Solland Projects Llp v Nautiliodes Comercio Interracional E Servicos [2011] EWHC 3496 (TCC)

[2011] EWHC 3496 (TCC)

Case No HT 11-185

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Venue Royal Courts of Justice, 7 Rolls Buildings, Fetter Lane

Date Friday, 25 th November 2011

London, EC4A 1NL

Before

MR. JUSTICE AKENHEAD

Between

SOLLAND PROJECTS LLPClaimant

NAUTILIODES COMERCIO INTERRACIONAL E SERVICOSDefendant

Digital Transcription by Marten Walsh Cherer Ltd.,

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MS. ANNABEL SHAW (instructed by Messrs. Bircham Dyson Bell) appeared for Claimant.

MS. RACHEL ANSELL (instructed by Hogan Lovells Intl. LLP) appeared for Defendant.

JUDGMENT

REQUEST FOR FURTHER INFORMATION

[1]An application has been issued by the defendant for an order that further information be provided in relation to the Particulars of Claim. The parties had already agreed that the claimant would provide the requested information by 21st October and there was a consent order dated 3rd October 2011 to that effect, lodged with the court and signed by Mr. Justice Ramsey.

[2]The information, as I said, had been agreed to be provided by 21st October 2011 and it had not been provided. The outstanding requests were for 10, 17, 18, 20 and 25 but it is said that answers were given in respect of requests 17 and 20. Requests 10 and 18 relate to wholly un-particularised claims for loss of profit from one of the works contractors, Solland Limited, which is clearly a company related to the claimant or to its owners.

[3]At the moment, those claims are simply quantified, just put as a loss of profit, one of £250,000, another of £750,000, with no explanation given as to the basis on which that claim is made or the breakdown of that claim. I cannot see that there is any good excuse or explanation as to why that information should not be provided.

[4]The claimant is already in breach of a court order to the tune of four or five weeks, having agreed that it could provide the information by the third week in October 2011and there cannot be and should not be any difficulty in the provision of the requested information in relation to those.

[5]I will order in respect of those that the information be provided by 16th December, 2011, failing which the specific claims to which those requests relate (those are the loss of profit claims of £250,000 and £750,000 respectively) will be struck out.

[6]A slightly different set of circumstances apply in respect of paragraph 37 of the Particulars of Claim, which is simply a claim that the defendant has acted in breach of express and implied terms and: “The claimant has thereby suffered loss and damage. Particulars will be supplied in due course”; no other particulars are given. The explanation for this is that the final certificate was issued shortly before the proceedings were issued and, arguably under the terms of the contract, if proceedings are not instituted within a set time, the final certificate may have a conclusive effect. So the claimant was put in the position whereby it had to issue proceedings and Particulars of Claim and may well not have had sufficient time to rationalise the basis on which that claim was put forward. It was supported by a statement of truth signed by Mr. Solland, who I assume fully believes that there is a valid claim in that context.

[7]Therefore, it seems to me that the information requested under request 25, which seeks particulars that will provide an understanding of what that claim is about, should be provided. I can see, given that there were substantial delays on this project which, as I understand it, are not yet or all laid at the door of the claimant, there may be validly arguable claims there and I can see that it might take rather more than the previous order envisaged. Therefore, I consider that the claimant should have rather more time to provide the information on that. Given what the parties have now accepted from the bench as an appropriate way forward with a trial of some of the preliminary issues, and that this information as requested does not go to the preliminary issues, it does seem that a different regime can apply and the information requested should be provided by 20th January 2012. That will be on a final order basis, in that the Court is unlikely to accept any explanation other than in relation to unforeseeable events which occur between now and then. Particulars should be provided as requested, so the “unless” sanction will not apply to the request under paragraph 25; but obviously the claimant should do its best.

