B2/2001/0256

Neutral Citation Number: [2001] EWCA Civ 828
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BRIGHTON COUNTY COURT
(His Honour Judge Kennedy QC)
	Royal Courts of Justice
	Strand
	London WC2

	Thursday, 17th May 2001
B e f o r e :

LORD JUSTICE JUDGE

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LARWOOD HOLDINGS LIMITED	Claimant

-v-

HAMMOND SERVICES LIMITED	Defendant

AND

HAMMOND SERVICES LIMITED	Part 20 Claimant

-v-

(1)  LARWOOD HOLDINGS LIMITED
(2)  RAY HAMILTON	Part 20 Defendants

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Computer Aided Transcript of the Palantype Notes of
Smith Bernal Reporting Limited
190 Fleet Street  London EC4A 2AG
Tel: 020 7421 4040  Fax: 020 7831 8838
(Official Shorthand Writers to the Court)
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The Applicant Mr Hamilton appeared in person.

The Respondents did not appear and were not represented.
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J U D G M E N T
1.	LORD JUSTICE JUDGE: This application for permission to appeal the order of His Honour Judge Kennedy QC in the Brighton County Court on 10th January 2001 is a second appeal. I have reminded myself and Mr Hamilton, who has come here in person, of the hurdles which need to be surmounted. Having reminded us both of that, I have nevertheless concluded, with a considerable degree of hesitation, that his application should be allowed. I have explained to Mr Hamilton that that is a long way from meaning that the appeal will succeed and that, if the appeal proceeds and is unsuccessful, he may well find himself at the wrong end of another order for costs which will increase his liability. 
2.	The order of Judge Kennedy dismissed Mr Hamilton's appeal from the decision of District Judge Robinson at Eastbourne on 30th August 2000. The district judge had decided that he should exercise his discretion to order Mr Hamilton personally to pay the respondents' costs of Larwood Holding Limited's original claim should it be dismissed for failure to comply with an order to make a payment into court. 
3.	All that hides a much simpler case. Mr Hamilton made a claim against Hammond Services Limited, a small company with which he had some personal connection. His claim was for £44,220 for services he had rendered to the company. Those proceedings began on 24th April 1998. Mr Hamilton was the claimant, suing in his own name. The then defendants (now respondents) applied to dismiss the action on the ground that it disclosed no cause of action. The agreements for consultancy services under which Mr Hamilton sued had been made between the defendants and Larwood Holdings Limited, not Mr Hamilton personally. Larwood Holdings Limited was a company which Mr Hamilton wholly owned and controlled. It was based in Gibraltar. Following that application, on 12th June 1998 Larwood Holdings were substituted in place of Mr Hamilton and Mr Hamilton was ordered personally to pay the costs of the defendants up to that date. A new defence was served, together with a Part 20 claim for tax liabilities allegedly incurred by the defendants in respect of Mr Hamilton's services, together with requests for further and better particulars and the like preliminary procedural steps in the litigation. 
4.	On 3rd August 1998 the solicitors for the defendants wrote to Mr Hamilton. They asked him to lodge £15,000 in respect of security for the costs of the case. Although the letter said, “Insofar as any further costs are to be incurred ... these would be the responsibility of Larwood Holdings Limited”, the request for the payment appeared to be directed at Mr Hamilton personally because the letter observed, “... in practical terms [Larwood Holdings Limited] was founded as a vehicle for your own financial reasons”, being without assets in England or Wales. Mr Hamilton's response was that Larwood Holdings Limited had no assets other than his services and the debt owed by the defendants and could not pay any such sum into court. 
5.	On 22nd May 2000 an application by the defendants for security for costs was heard by Mr Recorder Wood at the County Court at Eastbourne. He ordered £12,000 to be paid in by Larwood Holdings Limited within 28 days and dismissed applications by the defendants for summary judgment and the dismissal of the claim. 
6.	On 30th October a hearing took place before District Judge Robinson at Eastbourne County Court. No legal representatives were present. The solicitors for Mr Hamilton had sent a letter for the attention of the court. In that letter a number of points were specifically made and it is perhaps worth quoting at least part of it:
“With regard to your proposed order, may we, with respect, make one simple point on procedure; ... you appear to be applying for an order against the Part 20 Defendant (Mr Hamilton) that the costs of the claim be paid by Mr Hamilton personally. It seems to us that, insofar as there may be an order made in your clients' favour in relation to the costs of the claim, such order should be against Larwood Holdings Limited only (the Claimants) and not against Mr Hamilton personally. 
In relation to the Counterclaim, of course, insofar as the Part 20/Counterclaim is concerned, it seems to us, with respect, that it is premature for you to seek an order for costs against Mr Hamilton personally, nor is it consistent with the second paragraph of Part A in which you have sought leave to withdraw the Counterclaim. In relation to the Counterclaim, we would respectfully suggest that either these costs should be the Part 20 Defendant's costs or there should be no order for costs on the Counterclaim as your clients have chosen not to proceed with their claim.” 
7.	The application was that the claim should be struck out as a result of non-compliance with the order of Mr Recorder Wood. The district judge ordered that the claim should be dismissed without further order unless a payment in was made within 14 days and he stayed the Part 20 claim. 
8.	The defendants applied for an order for the costs of the application to be granted against both the company, Larwood Holdings Limited, and Mr Hamilton personally. The basis of the application was founded on authorities relating to the granting of costs against third parties. The submission was that Larwood Holdings Limited was no more than a vehicle for Mr Hamilton's earnings, so that any benefit it might receive from the proceedings would be passed straight on to Mr Hamilton himself. As Larwood Holdings had no assets, it would be inequitable to allow Mr Hamilton to hide behind it if his claim was dismissed. The result of these submissions was a costs order granted against both Larwood Holdings Limited and Mr Hamilton for the costs of the application, together with a contingent order made in the same form for the costs of the claim generally if a payment was not made into court within 14 days. It is in relation to the order against Mr Hamilton personally that the present application arises. 
