Re-Source America Ltd. v Platt Site Services Ltd & Anor (No 3) [2005] EWHC 2242 (TCC)

Case No HT 02/156

[2005] EWHC 2242 (TCC)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 20 October 2005

Before

HH Judge Thornton QC

Between

Re-Source America LimitedClaimant

Mr Mark Cannon (instructed by Fox Hartley, St Lawrence House, Broad Street, Bristol, BS1 2HF (Ref: HIT/iml/27.14) for Barkin Construction Limited

Mr Robert Moxom Browne QC (instructed by Watmores, Chancery House, 53 – 64 Chancery House, Chancery Lane, WC2A 1RP (Ref: IKM.TAD.TU PLATT/1) for Platt Site Services Limited

Re-Source America International Limited was neither a party to, nor represented at, Barkin Construction’s application.

Hearing Hearing date: 28 July 2005

JUDGMENT

[1]Introduction This judgment is concerned with an application by the Part 20 defendant, Barkin Construction Ltd (“Barkin”) that the defendant, Platt Site Services Ltd (“Platt”) should pay it $US594,802 and £10,000 plus interest from 22 February 2005. These sums have been found by the Court of Appeal to have been wrongly included in the damages judgment obtained by the claimant, Re-Source America International Ltd (“Re-Source”) which Barkin had been ordered to pay Re-Source. The Court of Appeal ordered Re-Source to repay these sums to Barkin but Re-Source has not complied with that order. As a result, Barkin is now applying for an order that these sums should be paid by Platt. 2. Factual Background

[2]In the action, Re-Source had claimed damages from Platt following a disastrous fire at its warehouse premises located on an industrial estate near Deeside, Flintshire, North Wales. The fire destroyed both the warehouse and its contents and the action claimed the value of those destroyed contents. The fire occurred during the construction of a new adjacent warehouse whose steel structure was being tied into the steel structure of Re-Source’s premises. The main contractor for this work was Barkin and the welding sub-subcontractor was Platt. Re-Source claimed it loss from Platt in negligence and Platt joined Barkin as a Part 20 defendant claiming an indemnity for any liability it might have to Re-Source. The contents that were destroyed consisted largely of spools used to transport optic cable. These spools were owned by Corning Inc, the American manufacturer of the cable, and they were regularly recycled and refurbished for future use. Re-Source’s business largely involved it in undertaking this recycling and refurbishment work for Corning Inc.

[3]Platt’s welding operations were carried out from a temporary platform which was located at high level within Re-Source’s premises. Access to the warehouse was obtained through a large hole cut into the cladding. A temporary shroud formed by fire blankets was placed below the welding operations to protect the spools stored beneath. The fire blankets were erected so as to catch any molten slag droppings or sparks falling from the welding operations. Unfortunately, these blankets, which had been supplied and erected by Barkin, contained holes burnt into them by molten slag droppings from previous welding operations at the warehouse. The fire was caused by molten slag droppings passing through one of these holes landing on top of inflammable packing material stored below. The resulting fire spread rapidly.

[4]The action was tried in two parts, firstly liability and causation and secondly damages. Both judgments were appealed. The liability judgment was handed down by the TCC on 4 June 2003,

[2003] EWHC 1142 (TCC)

and the Court of Appeal judgments on appeal were handed down on 28 May 2004,

[2004] EWCA Civ 665

. The quantum judgment was handed down by the TCC on 23 December 2003,

[2004] EWHC 1405 (TCC)

and the Court of Appeal judgments on appeal were handed down on 22 February 2005,

[2005] EWCA Civ 97

[5]Re-Source, for reasons which were never made clear, only sued Platt. This was surprising since Barkin had caused the fire given that it had controlled the welding operations, had provided the fire barrier and had had the responsibility for providing fire fighting measures capable of confining any fire outbreak that occurred. Barkin had failed in all these respects. Platt was working under the direct instructions of Barkin and, although its welding operative had observed that the protective fire blanket had holes in it through which the molten slag could escape, the system of work was wholly directed by Barkin.

[6]Re-Source’s claim against Platt was based in negligence and relied on Platt having carried out welding operations so as to cause molten slag to drop down onto the spools stored below. Platt’s indemnity claim against Barkin was based on two separate causes of action. Firstly, Platt claimed an indemnity pursuant to a contractual indemnity that Barkin had provided to Platt in a collateral warranty. Secondly, Platt claimed a complete indemnity pursuant to the Contribution Act 1978. These indemnity claims were based on the duty of care that Barkin owed Re-Source and its many different breaches of that duty that had caused the fire.

