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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> CIBC Mellon Trust Company & Anor v Wolfgang Otto Stolzenberg & Ors [2005] EWCA Civ 628 (24 May 2005) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2005/628.html Cite as: [2005] 2 BCLC 618, [2005] EWCA Civ 628, [2005] 4 Costs LR 617, [2005] CP Rep 45

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE ETHERTON)

		Royal Courts of Justice Strand, London, WC2A 2LL
		24 May 2005

Lord Justice Chadwick :

1. There are before the Court an appeal, a cross appeal and an application in proceedings brought by CIBC Mellon Trust Company (as trustee of various Chrysler Canada benefits and pension plans) and Daimler Chrysler Canada Inc against Mr Wolfgang Stolzenberg and other defendants in relation to very substantial loans to, and investments in, companies comprised in a group known as the Castor Group which were made by the claimants between 1984 and 1992.
2. It is said, in the proceedings to which I have referred, that the loans and investments - which have proved irrecoverable - were made in reliance on fraudulent misrepresentations made by Mr Stolzenberg. It is said, also, that other defendants – including, in the present context, the 10th defendant, Mora Hotel Corporation NV, and the 38th defendant, Chascona NV – knew of and were party to those misrepresentations.

The circumstances in which the proceedings are now before the Court

3. On 4 February 1999 judgment was entered against Mora in the proceedings for CAN $357,738 and US $386,687. On 21 October and 7 December 1999 further judgments were entered against Mora in the much larger sums of CAN $245,701,477 and US $134,325,511 and against Chascona in the sums of CAN $246,082,660 and US $134,727,540. Those judgments ("the 1999 judgments") were entered following, and in consequence of, the failure of Mora to comply with an "unless" order made by Mr Justice Rattee on 13 October 1998 and the failure of both Mora and Chascona to comply with an "unless" order made by that judge on 4 October 1999.
4. Both Mora and Chascona applied to set aside the 1999 judgments. Their applications ("the set aside applications") came before Mr Justice Etherton in December 2002. By an order of 3 February 2003 he dismissed the set aside applications with costs against the applicants. Mora and Chascona sought permission to appeal from that order. The judge refused that application ("the permission application") on 25 July 2003. He ordered Mora and Chascona to pay the claimants' costs of the permission application and assessed those costs at £13,000.
5. In an affidavit sworn on 29 November 2001 in connection with the set aside applications, Mr Paolo Cavazza had claimed that he was the owner of 75% of the shares in each of Mora and Chascona. Upon delivery of Mr Justice Etherton's judgment on 3 February 2003 the claimants sought and obtained an order that Mr Cavazza be joined as defendant to the proceedings for the purpose of an application to be made against him, under section 51 of the Supreme Court Act 1981, in respect of the costs awarded against Mora and Chascona on the set aside applications. Mr Cavazza was joined as the 56th defendant to these proceedings.
6. An application for an order that the costs of the set aside applications, awarded against Mora and Chascona on 3 February 2003, be paid by Mr Cavazza was made by notice dated 5 August 2003. That application came before Mr Justice Etherton in February 2004. By an order made on 19 February 2004 the judge ordered that Mr Cavazza pay the claimants' costs of and occasioned by the set aside applications; and, further, ordered him to pay the costs of the permission application (£13,000 - payable by Mora and Chascona under the order of 25 July 2003). The costs of the set aside applications have been billed (but not assessed) at £1,004,198. The judge gave Mr Cavazza permission to appeal from that part of the order of 19 February 2004. That appeal is now before us by way of cross appeal (2004/0830A) under a respondent's notice filed on behalf of Mr Cavazza on 30 April 2004.
7. The 1999 judgments, entered against Mora and Chascona, had included orders that they pay costs to be assessed. The assessment proceeded before the senior costs judge. It led to the grant of an interim certificate, on 26 November 2002, in the amount of £525,000. The claimants appealed in respect of the amount of the interim certificate, contending that it should have been in a higher sum. That appeal was dismissed. There was a further hearing before the senior costs judge in June and July 2003 limited to the question whether, in principle, Mora and Chascona were liable to the claimants for all the costs of the proceedings. At that hearing the senior costs judge held that they were.
8. Following that decision, solicitors for Mora and Chascona indicated, by letter dated 15 August 2003, that their clients had decided, on commercial grounds, that they would no longer participate in a detailed assessment of the costs payable under the 1999 judgments. Nevertheless, the assessment continued, during September 2003, and led to the grant of final costs certificates in the amount of £10,825,281. The senior costs judge ordered that the costs of the detailed assessment should be paid by Mora and Chascona. Those costs were, themselves, to be the subject of detailed assessment. The claimants' estimate of their own costs of the detailed assessment ("the costs assessment costs") is £500,000 or thereabouts.
9. The senior costs judge granted permission to join Mr Cavazza as a party to the detailed assessment of the costs payable under the 1999 judgments so that the claimants could make an application that he pay the costs assessment costs, which (as I have said) had been awarded against Mora and Chascona. He reserved that application (if made) to Mr Justice Etherton.
10. The claimants' application that Mr Cavazza should pay the costs assessment costs was made by notice dated 6 February 2004. That application came before Etherton J at the hearing in February 2004; together with the application under the notice of 5 August 2003 to which I have already referred. By his order of 19 February 2004 the judge dismissed the application of 6 February 2004. He ordered that the claimants pay Mr Cavazza's costs of that application. He gave the claimants permission to appeal from that part of his order of 19 February 2004. That appeal is now before us (2004/0830) under an appellants' notice filed on behalf of the claimants on 15 April 2004.
11. In addition to the appeal and cross appeal from the order of 19 February 2004 to which I have referred, there is an application before us made by notice dated 22 September 2004 (2004/0830B). By that application the claimants seek an order that Mr Cavazza pay the claimants' costs of an appeal, and of an application for permission to appeal, which were before this Court (Lord Justice Ward, Lady Justice Arden and Sir William Aldous) on 30 June 2004.
12. That was an appeal, and application for permission to appeal, by Mora and Chascona (under an appellants' notice filed on 29 July 2003) from the order which Mr Justice Etherton had made on 3 February 2003 – that is to say, from his order refusing to set aside the 1999 judgments. By its order of 30 June 2004 this Court dismissed the appeal and the application for permission to appeal. The Court ordered that Mora and Chascona pay the claimants' costs of the appeal and the application; and, by paragraph 5 of that order, the Court gave the claimants permission to apply under section 51 of the Supreme Court Act 1981 for an order that Mr Cavazza pay those costs. The Court further directed that that application (if made) be heard at the same time as the appeal and the cross appeal from Mr Justice Etherton's order of 19 February 2004. So it is that that application is before us also.

