriate an order for security could remain and be made effective against the company even if no such order could be made against the individual. Nor do I read Lord Hoffmann’s reference to the case in Norglen at page 20D as intended to disapprove of that approach.[104]It is also pertinent that, at page 1527 G to H, Sir Thomas Bingham expressed “some unease” at the conclusion the court had reached. The court was alive to the risks of impecunious companies assigning claims to impecunious directors to avoid orders for security and perhaps to obtain the benefit of legal aid. But it was said the safeguard had to be found in the fiduciary duty of directors which would ordinarily prohibit assignments at an undervalue, the powers of the Legal Aid Board, and “if need be, in amendment to the rules of court”.[105]The rules of court have since been amended. There is now a power in limited circumstances to order an individual claimant to provide security. It is to be found in CPR 25.13(2)(g) on which the defendants rely in this case. But it is a reasonable inference that the terms of that provision reflected the limit to which it was thought appropriate the CPR should go to meet the unease expressed in Eurocross.[106]Mr Bright and Mr Stanley sought to circumvent the obstacles presented by these authorities. But in my judgment they failed in their quest.[107]The jurisdiction exercised in Sinclair v British Telecommunications [2001] 1 WLR 38, to which Mr Bright referred the court, was essentially a jurisdiction to prevent an abuse of process by starting a second substantially similar action without first meeting the costs of the previous action. Mr Bright submitted that Noga and Mr Gaon were engaged in an abuse of process because they had no real intention to carry on with these claims at all. That was a bold submission. Essentially it was based on the contention that the claims were incapable of proof and in any event the claimant had shown no desire to progress them and had no witnesses available to prove them. It was submitted that the intention was to bring unfair pressure on the defendants to settle and that the assignment was intended to add to that pressure the significant risk of exposure to payment of their own costs even if the defendants were wholly successful in defeating the claims.[108]I reject this. The same sort of point could have been made in Eurocross and Norglen. If the claimant has problems of evidence or a faltering will the best way of demonstrating that is indeed to press on with the due preparation of the case for a trial at the earliest date consistent with the need for such preparation.[109]Mr Stanley sought to distinguish Eurocross and Norglen. In Eurocross he pointed out that references had been made to Mr Sood choosing to expose himself to the liability of a personal plaintiff and to the fiduciary duty of a director. He submitted that Mr Gaon seemed to conduct himself so as to avoid personal liability or disclosing his assets and there were “grave doubts” about the consideration for the assignment. But I think the point of principle which is the basis of those authorities is that there is no costs protection against suit at the instance of an impecunious individual and, save for CPR 25.13(2)(f) and now (g), even at the instance of an individual who has no assets or lacks candour concerning his assets, or avoids his creditors. Neither of Mr Stanley’s points address that principle. The remedy for a breach of fiduciary duty lies elsewhere.[110]Finally, as I have noted, Mr Bright submitted that at the least the court could and should impose a condition that Mr Gaon provide the security already ordered against Noga. He submitted that like any assignee Mr Gaon should in effect take the claims subject to the existing obligations attaching to them. I also reject this submission. It is, I think, inconsistent with the decision in Eurocross and the speech of Lord Hoffmann quoted at paragraph 100 ii). The existing orders arguably put ANZ in a better position as to costs and certainly no worse position than it would have been had Mr Gaon been a party to the action from the beginning.

Conclusion on Joinder and Discretion

[111]In my judgment I am precluded by high authority from imposing any condition on the joinder of Mr Gaon which requires him to provide security for the costs of the defendants save to the limited extent that he must provide security for any additional costs caused by or wasted as a result of his joinder. I shall therefore order that Mr Gaon be joined as a claimant upon that condition. I am not sanguine that the parties will be able to reach any agreement as to what the condition encompasses either in principle or amount. The parties should therefore be ready to address the matter once this judgment is formally handed down.