[7]Following the liability trial, I held that Platt was liable in negligence to Re-Source on the limited basis that the welding operations should not have been carried out with a fire blanket containing holes positioned beneath the welding. I also held that Barkin was liable to full indemnify Platt. Barkin appealed against Platt but did not appeal against Re-Source. Thus, only Barkin and Platt were parties to the liability appeal. The Court of Appeal dismissed Barkin’s appeal save that it held that I had been in error in holding that Barkin was liable to indemnify Platt pursuant to the contractual indemnity contained in Barkin’s collateral warranty. However, my finding that Barkin was liable under the Contribution Act 1978 to provide Platt with a complete indemnity was upheld.

[8]The comprehensive nature of Barkin’s liability for the fire damage was expressed in the leading judgment of Tuckey LJ in the Court of Appeal in this way:

“The judge found, as he said, a long catalogue of negligence against Barkin. It had undertaken entire responsibility for the way in which the hotwork was to be done and the protection of Re-Source’s stock. Platt’s fault, through its young welder Mr Atherton, was to acquiesce in the use of the unsatisfactory protection provided by Mr Andrews [Barkin’s managing director]. Mr Atherton’s evidence was that he had never used welding blankets before. His employer Mr Platt was unaware of the holes in the blankets.”

Laws LJ put the matter pithily in stating:

“As Brooke LJ [the third member of the court] succinctly states, the fire was Barkin’s fault, not Platt’s.”

[9]Barkin’s managing director, Mr Andrews, had been the cause of Barkin’s negligence. Mr Andrews was a generally unsatisfactory witness. I found that he had lied in a material part of his evidence when he had stated that he had left the scene of the fire before the vital welding operations had taken place. In fact, he had fled from the scene once the fire broke out in an attempt to cover up his own negligent direction of the welding operations. He had then, before the trial, falsified his diary so as to provide corroboration for this lie. He had personally provided the welding blankets and fixed them into position, had directed how the welding operations should be undertaken and had assumed sole responsibility for arranging appropriate fire precautions which he then failed to provide.

[10]Platt was a small company that was not fully insured against its potential liability for fire damage. Barkin was, however, fully insured. Following my liability judgment, Platt was concerned that Mr Andrews’ behaviour before, during and after the fire might lead Barkin’s insurer to repudiate its liability to indemnify Barkin. Platt’s concern related to Mr Andrews’ gross negligence in directing all aspects of the welding operations and fire protection measures and to his dishonest conduct in covering up his involvement in the fire. Platt had also concluded that if Barkin’s insurer repudiated liability, Barkin would be unable to indemnify Platt for Platt’s loss from its own resources and that Platt might also be made insolvent in consequence.

[11]Platt was also concerned to avoid, if at all possible, the added cost of its continued involvement in the damages action. Re-Source’s claim, as pleaded, exceeded £1 million but it had yet to be properly investigated and it would be expensive for Platt to undertake any further investigation of it or to be involved in the damages trial.

[12]Platt’s concerns led it to apply for a Sanderson costs order, whereby Barkin would pay Re-Source’s costs directly rather than Platt initially paying them and then recovering them from Barkin. Platt also applied for an order that Barkin should discharge its obligation to indemnify Platt by paying Re-Source’s damages directly so that Platt would not have to fund those damages for any period from its own resources.

[13]Platt’s concerns were reflected in these extracts from Platt’s counsel’s submissions when arguing for direct payment orders. They are taken from the transcript of the handing down hearing on 4 June 2003:

“There remains one concern which is whether in the light of the terms of the judgment and the strong criticism of Barkin the insurers will honour the policy. They might have grounds for saying that they have been the victims of a total lack of co-operation from their insured from the word go and that there would have been other ways of disposing of the litigation. … we ask you to accept for present purposes that there is a question mark over the ability of Barkin to pay … Until we have an unequivocal assurance from Barkin that the insurers will honour the policy and the policy will respond, then our position is that we should not be put on risk of having to pay [Re-Source] either costs or damages and be at risk of failing to recover from Barkin. … It is about who should bear the risk. If that risk can be removed either by Mr Cannon [counsel for Barkin] saying the insurers are not going to repudiate or putting the money on the table or giving it to me or your Lordship making an order that I do not have to pay [Re-Source] until I have been paid, there are a number of ways as long as the risk is removed. But the risk should not stay with [Platt], who are blameless in this matter … We have to be released from the action by [Re-Source] and Barkin … .”

We have to be released from the action by [Re-Source] and Barkin … .”

[14]Re-Source supported, and Barkin did not oppose, Platt’s application for direct payment orders. Re-Source wanted direct payment orders to require Barkin to pay it directly because it was concerned that Platt might be unable to afford to meet the damages and costs judgments out of its own resources.