The matters for determination in this Court

13. Put shortly, therefore, the matters now before us raise the question whether Mr Cavazza should pay costs awarded against Mora and Chascona (i) in respect of the costs assessment under the 1999 judgments (the costs assessment costs - put at £500,000), (ii) in respect of the applications to set aside the 1999 judgments (the set aside costs - put at £1 million) and (iii) in respect of the appeal from the judge's refusal to set aside the 1999 judgments (the court of appeal costs). But that, of course, is an over-simplistic summary of the issues in this court. The first and second elements within that composite question have already been the subject of decisions by a judge in the exercise of a discretion which was his to exercise. So, in relation to the costs assessment costs and the set aside costs, the first question for this Court is whether it has been shown that the judge's exercise of his discretion was flawed.
14. The power of the High Court to determine by whom the costs of proceedings in that court are to be paid is conferred by section 51(3) of the Supreme Court Act 1981. Whether or not that power should be exercised (and if so in what manner) is, subject to the provisions of the 1981 Act or any other enactment and to rules of court, in the discretion of the court – section 51(1) of that Act. An appellate court should not interfere with an order as to costs made in the court below unless satisfied that the judge has erred in the exercise of that discretionary power.

The judge's approach to the matters before him

15. I turn, therefore, to the reasons which led the judge to make the order which he did make on 19 February 2004. These appear from a full and careful judgment in which the judge drew on the findings which he had made in the judgment (the set aside judgment) which he had delivered some 12 months earlier, on 3 February 2003. It must be kept in mind that the judge was in a very good position to assess the role of Mr Cavazza in relation to litigation conducted on behalf of Mora and Chascona. This judgment must be read with the judge's judgment of 3 February 2003 – in particular with paragraphs 33 to 40 and 98 and 99 of that judgment. The judge set out those paragraphs in full in his judgment of 19 February 2004. I need not rehearse them in this judgment. As the judge observed, at paragraph 13 of his later judgment, counsel appearing for Mr Cavazza accepted that paragraph 33 of the earlier judgment contained an accurate statement of the circumstances in which Mr Cavazza became involved in these proceedings. At paragraph 98 of the earlier judgment the judge observed that it was clear that the impetus for the set aside applications had come from Mr Cavazza.
16. The judge examined the legal principles which (as the parties contended) should guide him in the exercise of his discretion to make a costs order against a person who was not a party to the proceedings which had given rise to those costs. He set out the authorities, the submissions made to him upon those authorities and his own analysis at paragraphs 52 to 84 of his February 2004 judgment. At paragraph 84 he pointed out that, in this case, he was concerned with an outside funder who (as alleged) was not a director or other person duly authorised, appointed and legally obliged to act in the best interests of the company or companies in relation to whose participation in the litigation the funding was being provided; and who was funding – and (as it was said) conducting – the litigation in the name of the company and companies for his own personal interest. At paragraph 85 he went on to say this:

"I see no reason in principle, or on the authorities, which precludes the court from making a personal order for costs against such a funder, save in the case of bad faith or impropriety or where he is motivated by an interest conflicting with that of the company. In particular, I see no reason why, if a shareholder funds, controls and directs litigation by a company, entirely to promote his own financial interests, the court should be unable to make such an order against him, any less than it could make the order that was upheld by the Court of Appeal in Chapman [Chapman v Christopher [1998] 1 WLR 12]"

17. Adopting that approach, the judge concluded that the facts in the present case were sufficiently exceptional to make it just and reasonable that Mr Cavazza should pay the claimants' costs of the set aside applications. But he was not persuaded that it would be just or reasonable to require Mr Cavazza to pay the costs assessment costs. Put shortly, he took the view that, in the particular circumstances of this case, the claimants' decision to pursue a detailed assessment of the costs payable under the 1999 judgments had been taken for tactical reasons, with no proper regard for the overriding objective under the Civil Procedure Rules, and had produced no practical benefit either for the claimants or for the court.
18. Mr Cavazza relies, as a principal ground of his cross-appeal from the order of 19 February 2004, on a challenge to the judge's approach as set out in paragraph 85 of his judgment. He contends that the judge erred in holding that the court can make an order requiring a shareholder of a company to pay costs awarded against the company in the absence of bad faith or impropriety, "particularly in circumstances where by funding and pursuing the litigation, the shareholder, in addition to seeking to protest the value of his own investment, is also protecting the interests of the company". The claimants do not challenge the approach set out in paragraph 85; so far as necessary they support, and rely upon, that approach in resisting Mr Cavazza's cross-appeal from the order that he pay the set aside costs. The claimants recognise, correctly, that to succeed on their own appeal from the judge's refusal to make an order that Mr Cavazza pay the costs assessment costs, they must challenge the judge's view that they pursued the assessment of costs payable under the 1999 judgments without regard to the overriding objective under the Civil Procedure Rules.

Was the judge correct in law?

19. It is convenient to address, at this point, the challenge to the approach which the judge set out at paragraph 85 of his judgment.
20. Mr Cavazza relies on observations in this Court to the effect that an order for costs should not ordinarily be made against a director of a company who funds the company in litigation by or against the company. The proposition is, perhaps, most conveniently found in the judgment of Lord Justice Millett in Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613; although there are passages to the same effect in the judgment of Lord Justice Lloyd in Taylor and another v Pace Developments Ltd [1991] BCC 406, 409F-H, and in the judgment of Lord Justice Aldous in Secretary of State for Trade and Industry v Backhouse (23 February 2001, noted in The Times Law Reports). In Metalloy (ibid, at 1619H-1620D) Lord Justice Millett said this:

"It is not an abuse of the process of the court or in any other way improper or unreasonable for an impecunious plaintiff to bring proceedings which are otherwise proper and bona fide while lacking the means to pay the defendant's costs if they should fail. Litigants do it every day, with or without legal aid. If the plaintiff is an individual, the defendant's only recourse is to threaten the plaintiff with bankruptcy. If the plaintiff is a limited company, the defendant may apply for security and have the proceedings dismissed if the plaintiff fails to provide whatever security is ordered.

The court has a discretion to make a costs order against a non-party. Such an order is, however, exceptional, since it is rarely appropriate. It may be made in a wide variety of circumstances where the third party is considered to be the real party interested in the outcome of the suit. It may also be made where the third party has been responsible for bringing the proceedings and they have been brought in bad faith or for an ulterior purpose or there is some other conduct on his part which makes it just and reasonable to make the order against him. It is not, however, sufficient to render a director liable for costs that he was a director of the company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are brought bona fide and for the benefit of the company the company is the real plaintiff. If in such a case an order for costs could be made against a director in the absence of some impropriety or bad faith on his part, the doctrine of separate liability of the company would be eroded and the principle that such orders should be exceptional would be nullified."

It is, of course, important to keep in mind that (save in the most exceptional circumstances) a director is required, by virtue of his office as a director, to decide whether or not it is in the interests and for the benefit of the company to bring or defend proceedings. If, in causing the company to bring or defend proceedings, he is acting in good faith and in what he believes to be for the benefit of the company, he is entitled to rely on the doctrine of separate liability – or, as I would prefer to describe it, the protection of the company's corporate personality.