[8]One of the reasons, I am afraid, for making this order is that, although the other requests do not relate to what the preliminary issues relate to, it does seem to me that it is important, particularly if the parties would like a mediation, that adequate information is made available: first, so that everyone knows where they stand when they go into a mediation; but secondly, if the defendant wishes to protect its position in the usual way, it has the information on which it can make an informed view as to what to do. Although I see there will be some pain involved on the part of the claimant in complying with this, there is some advantage, it seems to me, in the overall context of the litigation.

[9]Those orders will be made. SECURITY FOR COSTS

[10]The defendant applies for security for costs. The background to this dispute is a substantial refurbishment of property at 10 Belgrave Square and 10 Belgrave Mews, London SW1, which was the subject matter of extensive works in the 2006 to 2009 period approximately. The claimant company was retained pursuant to a management contract made in writing dated 6th January 2006 entered into with the defendant, which is a company incorporated in Madeira. Disputes relate to the final account. The claimant's claim totals around about £4 million and possibly more because some of the claims are not yet quantified.

[11]There is a substantial Defence. By substantial, I mean in bulk; I have not formed any view as to how substantive it is, but it deals with most of the allegations made against it. There is also a Counterclaim in respect of an alleged overpayment made by the defendant to the claimant. Also, there is a claim for a declaration relating to alleged entitlement under what has been called the VAT agreement in respect of sums which may have been the subject of rebates relating to VAT said to have been received by the claimant.

[12]The Reply and Defence to Counterclaim identifies what may well turn out to be a very important issue. In late 2008 (there is no dispute), the claimant received an advance payment of £1 million. There is a real issue as to whether that needs to be taken into account in the claim under the management contract. This is because the claimant asserts in its Reply, and this is disputed, that there was an agreement made between the claimant or Mr. and Mrs. Solland, or either of them, and the defendant; or, more probably, Mr. Salem, who was (I say this very loosely, not using it as a term of art) associated with the defendant, whereby it is asserted that there was a profit sharing arrangement (again that is my term) in relation to the property that was being developed. The claimant asserts that the £1 million advance was £1 million against the profit share, as opposed to a £1 million advance in relation to the construction contract.

[13]There appears also to be an issue on the pleadings as to whether an additional £1-£1.5 million has been paid to and received by the claimant. I am told that may be simply the result of an arithmetical error on one side or the other, but nonetheless it remains an issue.

[14]Today was to be the time at which directions would be given to take this matter through to trial. But having read the pleadings, I raised with the parties earlier this morning the possibility of preliminary issues relating to(a) how much had been paid by the defendant to the claimant and

(b) whether the advance payment was an advance payment under the construction contract or an advance payment under the alleged profit sharing arrangement. That idea was accepted by counsel for both parties, who agreed that it made sense if those issues were dealt with first. Because if the claimant fails on those, then there would be a substantial dint in its claims. If it succeeds on either one on the pleadings as they stand, there would be a substantial sum due or at the very least some substantial credit due to the claimant.

[15]Directions had been agreed to bring those preliminary issues on for trial in early July. Broadly, the parties have agreed that the disclosure exercise in various stages to account for hardcopy and electronic documents will be concluded by 10th February 2012, witness statement exchange, including supplementary witness statements, would be concluded by mid-April with the trial to follow on 2nd July, 2012.

[16]So far as the security for costs application is concerned, this was issued as early as 12th September 2011 and it was supported at that stage by a witness statement of Paul Tonkin of that date, which identified the basis on which the application was being made. Essentially, he pointed to certain evidence which suggested that the claimant would be unable to pay the costs ultimately.

[17]For various reasons, which are not by any means the fault of the parties, the application was not brought on until today, 25 November 2011. Be that as it may, the claimant has had nine weeks or so to put in responsive evidence which it did but very belatedly, as late as 23rd November; that is two days ago and there has been little or no time for the defendant to respond by way of witness statement.

[18]It is clear from the evidence that has been offered and indeed it is accepted, that the threshold required for any discretion to be exercised so far as security for costs is concerned has been passed or established. Indeed, Mr. Solland in his witness statement has frankly accepted that the claimant's current financial position is such that it would be unable to comply with any order requiring it to provide security for costs. That seems to me to confirm the assertions made by the defendant on its application that the Claimant would be unable to pay the costs ultimately if an order was made against them. So the criterion for granting the security has been established.