[15]As a result, direct payment orders were made covering both the judgment sums and costs.

[16]A consequence of these orders was that Platt took no part in either the preparation for or the hearing of the damages trial. At a case management conference held in October 2003, directions were given to Re-Source and Barkin for the service of witness statements and experts’ reports and for the hearing. The damages trial took place on 26 November 2003 and I reserved judgment. Re-Source’s counsel asked me at the conclusion of the hearing to indicate, if I was able to, what judgment sum I was minded to award but Barkin asked me to reserve judgment so that I could be provided with a copy of the transcript and then prepare and hand down a reasoned reserved judgment. I agreed to follow the course suggested by Barkin. On receipt of the transcript, I was able to decide what sum I would award Re-Source in damages.

[17]I had not completed my reasoned judgment when Re-Source made an application to the effect that the court should deliver judgment immediately with my reasons to follow at a later date. Re-Source’s application was supported by evidence from both Re-Source and its US-based parent company that Re-Source would be passing onto its parent the judgment sum as soon as Re-Source received it, that under US accountancy practice the parent’s annual accounting period ended in mid-January and that it was desirable for commercial reasons that the parent should receive the judgment sum immediately so that it could be accounted for by the parent before the end of its current accounting year.

[18]Barkin opposed Re-Source’s application on the grounds that it would be preferable for me to hand down the judgment sum and my supporting reasons at the same time. Platt took no part in the application and was not represented at the hearing.

[19]At this hearing, Barkin did not seek a stay of execution of the judgment, any form of security or a guarantee from Re-Source’s US-based parent company. The obvious grounds available to it for such an application were that it had an outstanding liability appeal and a possible damages appeal awaiting a hearing. Either of these appeals might lead to the need for Re-Source to repay the judgment sums. However, Re-Source would not be able to repay these sums from its own resources, since it was not trading, and the recipient of the money was not readily amenable to the jurisdiction of the court since it was resident in the USA and not a party to the action.

[20]Re-Source’s application for an early judgment was heard on 23 December 2003. I granted the application and announced that there would be judgment for Re-Source in the sums of US$1,367,745.43 and £100,391.55. The judgment also provided for a quantified sum for interest on each of these principal sums. The judgment was entered immediately and Barkin paid the judgment sums soon afterwards and these were immediately transferred by Re-Source to its US-based parent company. The order containing the judgment also provided that Barkin’s time for appealing the damages judgment was extended until 28 days after its solicitors had received my reserved judgment.

[21]Meanwhile, Barkin had sought and obtained permission to appeal my liability judgment on the grounds that I was wrong to have found that Barkin had been in breach of its duty owed to Re-Source and to have ordered that Barkin was liable to Platt under the Contribution Act 1978 to provide a full indemnity to Platt. Barkin’s application for permission to appeal was dated 11 August 2003 and only Barkin and Platt participated in the appeal. The appeal was heard in May 2004 and the Court of Appeal’s judgments were handed down on 28 May 2004. As already stated, Barkin’s appeal was dismissed save for an inconsequential finding which did not affect the result.

[22]Following its receipt of my damages judgment, Barkin applied for and obtained permission to appeal this judgment on the grounds that I had erred in my award of damages in including in the award certain sums in favour of Re-Source that it was not entitled to recover. Barkin therefore sought an order reducing the amounts that Re-Source had been awarded and paid under the original judgment. Barkin’s application for permission to appeal was dated 15 July 2004 and the appeal was heard and allowed on 8 February 2005 and the judgment sums were accordingly reduced. Only Barkin and Re-Source participated in the appeal. The order also provided that Re-Source should repay the sums that it was no longer entitled to following the reduction in the judgment sums and gave Barkin permission to apply to the Technology and Construction Court for a similar order against Platt if so advised.

[23]Re-Source ceased to trade some months after the fire and it was struck off the Register of Companies at its own request on 14 September 2004. Since Re-Source would have been precluded from participating in Barkin’s damages appeal unless it was first restored to the Register, it applied to be restored to the Register and an order to that effect was made on 5 January 2005. The order provided that Re-Source was not to carry on business or operate in any way other than to take the necessary steps to take part in the quantum appeal and that Mr Michael Grey, a director of Re-Source, was to apply to the Registrar of Companies for Re-Source to again be voluntarily struck off the Register on the completion of the appeal.

[24]Following the repayment order of the Court of Appeal, Barkin’s solicitors sought repayment of the sums that Re-Source had been ordered to repay. Initially, they applied to the solicitors who had acted for Barkin in the damages appeal who replied that they were without instructions. They then applied directly to Re-Source in a letter dated 30 June 2005 addressed to Re-Source’s Company Secretary and received no reply to that letter. Meanwhile, on 31 May 2005, Re-Source had applied to again be struck off the Register of Companies.