21. Where directors fund the company's litigation in their own interests and without proper regard to the interests of the company, it may be appropriate to make an order that they pay the other party's costs. An example can be found in Fulton Motors Limited v Toyota (GB) Ltd (unreported, 23 July 1999). Lord Justice Peter Gibson set out the facts in the following passage of his judgment:

"Fulton went into administrative receivership in October 1998. It has no assets to meet the costs of the present appeal. It has not even paid Toyota's costs of the action. While the receiver took steps in the conduct of the appeal, the appeal was commenced by the company with the directors then in entire control and it is not disputed that they have been funding the appeal since April. . . . [S]ince the directors took over the conduct of Fulton's appeal in April 1999 they have accepted responsibility for paying Fulton's costs in the appeal. . . . [T]he directors appreciated that the appeal was a difficult one. To my mind it was not an appeal which on any realistic objective assessment could be said to have good prospects of success. This court had little difficulty in rejecting the argument put forward on behalf of Fulton."

Lord Justice Peter Gibson (with whom the other members of this Court, Lord Justice Pill and Lord Justice Laws, agreed) expressed the view that there was a plain case for making the directors liable for at least some of the costs. He said this:

"In my judgment it would be just to exercise the power to make a non-party pay costs. It is extremely doubtful whether the receiver would have proceeded with the appeal to the point of a hearing: it only went to a hearing because of the intervention of the directors in funding the appeal. There is some evidence that they were bitter against Toyota for what they perceived to be Toyota's high-handed conduct. An objective appraisal of the chances of success should, in my judgment, have made them cautious about proceeding with this appeal. Where a person has maintained or funded an action, in my judgment, that person is at risk in costs (Murphy v Young's Brewery [1997] 1 WLR 1591 at 1601E-F per Lord Justice Phillips). The directors, further, had a financial interest in pursuing the appeal. They were at least guarantors of the debts of the company and so were personally interested in the outcome of the litigation. In my judgment, where a person is prepared to fund litigation by an insolvent litigant, that person can properly be made liable in costs, particularly so when that person has a personal interest in the litigation and is aware of the risk as these directors were."

22. It was submitted on behalf of Mr Cavazza that the decision in Fulton Motors v Toyota is inconsistent with the earlier decision in Metalloy; and that, since Metalloy was not cited in the Fulton case, the latter must be regarded as decided per incuriam. In my view that submission cannot be sustained. It is true that Metalloy was not referred to in the judgments in the Fulton case. It may or may not have been cited in this Court – it is impossible to tell from the report – but I will assume in Mr Cavazza's favour that it was not. But the earlier case of Taylor v Pace Developments was cited. Lord Justice Peter Gibson refers to the relevant passage in his judgment in Fulton. And he refers, also, to the judgment of Lord Justice Morritt in Globe Equities Limited v Global Services Limited [1999] Building Law Reports 232 (which had been decided in March 1999, a few months before the Fulton case) in which the earlier authorities, including Taylor v Pace Developments, Metalloy and Murphy v Young's Brewery are all cited. In my view it is impossible to contend that the Fulton case was decided by this Court in ignorance of the proposition that an order for costs should not ordinarily be made against a director of a company who funds litigation by or against the company.
23. Further, as it seems to me, there is nothing in the Fulton case which is inconsistent with that proposition. It is, I think, reasonably clear that this Court reached the decision that it did in that case because it took the view that, in taking control of the litigation at a time when the company was in administrative receivership, the directors were not to be treated as acting for, or for the benefit of, the company. They were acting as they did in order to protect their own position as guarantors. The receiver, upon whom responsibility for bringing and defending proceedings in the name of the company had devolved, would not have pursued the litigation. To hold the directors personally liable for costs in those circumstances involved no erosion of the principle that directors, acting as such in good faith and for the benefit of the company, are entitled to the protection of the company's separate corporate personality.
24. Nor is there any erosion of that principle if a shareholder, who is not a director, is ordered to pay costs incurred by another party in litigation against the company in circumstances in which, in order to serve his own interests, he has controlled the conduct of the litigation in the name of the company; a fortiori where he has also provided the funds needed for that purpose. The reason, as it seems to me, is that the shareholder is not under any duty to the company in relation to the conduct of litigation. He is not required to decide whether it is, or is not, in the interests and for the benefit of the company to bring or defend proceedings. He does not require the protection of the company's separate corporate personality to enable him to fulfil his role as shareholder in relation to the litigation. If he chooses to involve himself in the company's litigation – thereby usurping the role of the directors – he does so at his own risk. His position is no different from that of any other third party who chooses, for his own purposes, to fund and control litigation brought by or against an insolvent.
25. It follows that I would uphold the judge's approach, as expressed in paragraph 85 of his judgment. There is no reason in principle why, if a shareholder – not being a director, or other person duly authorised, appointed and legally obliged to act in the best interests of the company – funds, controls and directs litigation by the company in order to promote or protect his own financial interest (including his interest as a shareholder), the court should not make a costs order against him. Whether or not it is appropriate to do so in the particular case turns on the facts of that case.