[19]The question then arises as to whether or not security for costs should be ordered. It has been broadly accepted, and rightly so, that security for costs initially should primarily relate to the exercise which the parties and the court would have to go through dealing with the preliminary issues I have referred to earlier. Therefore, the costs estimates, which both parties have submitted, of something just over £1 million on each side are not directly germane in terms of overall total to the likely costs of the steps required to bring this matter to judgment on the preliminary issues.

[20]I suggested a figure of £200,000 to counsel for the claimant and she agreed that was in the right sort of area. But counsel for the defendant, particularly by reference to her solicitors' costs summary breakdown, suggests that a figure of about £250,000 is more likely to be in the right sort of area. I am prepared, therefore, to take a figure of between £200,000 and £250,000 and for the sake of this exercise I will take a figure of £225,000. That does not seem to me to be unrealistic as the likely overall costs which the defendant would incur up to the conclusion of the trial of the preliminary issues. Of course, the advantage of the preliminary issues is that disclosure and witness statements are limited simply to those preliminary issues, not to the remaining much more complex areas of issue between the parties.

[21]Essentially, Mr. Solland in his witness statement says this, at Paragraph 2:

“SPL (that is the claimant) would be unable to comply with any order requiring it to provide security for costs. If any such order was to be made, it would prevent SPL from pursuing its claim and in all the circumstances of the case this would be unjust. SPL has no income at present and its financial position is a direct consequence of the matters which are the subject of these proceedings. “This statement has been made as soon as possible, given the limits of SPL's ability to fund legal representation and the burden that has been placed on us by the number and extent of the requests for further information that have been made of SPL under part 18. The reasons why we say an order for security would be unjust were canvassed by SPL's solicitors in a letter to the defendant's solicitors on 22nd November 2011.”

Much of the rest of the witness statement is concerned with criticisms of the defendant and, in particular, Mr. Salem who was involved, for instance, in an earlier adjudication between the parties. That seems to me that it does not really take the matter very much further.

[22]In Paragraph 7, more related to the security for costs application, he goes on to say this:

“SPL has no income at present and will not be in a position to take on any other projects until the disputes over 10 Belgrave Square are resolved. It is correct that it has not produced final accounts since the last filed accounts for year ending November 2008. Its only possible source of funding is me and my wife, but we cannot even afford to cover legal and other professional fees, let alone anything else. We have already granted a second charge over our family home to a company called Bridge Co Limited, trading as Drawbridge Finance, in order to secure additional borrowing at a penal interest rate of 1.45% per month and we are indebted to family and friends to help us make ends meet whilst we try to generate income from our interior design and joinery businesses. Our ability to do so is of course severely hampered by the demands placed on us by these proceedings, including the vast amount of work required to respond to the requests for further information that have been made by Nautiliodes.”

He goes on to suggest that the request for security is part of a strategy by Mr. Salem and the defendant designed, “to oppress us and prevent us from pursuing our claims against them.”

[23]He exhibits a letter dated 22nd November 2011 and that adds very little, other than to say that the claimant's financial position is the direct result of the conduct of the defendant and Mr. Salem in connection with this project, that the claimant is engaged in no other income generating projects at present and its ability to do so is hampered by the long resolution of the disputes in these proceedings and:

“SPL's only realistic source of income is lending to it by Mr. and Mr. Solland and the Sollands simply cannot afford to support SPL to the extent that it would be able currently to provide any security. Fourthly, although SPL is the claimant in this case, it is Nautiliodes that instigated the proceedings by issuing the final account, SPL only bringing the proceedings when it did so, so as to avoid the contractual bar and challenging the final account. “The parties have commenced a settlement dialogue and have agreed to maintain those discussions. Nautiliodes has brought a counterclaim which covers much the same ground factually.”

They go on to say that an order for security would stifle a legitimate claim.