[25]Barkin has taken no further steps to seek repayment of the overpaid sums. In particular it did not apply to have Re-Source’s name restored to the Register, it has taken no steps to enforce the Court of Appeal’s repayment order by way of winding up proceedings, the appointment of a receiver to recover the overpayment from the US-based parent company or otherwise and it has not itself applied for repayment from the US-based parent company. Instead, Barkin issued the present application against Platt on 17 May 2005 seeking an order that Platt pay Barkin the two sums that the Court of Appeal had ordered should be repaid. The grounds of the application were that: “As a consequence of a judgment given by the Court of Appeal, Barkin has paid too much to Re-Source on behalf of Platt and now seeks to recover that over-payment from Platt.” 3. The Parties’ Submissions

[26]Barkin submitted that Platt had an obligation to reimburse it the overpaid damages which Re-Source had failed to repay. The basis of this obligation was the fact that Platt, so Barkin alleged, had been a party to the damages trial and the subsequent damages appeal and was also a party to the orders made after each of these hearings. As a result, Platt was liable to reimburse Barkin on three related grounds.

[27]Barkin’s first ground was that Platt had been entitled to receive payment of judgment sums from Barkin and was liable to pay Re-Source those sums. Following the appeal, Platt was entitled to repayment of the excess from Re-Source and was equally liable to repay that excess to Barkin. The direct payment orders were only made for convenience since Barkin had only been sued by Platt and could therefore only be liable to, and recover overpayments from, Platt. The direct payment orders could not, in consequence, alter the fact that Barkin’s only liability was to Platt who therefore could be required to reimburse it the overpayments.

[28]Barkin’s second ground was that its sole liability to Platt was to indemnify Platt to the extent that Platt was liable to Re-Source. Barkin was therefore entitled to be repaid by Platt the sums which, in the light of the Court of Appeal’s judgment, Re-Source had previously been overpaid by Barkin.

[29]Barkin’s third ground was that it had only been made subject to direct payment orders for practical convenience. Therefore, Barkin had acted as Platt’s agent in making direct payments to Re-Source. Barkin was now entitled to reimbursement from Platt since the resulting over-payments amounted to a loss which Barkin had incurred on Platt’s behalf whilst acting as its agent.

[30]Platt submitted that Barkin had been ordered to fully indemnify Platt by paying Re-Source direct. Thus, Barkin was the only party required to discharge the damages judgment and costs orders in favour of Re-Source. Platt had not been a party to the subsequent appeal and Re-Source was the only party bound by the Court of Appeal’s repayment order. In consequence, Platt was not liable to repay Barkin. Moreover, Barkin was acting as a principal and not as Platt’s agent when making direct payments to Re-Source and Platt could not now be required to reimburse Barkin for loss allegedly incurred whilst acting as its agent.

[31]In the light of these submissions, it is necessary to determine on what basis the direct payment orders were made; whether they discharged any liability Barkin might otherwise have had to make indemnity payments to Platt; whether Platt was a party to the damages trial and the subsequent appeal and whether it was required by the judgment in Barkin’s favour to itself repay the sums that were directed to be repaid to Barkin. 4. The Relevant Orders

[32]The relevant terms of the five orders were as follows:a. A. Order entered on 10 June 2003 “1. There be judgment for Re-Source on the issues of liability and causation, for damages to be assessed. … 5. Barkin do fully indemnify Platt in respect of its liability to Re-Source for damages and costs. 6. Barkin do pay Platt its costs of the action and the Part 20 proceedings to date … .”

b. B. Order entered on 8 July 2003 “1. Barkin do by 21 July 2003 pay Re-Source the sum of US$500,000 by way of interim payment on account of damages. 2. Barkin, and not Platt, do pay Re-Source any further damages or costs to which Re-Source may be adjudged entitled as against Platt.”

c. C. Order entered on 14 November 2003 1 – 11. [Orders concerned with case management matters which were directed solely to Re-Source and Barkin and in which Platt was not named]. “12. Platt agrees to be bound by the judgment on quantum.”

d. D. Order entered after the damages trial “Judgment to Re-Source America International Ltd in the following sums:

(i) US$1,367,746.43

(ii)

£100,391.56

(iii) Interest: US$159,592.92

(iv) Interest: £12,773.45.”