Mr Cavazza's cross-appeal

26. As I have said, adopting that approach, the judge concluded that the facts in the present case were sufficiently exceptional to make it just and reasonable that Mr Cavazza should pay claimants' costs of the set aside applications. In reaching that conclusion he took account, in particular, of the matters set out in paragraphs 88 to 114 of his judgment. I draw attention to the following:

(1) It was not in dispute that, since about August 2001, Mr Cavazza had "embarked on a course to set aside the [1999] judgments"; nor that, in order to do so he had funded, directed and controlled the litigation in the names of Mora and Chascona. He had done so "purely for his own financial interests to preserve the large investment he made in acquiring the shares in Mora and Chascona". He was not, and never had been, a director of either of those companies. There was no evidence that the directors – in particular, Mr Martineghi, who in May 2002 replaced Mr Gambazzi (a defendant to the proceedings) as the sole director of the two companies – had played any part whatsoever in decisions whether or how to pursue the set aside applications. At paragraph 98 of his judgment the judge said this:

"Like the insurers in Chapman, the reality is that Mr Cavazza was the applicant in the Set Aside Applications, acting exclusively in his own financial interests. He was not appointed to manage Mora and Chascona and had no duty to do so. It is clear from his evidence that, in deciding whether or not to make the Set Aside Applications, he placed his own interests above and apart from those of the companies."

(2) The costs of the set aside applications had been very substantial. As the judge observed, the claimants had been billed by their legal advisers in the amount of £1,004,198 in respect of those costs. That was unsurprising: the factual and the procedural background were complex, the documents for the hearing occupied sixty lever arch files and the hearing had lasted six days. That the costs would be very substantial must have been within the contemplation of Mr Cavazza when he decided that the applications would be made. He must have appreciated, also, that Mora and Chascona had no means to pay the claimants' costs of the applications, if unsuccessful; so that, unless he were to pay those costs, they would have to be added to "the vast sums already due to the Claimants under [the 1999 judgments], including unsatisfied orders for costs."

(3) The set aside applications ought to have been seen to be speculative – in the sense that, although not bound to fail, it was (at best) "highly uncertain that they would succeed".

(4) It would have been open to the claimants to apply for security (or, in the circumstances of this case, increased security) for the costs of the set aside applications – see the observations of this Court in Metalloy Supplies Ltd v M A (UK) Ltd [1997] 1 WLR 1613, 1618C. But that was not a reason, in this case, for refusing an order for costs against Mr Cavazza after the event. As the judge put it: "It has not been suggested . . . that, if the claimants had returned to court from time to time to increase the £100,000 security [already ordered by Mr Justice Jacob on 13 May 2002], such increase would not have been granted on appropriate evidence and would not have been paid by Mr Cavazza". Further, it could not be right in principle that "if the security in fact provided [the £100,000 ordered by Mr Justice Jacob] and known to be provided by the third party funder, proves in the event to have been too little, the court is precluded from making an order against the third party at the end of the case for the balance".

27. In addition to the challenge to the judge's approach as set out in paragraph 85 of his judgment (which I have already addressed) Mr Cavazza relies upon three other grounds in his respondent's notice of 30 April 2004. First, it is said that the judge erred in concluding that the circumstances of the case were exceptional, or sufficiently exceptional, to justify an order for costs against him. Second, that the judge was wrong to conclude that the set aside applications were speculative. And, third, that the judge attached insufficient weight to the fact that the claimants could have sought, in advance, an order for security for costs against Mora and Chascona. These grounds were developed in the written argument served on Mr Cavazza's behalf and in oral argument at the hearing of the appeals.
28. It must be kept in mind that, as the judge had explained at paragraphs 38 and 39 of the set aside judgment of 3 February 2003 (which were themselves set out again in the judgment of 19 February 2004), there had been a deliberate decision by Mora and Chascona – at a time when Mr Cavazza owned 75% of their shares, but Mr Gambazzi was the sole director – that their best interests were served by contesting the jurisdiction of the English courts and taking no other part in the litigation here. The view had been taken that the courts in New York would not recognise a judgment entered here otherwise than after a trial on the merits. The decision not to comply with the "unless" orders made by Mr Justice Rattee in October 1998 and October 1999 had been conscious and deliberate. It was only after the House of Lords, in October 2000, had upheld the decision of that judge as to jurisdiction - and after judgment had been given in the Supreme Court of New York, in December 2000, on the claimants' application for recognition and enforcement of the 1999 judgments - that the decision was taken to seek to set aside those judgments. Until then, Mora and Chascona had been content to ignore the 1999 judgments. The judge was plainly correct to take the view both that this was an exceptional case and that the set aside applications were speculative.
29. The judge was correct, also, to reject the submission that the claimants' failure to obtain adequate security for costs – or to apply for increased security from time to time – was a reason to deny them an order for costs against Mr Cavazza. As he pointed out, it was common ground that any order for security would have to have been met (if at all) by Mr Cavazza; and it cannot be said that the court is precluded from making an order at the end of the case against the third party who would, in practice, have had to meet any order for security made during the course of the proceedings. It may be noted that a similar submission was made, and rejected, by this Court in the Fulton case.
30. It follows that I can see no basis upon which it would be open to this Court to set aside the judge's decision, in the exercise of the discretion which was his to exercise, that the facts in the present case were sufficiently exceptional to make it just and reasonable that Mr Cavazza should pay the costs of the set aside applications. In so far as it is relevant, I have no doubt that I would have reached the same view. I would dismiss the cross-appeal.