[24]One of the problems in producing a late witness statement is, of course, there is little time for the other party to respond to it, in terms of evidence; but neither party has asked for a further adjournment to deal with it. Therefore, I deal with this application on the evidence before me.

[25]It is clear from the authorities and the notes in the White Book that where a respondent, that would be the claimant in this case, opposes the making of an order (I am reading from the notes CPR Part 25.12.7 on page 71 of the 2011 White Book, it says this):

“Where a respondent opposes the making of and order for security or seeks to limit the amount of security by reason of their own impecuniosity, the onus is upon them to put proper and sufficient evidence before the court and in doing so they should make full and frank disclosure.”

Then there is reference to the House of Lords case in York Motors v Edwards

[1982] 1 WLR 444

, in which Lord Diplock, with whom the other members of the House of Lords agreed, identified that as a valid point, albeit in the context of a summary judgment application; however, it is not challenged that it must be in the context of security for costs incumbent upon the party opposing the application on the grounds of impecuniosity and potential stifling to produce sufficient evidence to show that what is asserted is corroborated.

[26]I am afraid that the claimant has not begun really to satisfy that obligation. I do not say, I hasten to say, that I find anything that Mr. Solland said is dishonest or anything of that sort; that is not the point. The point is that I am wholly satisfied that there is not proper and sufficient evidence before the court and there is not yet full and frank disclosure corroborating the financial position of the claimant.

[27]Miss Ansell prays in aid a number of points. The last LLP accounts filed by the claimant were up to the end of October or possibly November 2008, but it is abundantly clear from what the claimant itself has pleaded that very substantial sums of money have been remitted to it after that time, albeit it appears in the period up to the end of 2009. For instance, the claimant asserts that it received over £1 million (this is in Paragraph 19 of the Particulars of Claim), that it received a rebate of VAT from the Revenue of £1.085 million on or about 24th November 2009. It also asserts in further information provided in October, 2011, supported by a statement of truth from Mr. Solland, and there is probably going to be no issue about this, that the claimant received something between £2 and £3 million in the financial year 2008/2009, which are not the subject matter yet of any accounts.

[28]It is also clear that an associated company, which I am told (although there is no direct evidence in front of me), is run by Mrs. Solland, a company called Solland Limited was in receipt of substantial sums under the contract referred to in an annexure to the Particulars of Claim. Solland Limited on any account appear to have been in receipt of going on £3 million, although more sums are claimed in respect of Solland Limited.

[29]It also is the case that the claimant was in receipt at some stage during the project of over £6 million in relation to preliminaries and head office costs, together with the management fee of over £2 million. There is some issue as to whether the whole of that last sum has yet been paid, but certainly over £2 million appears to have been certified.

[30]It is wholly unclear what has happened to all of that. I am not by that suggesting that anything untoward or inappropriate has happened to it, but these sums must have gone into someone's account at some stage, even if most or all of them have been paid out.

[31]I then attach some importance to the fact, as is quite proper, that the claimant's solicitors have submitted in the new form which parties are now using in these courts their costs estimate attached to the case management information sheet. That suggests that to date costs already incurred by the claimant exceed £200,000 and, before the idea of the preliminary issues had come up, a total (including costs incurred) of over £1.2 million would be incurred.

[32]It seems to me, therefore, that suggests the claimant has by one means or another been able to find sufficient to fund over £200,000’s worth of costs incurred to date and that leads me to believe, amongst other things, that the burden on the claimant and those behind the claimant of establishing its own impecuniosity and its ability to proceed is not made out.

[33]It seems to me that this is not a case in which I can be satisfied on the evidence before me that the impecuniosity or the potential stifling of the claimant's claim has been established. It is clear, and I am not wholly rejecting what Mr. Solland says, that there clearly are and will be difficulties. There is no issue that at one stage, in late 2008, the claimant asked for and obtained the advance of £1 million; whether it was in relation to these works or whether it was in relation to the profit sharing arrangement, is a matter for the trial in July 2012. It is reasonably clear that that was provided to overcome at least initial or then present financial difficulties and that, again, suggests (at a time when the parties seem to have been on rather better terms than they are now) that it is difficult for me to be satisfied that the claimant's current financial position, such as it is, is necessarily attributable to the defendant's fault.