e. E. Order giving effect to the judgment of the Court of Appeal made on 8 February 2004 “On reading [Barkin’s] Notice … filed on behalf of [Barkin] on appeal from the Order of His Honour Judge Thornton QC dated 23rd December 2003 And on reading [Re-Source’s] Notice … filed on behalf of [Re-Source] seeking to affirm the order of His Honour Judge Thornton QC on different or additional grounds And on hearing Mr Mark Cannon counsel for [Barkin] and Mr Alexander Hickey counsel for [Re-Source] It is ordered (2) that the appeal be allowed and the judgment for damages in favour of [Re-Source] in the order … dated 23rd December 2003 be reduced by US$503,884 and US$58,795 interest (3) that Re-Source repay to [Barkin] $562,679 together with interest thereon from 20th January 2004 until 8th February 2005 at 1% over base rate totalling US$32,123. (4) … (5) that there be liberty to Barkin to apply to the Technology and Construction Court in the event that Re-Source should fail to pay any sum which it is liable or becomes liable to pay pursuant to this order.” (2) that the appeal be allowed and the judgment for damages in favour of [Re-Source] in the order … dated 23rd December 2003 be reduced by US$503,884 and US$58,795 interest (3) that Re-Source repay to [Barkin] $562,679 together with interest thereon from 20th January 2004 until 8th February 2005 at 1% over base rate totalling US$32,123. (4) … (5) that there be liberty to Barkin to apply to the Technology and Construction Court in the event that Re-Source should fail to pay any sum which it is liable or becomes liable to pay pursuant to this order.” 5. Basis of Court of Appeal’s Order Against Re-Source

[33]The basis upon which the Court of Appeal ordered Re-Source to repay Barkin was that Barkin had been ordered to pay Re-Source direct the damages judgment and, on Barkin’s appeal, to which Re-Source was a party, the Court of Appeal ordered that the judgment sum should be reduced. In consequence, since Re-Source had already been paid the judgment sum, it had received too much and it was ordered to repay Barkin the excess.

[34]The CPRs do not provide the Court of Appeal with an express power to order a repayment when it reduces a judgment sum which has already been paid. This is unlike an interim payment which has to be repaid following a subsequent trial that has resulted in the interim payment being excessive. In such a case, CPR 25.8(2)(a) provides that the court may order that all or part of the interim payment is to be repaid. Although there is no corresponding express power in relation to appeals, the Court of Appeal’s power to order a repayment can be seen to arise in two different ways. Firstly, CPR 52.10(2) provides that an appeal court on an appeal has the power to vary any order or judgment made or given by the lower court. This power clearly carries with it a power enabling the appeal court to direct the party who originally received the larger payment to repay the excess that has been excluded from the original order by the appeal court. Secondly, the Court of Appeal has an inherent jurisdiction to order a repayment in these circumstances as part of its inherent jurisdiction to control its own procedure.

[35]It follows that a repayment order can be made following an appeal so long as the party who has received the original payment is a party to the appeal. However, the relevant orders made in this case required the damages judgment to be paid directly by Barkin to Re-Source. Thus, Platt was not expressly made a party to the damages judgment that was the subject of the appeal since it was neither ordered to pay Re-Source nor to receive reimbursement directly from Barkin. There does not appear, therefore, to be a judgment or order which can be used as the basis for ordering Platt to reimburse Barkin.

[36]Barkin contended, however, that a direct payment order does not discharge the original liability of the intermediate party to make the same payment to the receiving party. This consideration is reinforced in this case by the order which provided that Platt was to be bound by the damages or quantum judgment and the order providing for payment of the judgment sum which, by necessary implication, was directed at both Barkin and Platt. Furthermore, these orders do not state that Barkin’s obligation to indemnify Platt was to be discharged by the order requiring Barkin to pay Re-Source direct nor that Platt was not to be a party to the damages trial or the subsequent appeal. In summary, Barkin contended that, by necessary implication, Platt remained entitled to recover, and to be liable to repay, the judgment sums from Barkin. 5. The Relevant Orders

[37]The terms of the various orders must therefore be construed to determine their full meaning and effect. The orders are to be construed against the common background known to all three parties at the time they were made and in accordance with current practice governing similar orders. All five orders should be construed together.

[38]Before analysing the relevant orders, I will first summarise the basis upon which the direct payment orders were made. These orders required Barkin to pay Re-Source direct its damages and its costs, both of which would otherwise have had to have been paid by Platt and recovered separately by Platt from Barkin under the full indemnity Barkin was ordered to provide. As an obvious corollary to these orders, it was also provided that Barkin and not Platt was to pay Re-Source any further damages or costs.