The claimants' appeal

31. As I have said, the judge refused to make an order against Mr Cavazza in respect of the costs assessment costs because he took the view that, in the particular circumstances of this case, the claimants' decision to pursue a detailed assessment of the costs payable under the 1999 judgments had been taken for tactical reasons, with no proper regard for the overriding objective under the Civil Procedure Rules, and had produced no practical benefit either for the claimants or for the court. He expressed that view at paragraph 132 of his judgment:

"The Claimants have, in my judgment, always pursued the Costs Assessment as a purely tactical weapon to assist the defeat of the Set Aside Applications, either on the substantive hearing of those Applications, or by the imposition of conditions as to the payment of past costs, in any order setting aside the Judgments or as a condition of permission to appeal."

And, at paragraph 141, he said this:

"In my judgment, it would have been in accordance with the Overriding Objective, and more reasonable of the Claimants, to have waited until [a condition for payment of costs which were the subject of the Costs Assessment] was actually imposed before embarking on the exercise of the Costs Assessment. Thus far the Costs Assessment has been used as a tactical weapon, which has proved of no tactical value to the Claimants or the Court."

32. In order to understand why the judge took that view, I must set out some of the procedural history in more detail than has been necessary hitherto:

(1) The applications to set aside the 1999 judgments had been made by notice dated 5 December 2001. On 27 February 2002 the claimants applied for an order that the set aside applications be stayed unless and until Mora and Chascona made substantial interim payments on account of outstanding costs – that is to say, on account of costs which had already been assessed and on account of costs which had not then been assessed but which had been awarded by the 1999 judgments.

(2) In a witness statement made by the solicitor then acting for Mora and Chascona (Mr Andrew Ford) on 1 May 2002 and filed in opposition to the claimants' application for a stay it was pointed out that the rules required that detailed assessment proceedings had to commence within three months of the date of the relevant judgment or final order and that the claimants had not complied with that requirement. Mr Ford had gone on to say this:

"In such circumstances, the court may disallow all or any of the interest otherwise payable to the receiving party (the Claimants). Further, if a party or his legal representative has failed to comply with a rule, practice direction or order, the court may disallow all or part of the costs that are being assessed (CPR 44.14). I would suggest that to delay the commencement of a detailed assessment for more than 2 years is grounds for the costs to be disallowed in part if not in their entirety."

It was said on behalf of the companies that it was impossible to know what deductions the costs judge would make in respect of the delay which had occurred; and that that was a reason why it was not appropriate for the court to make any order for a payment on account of past, but unassessed, costs.

(3) In a witness statement made on 9 May 2002 by the claimants' solicitor, Mr Pugh, in response to the points which had been made by Mr Ford in his witness statement of 1 May 2002, the claimants' failure to commence detailed assessment proceedings within the time prescribed by the rules was explained in these terms:

"Until the Claimants have been able to recover satisfaction of the judgment made against Mora and Chascona or they have met the costs orders that have been taxed, it would have been premature for the Claimants to seek a detailed assessment of these court orders. It is not in the interests of either of the parties [or] the Court to go through the time extensive process of preparing bills of cost and a detailed assessment until the judgments have been successfully enforced."

And it was pointed out that the claimants had "out of an abundance of caution" made an application on 22 February 2000 for an order for a general extension of time for the detailed assessment of costs under orders made against all the defendants to the proceedings (including Mora and Chascona). A general extension had been granted until 29 June 2001. Although no application for a further extension had been made, it was said that there was "no reason to believe that a further extension would not be granted, nor that this would not extend to include the various costs orders referred to in this application".

(4) The claimants' application for a stay of the set aside applications came before Mr Justice Jacob on 13 May 2002. In the course of that hearing the claimants indicated that what they were seeking, as a condition of the set aside applications being allowed to proceed, was an interim payment of £1.5 million in respect of past costs (of which £500,000 was in respect of costs already assessed) and a further £300,000 in respect of security for the further costs of the set aside applications. The judge made the order sought in relation to past costs; and ordered security in respect of future costs, but in the reduced sum of £100,000.