CPR 25.13(2)(f)

[112]The rule provides that the court may make an order for security for costs if “the claimant is acting as a nominal claimant … and there is reason to believe that he will be unable to pay the defendant’s costs if ordered to do so.”[113]It was submitted by Mr Bright that the seizure of Mr Gaon’s assets (paragraph 67) might have the effect of making him only a nominal claimant. But on the present state of the evidence I think any such conclusion would be premature.[114]It was submitted by Mr Stanley that Mr Gaon (and indeed Noga) were nominal claimants in Folio 405 because of the interest of the banks and Mr Rouche in the proceeds of the awards. But I have already found that it would be wrong to conclude that there was no surplus which Noga could assign to Mr Gaon: paragraph 64.[115]Although there is little authority on the point I think “a nominal claimant” is one whose name is used to bring a claim in which he does not have any or at least any significant legal or beneficial interest. On the evidence currently available I think Mr Gaon does have such an interest. It follows that there is no jurisdiction to order him to provide security under this rule.

CPR 25.13(2)(g)

[116]The rule provides that the court may make an order for security for costs if “the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him”.[117]There is also little authority on the application of this rule which first appeared with the CPR. However, in Chandler v Brown 20th July 2001, Park J considered the rule in a case in which the individual claimant had “a record of dishonesty and creditors (had) been victims of it”. Park J held that was not enough to satisfy the rule which required by its terms that it be shown that the claimant had taken steps in relation to his assets which would make a costs order difficult to enforce. It was not enough to show propensity that he might take such steps in the future. Actual “steps” already taken were required. I respectfully agree. The rule is not aimed at the impecunious or the dishonest as such but at the illegitimate hiding of assets.[118]The difficulty which faces the defendants is that they know nothing about Mr Gaon’s assets and so cannot show that he has taken any steps in relation to them which would make enforcement of a costs order against him difficult or indeed at all. Both Mr Stanley and Mr Bright submitted that if it was a reasonable inference on all the evidence that Mr Gaon did have undisclosed assets then his failure to disclose them could itself lead to the inference that he had put them out of reach of his creditors including a potential creditor for costs. There are worrying features about the evidence which arouse suspicion: see paragraphs 72 to 81. But on balance I do not feel able to conclude that the double inference of the existence of assets and relevant steps taken in relation to them has been established by the defendants. It remains, I think, sufficiently possible that such assets as Mr Gaon has remain where they have in effect always been. It follows that there is also no jurisdiction to order him to provide security under this rule.

CPR Part 3.1

[119]At a very late stage of the hearing, Mr Bright submitted that if a power to order security could not be found in CPR part 25.13 it could be found in the court’s general powers of case management in CPR Part 3.1. I do not agree. The limited circumstances in which it is appropriate to order security pursuant to Part 3.1 were emphasised in Ali v Hudson [2003] EWCA Civ 1793. They do not apply here or at the least no case has been made that they do.

Mr GAON: CONCLUSION

[120]For the reasons I have set out, on the present evidence I see no jurisdictional basis on which the court can order Mr Gaon to provide security for the defendants’ costs. The question of discretion does not therefore arise. The issues concerning “stifling” are, I think, and as was submitted, the same for Noga as for Mr Gaon and are considered below.[121]I should add a footnote. Should Mr Gaon seek to step into Noga’s shoes in relation to the freezing orders it would I think be open to the defendants to seek the usual cross-undertaking from him and, if appropriate, security for its performance. NOGA Jurisdiction[122]CPR 25(13)(2)(c) provides that the court may make an order for security for costs if:
“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.”
[123]Section 726(1) of the Companies Act, 1995 is to the same effect.[124]There is no dispute that there is jurisdiction pursuant to these provisions to order Noga to provide security for the costs of the defendants.