[39]The relevant orders were made with these considerations in mind:(1) Barkin was the obviously guilty party whose negligence had caused the fire and who Re-Source should have sued direct. Furthermore, Barkin’s culpable misconduct had put its insurance cover at risk of being avoided. If it was avoided, Barkin would then be unable fully to meet its liability to indemnify Platt.

(2) Platt was in receipt of a complete indemnity that required Barkin to indemnify it for its entire liability to Re-Source for damages, interest and costs.

(3) Platt was at risk of being unable to meet the judgments in favour of Re-Source if Barkin failed to indemnify it in full.

(4) If the judgment sums were not paid in full due to insolvency, the risk of non-payment and any insolvency should not fall on Platt but, instead, should fall on Re-Source.

(5) Re-Source supported the applications for direct payment because it did not want to run the risk that money would be paid by Barkin to Platt which was not then paid on because Platt had become insolvent and the payments then used by the liquidator to meet the claims of all creditors proving in the liquidation.

(6) Platt was entitled to be spared further expense in conducing continuing litigation involving the quantification of Re-Source’s damages. Barkin should, if possible, take full responsibility for contesting and paying the damages that Re-Source was entitled to.

[40]These considerations pointed to a procedure which would have three consequences:(1) Platt would not be a party to any order requiring it to pay money to Re-Source;

(2) Responsibility for payment, and the risk of non-payment, of the judgment in favour of Re-Source would not fall on Platt; and

(3) Platt would take no part in, nor be a party to, any further litigation involving the quantification of damages.

[41]The orders, on their face, appear to have these consequences. The basis upon which the orders were made was the indemnity that had been ordered pursuant to the court’s power to direct that the contribution to be recovered by Platt from Barkin: “… shall amount to a complete indemnity.” (section 2(2) of the Contribution Act 1978)

[42]However, the power to order a complete indemnity was also supported by the powers given to the court to make direct payment orders. Under the CPR, these powers are derived as follows:(1) A Part 20 defendant may be ordered to pay a judgment sum to the claimant direct where the payment would otherwise initially have to pass through the hands of another party to the action. This power arises because the court has an inherent power to regulate the manner in which a judgment should be discharged by all other parties who have a liability to pay the judgment sum when directing how a judgment or order should be drawn up. This power should be exercised in accordance with the overriding objective which requires that cases should be dealt with proportionately and fairly. Relevant considerations include who should bear the risk of insolvency, the avoidance of circuitry of action and what is necessary to enable procedural justice to be achieved. Such considerations can, in an appropriate case, lead to a direct payment order.

(2) A Part 20 defendant may be ordered to make a direct payment in respect of the claimant’s costs pursuant to the court’s power to direct that a party ultimately liable to pay another party’s costs can be ordered to pay them directly rather than through a third party to the action. This power is provided by CPR 44.3(2) which provides that although the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, the court may make a different order.

[43]The power to make a direct payment order, whether for a judgment sum or for costs, is based on the inherent power of the court to regulate its own proceedings and it has a long history that can be traced back to the court’s powers to make so-called Sanderson Sanderson v Blythe Theatre Co

[1903] 2 KB 533

, CA. orders which are, in turn, based on the decision in Rudow v Great Britain Mutual Life Assurance Society

(1881) 17 Ch D 600

, CA. .In Rudow, Court of Appeal held that, since the Judicature Act 1875, it was no longer necessary or proper to order a plaintiff to pay the costs of a defendant and have them over against another defendant: … if the second defendant is insolvent the plaintiff loses them. The proper form of order now is to order the defendant who is liable for them as between himself and his co-defendant to pay them to the co-defendant. ibid., page 610 per Jessel MR. Sanderson orders have repeatedly been authorised by the court in insolvency and other cases that have followed Sanderson, particularly Mayer v Harte

[1960] 1 WLR 770

, CA. .

[44]The most obvious situation, therefore, in which a direct order is used, is where there is a payment chain through three parties to the proceedings, that is from C to B to A and either C or B is, or might become, insolvent. In that situation, a choice has to be made as to which of the other two parties must suffer the consequences, or run the risk, of that insolvency. If party B in the middle is insolvent, its liquidator or trustee in bankruptcy could, unless a direct order is made, insist on being paid and, on being paid, would have to distribute that payment generally amongst the intermediary’s creditors rather than paying the entire sum onto party A. Equally, if party C, being the party that should be funding the payment, is insolvent, party B in the middle would end up funding the payment unless there was a direct order.