(5) The claimants commenced proceedings for a detailed assessment of costs on 5 September 2002. At the same time, they issued an application for an interim certificate. That application was to be heard on 26 November 2002.

(6) The companies appealed from Mr Justice Jacob's order of 13 May 2002. On 19 November 2002 this Court (Lord Justice Peter Gibson, Lord Justice Mance and Lady Justice Hale) allowed the appeal in relation to the past costs; but did not disturb the order in respect of future costs (£100,000).

(7) In a skeleton argument, dated 22 November 2002, prepared by counsel for use on the application for an interim costs certificate which was about to be heard, it was said:

"No costs have yet been agreed or assessed in this case. The purpose of this application is to demonstrate to the Judge who hears the paying parties' forthcoming application to set aside the default judgment entered against them and the other defendants on 21 October 1999 that the paying parties have between them caused the Claimants to expend legal costs of at least £5m so far in this litigation; that unless and until the judgment is set aside the paying parties are liable to the Claimants for at least that amount; and for the Judge to be able to take these matters into account when deciding whether or not the judgment should be set aside."

(8) On 26 November 2002 the senior costs judge granted an interim certificate in the sum of £525,000, to be paid within 14 days. The claimants' appeal in respect of the amount of that interim certificate was dismissed by Mr Justice Davis on 19 February 2003.

(9) The set aside application was heard by Mr Justice Etherton in December 2002. In the course of that hearing counsel appearing for Mora and Chascona offered certain concessions, should the court set aside the 1999 judgments. These are set out by the judge at paragraph 121 of his judgment of 19 February 2004 (in the form of an extract from the transcript of proceedings in December 2002). They may, I think, be summarised as (i) a concession that, if the court were to set aside the 1999 judgments, Mora and Chascona would submit to a condition that they pay all costs orders, including the costs of the proceedings, subject to assessment and (ii) that the companies were not seeking to set aside any past costs orders.

(10) Judgment on the set aside applications was delivered on 3 February 2003. Mora and Chascona sought the judge's permission to appeal, but that application was adjourned so that consideration could be given as to what (if any) terms as to security for the claimants' costs of an appeal would be acceptable. The adjourned hearing of the application for permission came back before the judge on 25 July 2003. As I have said, he refused permission.

(11) In the meantime, the claimants had pursued the detailed assessment. There was a hearing before the senior costs judge at the beginning of July 2003. On 18 July 2003 he delivered a judgment which addressed certain major issues of principle; including (in particular) whether the two companies were jointly and severally liable for all the costs of the proceedings, or were liable for part only of those costs. He held that, in principle, the companies were liable for all the costs of the proceedings. That led the companies to decide that they did not intend to take any further part in the detailed costs assessment. In a letter dated 15 August 2003 from their solicitors, they sought to withdraw the concessions made at the hearing before Mr Justice Etherton in December 2002:

"For the avoidance of doubt, we should make it clear that the concession offered to Mr Justice Etherton by Leading Counsel (for Mora and Chascona to pay past costs) was a concession made for the purposes of the applications and hearing before him and, in the light of his rejection of those applications, the concession has fallen away. If we are wrong about that, we hereby formally withdraw that concession and confirm that it will not be renewed in the Court of Appeal, should we receive permission to appeal the order of Mr Justice Etherton dated 3rd February 2003."

(12) As I have said earlier in this judgment, the detailed costs assessment resumed at the end of September 2003. The senior costs judge ordered the two companies to pay the claimants' costs of the costs assessment. In a ruling on 26 September 2003 he addressed the question whether the claimants should be denied interest on costs by reason of delay – the point which had been raised by Mr Ford in his witness statement of 1 May 2002. He said this:

"The delay by the claimants in drawing their bill is entirely justified by the fact that prior to December 2001 it would have been a waste of money, frankly, because the defendants – on the face of it at least – had no worthwhile assets, and certainly insufficient to satisfy the judgment.

Once [the defendants] had applied, in December 2001, to set aside the default judgments, an application which they continued to pursue, it became not only justifiable but necessary to draw up a bill and have that assessed. If one takes, as a starting point, the period within which a bill ought to have been lodged and served, if one takes the starting point as December 2001, that would bring one, by applying the normal period of three months to March 2001 (sic).

Given, however, the size and complexity of this bill, it seems to me that to draw the bill up and commence proceedings for detailed assessment by September 2001 (sic) is again justifiable.

In those circumstances, there seems no reason to me why interest should not run throughout the period from the original date of judgment, 21 October 1999."

[Note: It is clear from the context that the references in that passage to March 2001 and September 2001 are to March 2002 and September 2002.]