[34]This is not on the evidence before me, but it is said that the claimant could not afford to provide the requisite information about its financial position. I find that difficult to accept. The accounts for the claimant and Solland must exist, in this sense: they may not have been formalised, but there must be some accounting information. I cannot see that that would or would necessarily involve much in terms of time or costs to extract. The bare minimum that the claimant could have done was to produce the latest bank statements of the claimant company, maybe Mr. and Mrs. Solland personally or Solland Limited to show what the state of finances has been. That does not cost very much in terms of time or effort to put before the court to provide some corroboration for the assertions that Mr. Solland makes.

[35]There is one final point before turning to how the discretion will be exercised. It is suggested that the counterclaim raises much the same points, in effect, in reverse that the claimant itself makes. So the defendant is saying that there has been an overpayment and that its valuation or its professional's valuation is correct compared with the claimant. There is also a counterclaim, in respect of any VAT rebates and the like.

[36]First of all, as far as the VAT rebates or the VAT agreement is concerned, that seems to me to be a very limited issue; either there was an agreement relating to the VAT or there was not. The amount of VAT that has been recovered by the claimant will be a relatively simple matter of accounting and whether it should be accounted for in some way to the defendant will be a relatively narrow issue. I cannot see, in any event, that much by way of costs ride on that. As far as the Counterclaim is concerned, the overwhelming inference is that it is simply a responsive counterclaim and, given the claimant's financial position as asserted, I cannot see that the defendant would necessarily have been bringing this counterclaim if it had not been brought into these proceedings. So I attach little weight to that factor.

[37]I have formed the view that this is a case in which security for costs should be ordered. I take the base figure to be £225,000. I discount that for several reasons: first of all, the £225,000 figure, it seems to me, is a gross figure and it would be subject to, as far as I can see at the moment, standard assessment, although that might have to depend on the findings of the trial judge; so the total would be reduced by about 30%. To take into account this factor In addition, it is clear and there is evidence before me that there is a continuing wish to explore settlement and I would very much encourage that. Indeed, the parties in their initial directions, with which they were both agreed as I understand it, provided for mediation. As it is well-known, there is a good prospect of settlement following mediation, particularly if both parties are keen to try to secure a resolution to their disputes.

[38]It seems to me, I should fix the security at a level which takes into account(a) the standard assessment and

(b) the prospects of settling the case. I also take into account, although subject to the reservations I have made, the generality of what Mr. Solland says and there clearly are some financial difficulties, and to avoid a complete stifling of the case it does seem to me that a figure of £100,000 is an appropriate allowance for security for costs up to and including the hearing of the preliminary issues in July.

[39]That said, it would not be appropriate to require the whole of that sum to be provided now and certainly not within seven days. It seems to me, given the directions that the parties have agreed, that this should be split into three tranches of £30,000, £30,000 and £40,000. The first tranche should be provided by 27th January 2012, that is £30,000; the second tranche of £30,000 by 9th March 2012; and the final tranche of £40,0000 provided by 1st June 2012, that is a Friday.

[40]Miss Shaw has suggested that her clients wish to reserve their position to come back to the court, in effect, to put in further evidence to vary this decision. Of course, the claimant cannot be stopped from making any further application they wish, but it may be that the court will bear in mind that the claimant had the opportunity before today of putting in certain evidence and one cannot go on opening up, reviewing and revising decisions of the court on the basis that a party wants to have a second shot of putting further evidence in. I am not saying there would necessarily be a res judicata; I will leave that to the judge who deals with any further application. It may be that the claimant should not have too high an expectation of seeking to have this decision revised on the basis of evidence that they could have put in before today. That is a matter entirely for them.

[41]I will so order. Costs obviously of and occasioned by the case management conference will be costs in the case. ----------