[45]Thus, the intention of a direct payment order, whose effect is to bypass an intermediary in a payment chain, is to regulate which of the other parties in that chain should avoid the loss flowing from the insolvency of another party in the chain. This intention is achieved since the direct order will exclude the party in the middle from both an entitlement to receive and an obligation to pay the relevant payment. Clearly, a direct payment order will not achieve its objective unless it has the effect of removing from the intermediate party both the obligation of paying the party entitled to payment and its own entitlement to payment by the paying party. Otherwise, a liquidator of the intermediate party could insist on being paid by the paying party to assist in the paying off of the intermediate party’s entire body of creditors, thereby preventing the receiving party from recovering in full even though a direct payment order had been made.

[46]In this case, the wording of the four relevant orders taken together could not be clearer. They provide that Barkin should indemnify Platt and that that indemnification should to be achieved by Barkin making a direct payment of the judgment sums to Re-Source. In addition, it was clearly inherent in the procedural directions given for the damages trial that Barkin was, but Platt was not, to be a party to the damages trial. This intention was fulfilled since Platt played no part in the trial and the order that resulted neither named Platt as a party nor as one who had to pay the judgment sum. Finally, the background to the orders supports this interpretation of them, although they are unambiguous, and this interpretation is consistent with the meaning and effect of Sanderson orders which these orders were clearly modelled on. 6. Barkin’s Contentions as to the Relevant Orders

[47]Barkin sought to argue that Platt was a party to the orders requiring payment of the quantum judgment on four cumulative grounds.

[48]Firstly, Barkin contended that the effect of the order that Platt agreed to be bound by the judgment on quantum was that Platt remained subject to that judgment. In consequence, it could originally have been required to pay the judgment sums to Re-Source and could now be required to repay Barkin the overpaid balance of those sums. In other words, the direct payment orders were merely intended to provide a convenient way in which Platt discharged its overriding and surviving obligation to pay Re-Source.

[49]However, that interpretation of the order runs directly counter to the over-riding intention and wording of the relevant orders taken as a whole. These clearly provided that Barkin and not Platt should pay Re-Source the entirety of the judgment sum, interest and costs and that those orders would discharge Barkin’s obligation to indemnify Platt. Thus, the obvious purpose of the order that recited that Platt had agreed to be bound by the damages judgment was to discharge Platt’s entitlement to receive indemnity payments from Barkin in return for Barkin’s obligation to be the sole source of payments to Re-Source. The order precluded Platt from seeking further payment from Barkin pursuant to the indemnity since it was bound by the damages judgment which provided that Re-Source’s damages were be paid solely by Barkin.

[50]Secondly, Barkin contended that Platt remained a party to the damages trial and appeal. However, Platt had played no part in the damages trial and was not affected by the damages judgment since it was not required to pay any sum resulting from it. Indeed, it would not have been allowed to be represented at, or to participate in, the damages trial even if it had wanted to. It was not, therefore, a party to the damages trial.

[51]The only basis for the contention that Platt was a party to the damages appeal was that Barkin had described Platt as a respondent to its application for permission to appeal on the form that had to be filled in and lodged with the application documents at the Court of Appeal. Barkin had unilaterally chosen to misdescribe Platt in that way and Platt was not so described in any other document connected with the appeal. Platt had, of course, been served with a copy of Barkin’s application, but that service amounted to no more than Platt being notified of the application as a matter of courtesy. Platt could not have been a party to the appeal since, as CPR 52.1 makes clear, a respondent or party to an appeal may only be a person other than the appellant who was both a party to the proceedings in the lower court and someone who was affected by the appeal. Platt was neither a party below nor was affected by the appeal and, therefore, could not have been a party to Barkin’s appeal.

[52]Thirdly, Barkin contended that the requirement in the damages judgment directing that Re-Source should be paid without stating who should make those payments meant that Platt was liable to pay Re-Source the judgment sums. However, that is not the correct interpretation of the order which has to be read with the earlier orders and their factual background. On that basis, the damages judgment clearly required Barkin, and only Barkin, to be the party that was to discharge the judgment by paying Re-Source. It follows, therefore, that Platt has never a party to the money judgment directing payments to Re-Source.

[53]Fourthly, Barkin contended that the orders made after the liability and damages trials could not affect the underlying position that the only party Re-Source had sued was Platt and that there was no direct nexus between Barkin and Re-Source requiring a direct payment from Barkin to Re-Source. However, the parties, following the liability judgment, were made subject to a procedural order whose effect was that Platt’s obligation to make payment to Re-Source and Barkin’s obligation to indemnify Platt were both discharged by an order requiring Barkin to pay the judgment sums by direct payments to Re-Source. Thus, Platt’s cause of action entitling it to an indemnity merged with the subsequent judgment providing for direct payments by Barkin and for Platt to be bound by the damages judgment in return for Barkin being discharged from its indemnity obligation. 7. Barkin’s Alternative Restitutionary Claims

[54]Barkin made two alternative claims for reimbursement in addition to its procedural claim for the repayment. Barkin contended that these claims arose from its attempt to indemnify Platt and from its entitlement to reimbursement for loss arsing from its activities as Platt’s agent whilst acting on its behalf. 8. Barkin as Platt’s Agent

[55]Barkin contended that it was acting as Platt’s agent in making the direct payments to Re-Source and that since it had overpaid Re-Source, it could now claim reimbursement from its principal.