Discretion

[125]CPR 25.13(1) provides that the court may make an order for security for costs where one or more of the conditions in paragraph (2) applies:
“if it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order.”
[126]The principles on which this discretion should be exercised were summarised by Peter Gibson LJ in Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534 at 539-542. One of those principles, the risk of stifling a claim, is now fortified by the risk of a breach of Article 6 of the ECHR providing for the right of access to a court.[127]I have already considered and rejected Noga’s submission that the company’s undoubted financial difficulties are the result of the conduct of the defendants (paragraph 71) and the submission that there are good prospects that the company would be able to meet an order for costs because it will have made recoveries from Russia by the time any such order is likely to be made (paragraphs 69 and 70). Nor is this a case in which I think it has been demonstrated one way or the other that there is a high degree of probability of success or failure (paragraph 54).[128]It is for Noga (and Mr Gaon) to satisfy the court that an order for security for costs would stifle the claim, and to do so by reference not only to the resources of the company but also to whether it can raise the amount needed from its shareholders or “other backers or interested persons”: Keary Developments, at page 540j. The reason is that the necessary information is likely to be known to the claimant and not the defendant. For the same reason, I think the court is entitled to expect “full and frank disclosure” from claimants who contend that their claims will be stifled. That is the case in relation to the analogous rules relating to financial conditions sought to be imposed as a condition of permission to defend claims: Yorke Motors v Edwards (H.L.) [1982] 1 WLR 444 at 449 B to E per Lord Diplock.[129]I am not satisfied that either Noga or Mr Gaon has been candid with the court about the availability of funds to provide security for costs. The submissions made by the defendants which I have sought to summarise in paragraph 72 to 81 of this judgment are I think well founded. The court is left with the impression that whilst resources have been and can be found from unknown sources to finance the very substantial costs of the claimants themselves and other urgent exposures, unless an order for security is made, the defendants will not have access to those resources to recover their costs if they are found to be entitled to be paid them. There is no basis, because the claimants have provided no evidence of any funds at all, on which the court could conclude that whilst there are sufficient funds to finance the claim there are not also sufficient funds to provide security. The claimants have failed to satisfy me that it is probable that the claim would be stifled if such an order were to be made and even if made in the amounts to which I have referred in paragraphs 82 to 86 of this judgment. It can be expected that the costs of Mr Gaon and Noga will be of a similar amount.[130]That, however, is not the end of the matter. I have decided that no order for security can on the present evidence be made against Mr Gaon. As Miss Selvaratnam submitted, the reality must be that the claims will be pursued by him whatever the state of the claim by Noga. There is an existing order for security to be provided by Noga for the costs of ANZ which remains unfulfilled. Although Noga seeks to set that order (and the June 1999 order) aside I can see no justification for doing so. It was originally made by consent. It was ordered to be restored without any suggestion that the order would stifle the claim. The security is also intended to support the cross-undertaking given when the freezing order was obtained. That order is still effective. No steps have been taken by ANZ to set aside the freezing order or to seek any other sanction for the failure to comply with the Security for Costs Order dated 2 July 2004. In these circumstances, whilst I can see no good reason to set aside the existing orders, and I decline to do so, I can also see no good reason to make a further order against Noga for the provision of yet further security which is unlikely to have any or any further realistic sanction for its breach. It may be that there are arguments available to ANZ that if, for example, Noga’s claim were to be stayed for want of security Mr Gaon’s claim as assignee would not be sustainable. But if there are and they are to be pursued, they must be for another day.[131]I will not, therefore, make any order against Noga for the provision of further security.

CONCLUSION

[132]Mr Gaon’s application to be joined as a claimant succeeds. The applications by ANZ and the Byrne and Partners Defendants that Mr Gaon provide security for costs either as a condition of joinder or under CPR 25.13 fail, save to the limited extent stated in paragraph 111. The applications by ANZ and the Byrne and Partners Defendants that Noga provide security for costs (or further security for costs in the case of ANZ) fail. Noga’s application to set aside the Security for Costs Order dated 2 July 2004 also fails.[133]I shall expect the parties to prepare a Draft Order to reflect the terms of this judgment and will hear them on any ancillary matters and any terms which cannot be agreed.

Cited in 6 later judgments