9.	No money was paid into court within 14 days. The claim accordingly stood dismissed and the costs order made by the district judge therefore took effect. Mr Hamilton applied for permission to appeal against the order for costs made against him personally. On 10th January Judge Kennedy granted him permission to appeal and then proceeded to hear the appeal with the agreement of counsel for the defendants. The decision of the district judge was reviewed and it is perfectly apparent that Judge Kennedy believed that Mr Hamilton had made some significant progress with his submissions, or at any rate that there were a number of significant points which he had been able to sustain. 
10.	Taking them briefly, he recorded: 
“Mr Hamilton's point is .. first of all that the limited company is not a shell company in any meaningful sense of that word. What he says is that he first of all made the claim in his own way and it was based ... on an invoice from an address in Marbella, where apparently he had then some accommodation, in the limited company name and that therefore, of course, he was obliged ... to change tack and pursue the claim by the limited company. What he says is that the defendants, having achieved that manoeuvre, have brought him back in as a third party claimant in person and are now trying to have it both ways by seeking an order that he personally pays the costs which he says should only be awarded against the limited company. If I may say so, I can quite see his point. It is a perfectly good argument.” 
11.	Judge Kennedy took another point advanced by Mr Hamilton, that the limited company should be treated as a limited company, and he said: 
“I think he has got, again, a strong point to make, had he chosen to make it ...” 
12.	Then he said: 
“I have got to look at matters as they were in front of the learned District Judge. I can make it as clear as a pikestaff that if I had been hearing the application and had all the material in front of me that I have had in front of me today I might not have made the same order as the learned District Judge did.” 
13.	Having recorded some of the points which he plainly thought had weight, he ended by directing himself: 
“In those circumstances I think that this is a hundred miles from my being able to say the learned District Judge was wrong.”
14.	The application now before me for permission reads: 
“I do not accept that I should be made personally liable for the Defendants' costs of the claim and of the Application; the Claimant's claim has been stifled by the Application for security for costs, and it is unconscionable, in my submission, for the Court now to order me to be responsible for the Defendants' costs, the Defendants having previously argued that I was not a proper party to the proceedings and on that basis demanding that the Claimants be made a party to the proceedings in place of myself. Had I remained a party to these proceedings, which now appears to be consistent with the Defendants' arguments which they pursued before District Judge Robinson on 30th August, there would have been no grounds on which to order security for costs against me as an individual claimant. The Defendants appear to have alternated, to suit themselves, between alleging that the company and/or I were the actual and proper party to these proceedings and the District Judge's order of 30th August is unfair in the circumstances and should be overturned.” 
15.	Accordingly, it is submitted that the order made by Judge Kennedy upholding the decision of the district judge was wrong.
16.	The order made by the district judge against Mr Hamilton personally would have arisen under Civil Procedure Rules 48.2(1), which provides: 
“Where the court is considering whether to exercise its power under section 51 of the Supreme Court Act 1981 ... to make a costs order in favour of or against a person who is not a party to proceedings - 
(a) that person must be added as a party to the proceedings for the purposes of costs only and 
(b) he must be given a reasonable opportunity to attend a hearing at which the court will consider the matter further.” 
17.	As far as the papers show, counsel for the defendants at the hearing before the district judge submitted that, although Mr Hamilton was a party to the proceedings as a whole, he was not a party to the claim and therefore he was a third party. No application appears to have been made to join him as a party to the original claim as opposed to the Part 20 claim for the purposes of a costs order, and no such order appears to have been made by the district judge. Of course, the defendants had written to Mr Hamilton pointing out that they were making an application for him to pay the costs personally and he must, therefore, have been aware of the issue, as his solicitors recorded when they set out in their letter reasons why the application, in their view, was ill founded. 
18.	In my judgment, the apparent failure to comply with the requirements in Civil Procedure rules 48.2(1)(a) makes it arguable that the order should not have been made. Although this technicality was in one sense overtaken by the fact that a letter was written explaining that the application would be made, the word used in the rules is “must”, and “must” is unequivocal. If Mr Hamilton was not made a party to the proceedings in respect of which the order for costs was being sought against him, then at least arguably the order should not have been made. 
19.	There is a separate question, however, which is whether or not Judge Kennedy came to the just conclusion in approaching the appeal on the material before him as he did, given that he undoubtedly had serious concerns about the validity of some of the submissions made to him by Mr Hamilton. 
20.	Taken together, the issue that arises in relation to the way in which a circuit judge, on appeal from a district judge, should approach the question of an order for costs to be made personally against someone who is not a party to proceedings has a potential significance generally. In my view (although, as I have said, with some considerable hesitation) the point appears to be arguable and of sufficient importance to justify giving permission to appeal. The case will be listed in due cause before a two-judge constitution of this Court. 
Order: application for permission to appeal granted; case to be listed before a two-judge constitution of this Court.