[56]There are three difficulties with this contention. The first difficulty in describing Barkin as Platt’s agent is that Platt never appointed Barkin to act as its agent and the orders requiring Barkin to pay Re-Source direct did not create any relationship of principal and agent. Indeed, the order was directing Barkin to make direct payments to Re-Source as a principal since they were intended to provide the only means whereby Barkin discharged its indemnification obligations. Had Barkin failed to comply with that direct payment order, Re-Source could only have enforced the order against Barkin. Had Barkin been Platt’s agent, Re-Source could also have enforced the order against Platt since a creditor can always enforce its entitlement to payment against a disclosed principal. However, Re-Source had no such entitlement in the event of Barkin’s default.

[57]The second difficulty in describing Barkin as Platt’s agent is that such a relationship would be contrary to, and would frustrate the purpose of, the scheme set up by the four orders made in June, July, October and December 2003. In particular, if Barkin was Platt’s agent, a liquidator of Platt could have unilaterally terminated the agency and could also have insisted on Barkin making payment direct to Platt. This would have frustrated the payment scheme set up by the orders.

[58]The third difficulty in describing Barkin as Platt’s agent is that Platt never authorised the overpayment so that it cannot now be required to reimburse Barkin, even if Barkin had been appointed as Platt’s agent. Barkin pursued its damages appeal without first seeking Platt’s authority to appeal and did not seek a stay of execution or a guarantee from Re-Source’s US-based parent company to cover the possible failure by Re-Source to repay part or all of the judgment following either the liability or any damages appeals. The cause of Barkin’s present difficulties has been its pursuit of an appeal without having obtained appropriate security to cover the possible need for Re-Source to repay the judgment sums. No loss has been caused by Barkin acting as Platt’s agent. Barkin’s loss was in fact caused by its failure to secure its payments to Re-Source pending its own damages appeal to which Platt was not a party.

[59]It follows that if Barkin is now in the position of having overpaid Re-Source, that overpayment has not resulted from an agency relationship nor was it authorised by Platt. The loss was, moreover, caused by Barkin failing to obtain adequate security before making the payment and not by Platt.

[9]Barkin as the Indemnifying Party

[60]Barkin contended that it was also entitled to look to Platt for repayment because Platt had obtained an indemnity from Barkin who had then paid out more than was necessary to meet that indemnity obligation. Thus, Barkin can now reclaim the surplus from Platt since its overall liability to Platt cannot exceed the amount needed to indemnify Platt.

[61]However, there has never been a judgment requiring Barkin to pay Platt anything by way of an indemnity. Instead, Barkin’s only payment liability was to make direct payments to Re-Source, a liability imposed on it to satisfy its liability to indemnify Platt. Thus, the overpayments were not made as part of Barkin’s liability to make payments on Platt’s behalf but following, and as consideration for, the discharge of its liability to indemnify Platt.

[62]In consequence, Barkin is not entitled to seek an indemnity or repayment from Platt in relation to Barkin’s overpayment to Re-Source. 10. Conclusion

[63]Barkin is not entitled to an order requiring Platt to pay it the sum ordered by the Court of Appeal to be returned to Barkin by Re-Source.

[64]It should be pointed out that Barkin is not without a remedy. It already has a judgment in its favour requiring it to be repaid by Re-Source. A number of remedies are now open to it. Firstly, Barkin could apply to wind up Re-Source so that a liquidator could then pursue its US-based parent for the debt which, when recovered, could be paid onto Barkin. Secondly, Barkin could apply for an order requiring Mr Michael Grey, its director whose affidavit led to Re-Source being restored to the Register, to attend court for examination so as to explain to the court why Re-Source’s US-based parent company has not returned overpaid sums to Barkin. Thirdly, Barkin could apply for the appointment of a receiver who could be directed to recover from the US-based parent company the overpaid sums which it is indebted to repay Re-Source. On recovering those sums, the receiver could then be required to account to Barkin for them.

[65]It is, however, for Barkin to decide on what remedies it has and whether to pursue any of them. Barkin cannot, however, seek reimbursement from Platt. Barkin’s application is dismissed. HH Judge Thornton QC Technology and Construction Court 20 October 2005