On 24 October 2003 the senior costs judge granted final costs certificates against Mora and Chascona under the order of 21 October 1999 in the sum of £10,825,281.80. He awarded the claimants their costs of the detailed costs assessment, which (as I have said) they estimate at £500,000.

(13) Permission to appeal from Mr Justice Etherton's order of 3 February 2003 (which he had refused on 25 July 2003) was granted by this Court (Lord Justice Mummery and Lord Justice Mance) on 11 November 2003. The claimants applied for security for their costs of the appeal. That application came before Sir Swinton Thomas, sitting as a judge of this Court, at the end of January 2004. On 13 February 2004 he ordered that £450,000 be paid into court by Mora and Chascona as security for the costs of the appeal; and that a further sum of £600,000 be paid into court on account of the costs of the hearing of the set aside applications in December 2002 and the permission to appeal application in July 2003. If those conditions were not met, the appeal from the order of 3 February 2003 was to be dismissed. As Mr Justice Etherton observed, at paragraph 24 of his judgement of 19 February 2004:

"Those conditions have not been satisfied, and I have before me no evidence as to whether or not they will be satisfied. It is not in dispute that they can only be satisfied if Mr Cavazza is willing and able to pay the sums required."

(14) The appeal itself was heard on 30 June 2004 and was dismissed.

33. It can be seen from that summary of the procedural history that, until December 2001 (when Mora and Chascona issued their applications to set aside the 1999 judgments) the claimants had no reason to pursue a detailed assessment of the costs awarded on 21 October 1999. There was no prospect that the companies would pay those costs. The point is made in Mr Pugh's witness statement of 9 May 2002; and by the senior costs judge in his ruling on 26 September 2003. But, once the application to set aside had been made in December 2001, that position changed. The claimants had a legitimate interest in establishing that the costs to which they were entitled under the 1999 award were very substantial. They were concerned to establish that, first, in the context of their application for a stay of the set aside applications (both before Mr Justice Jacob in May 2002 and on the appeal by the companies to this Court in November 2002); and, second, in the context of the set aside applications themselves (both before Mr Justice Etherton in December 2002 and on the appeal to this Court for which permission was granted in November 2003). That was the point made by counsel in the skeleton argument dated 22 November 2002.
34. The judge recognised that, in commencing and pursuing the detailed costs assessment, the claimants were driven by the concern to which I have just referred. But he described the pursuit of the assessment for that purpose as "a purely tactical weapon" (paragraph 132 of his judgment) which, in the event, "has proved of no tactical value" (paragraph 141). It was, I think, because he took the view that the pursuit of the detailed costs assessment had contributed nothing to the outcome of the post 1999 litigation that he refused to order that Mr Cavazza pay the costs incurred in that exercise.
35. Four elements can be identified in the reasoning which led the judge to the conclusion that pursuit of the detailed costs assessment had contributed nothing to the outcome of the post 1999 litigation. First, having obtained the order of 13 May 2002 from Mr Justice Jacob – that Mora and Chascona pay £1.5 million into court in respect of past costs as a condition of avoiding a stay – the claimants (who believed, correctly, that their costs were in the region of £10 million or more) "hoped that, following a detailed assessment or an interim costs certificate, they would succeed in obtaining a substantial increase of the £1.5 million" – paragraph 133 of the judgment. But, in November 2002, this Court allowed the appeal from so much of Mr Justice Jacob's order of 13 May 2002 as imposed a condition in relation to the payment of past costs; so that pursuit of the detailed costs assessment achieved nothing in that context.
36. Second, the judge himself had dismissed the set aside applications in February 2003 – on the basis that that was what justice required, having regard to the matters specified in CPR 3.9(1) – so that the question what condition in relation to the payment of past costs should be imposed had not arisen.
37. Third, the judge had refused permission to appeal from his order of 3 February 2003 – on the application before him in July 2003 – so, again, the question what condition in relation to the payment of past costs should be imposed had not arisen. Nor did that question arise in November 2003 when this Court granted limited permission to appeal from the order of 3 February 2003. And when Sir Swinton Thomas was asked in February 2004 to impose a condition in respect of past assessed costs – which gave rise to the need to consider that question indirectly - he refused to do so.
38. Fourth, if the appeal from the order of 3 February 2003 were unsuccessful (or if the conditions that were imposed by Sir Swinton Thomas were not met, or the appeal were allowed on conditions which were not met), the costs assessment would have been of "no practical value whatever" – paragraph 138 of the judgment. As the judge put it: "It will merely have served to quantify a further element of indebtedness by Mora and Chascona to the Claimants – indebtedness which will never be discharged in view of the amount of the Judgments and the very limited assets available to meet them". It was only if the appeal were successful "and a condition is attached for payment (into court or to the Claimants) of the costs which were the subject of the Costs Assessment" that the detailed costs assessment would have been of any value – paragraph 140 of the judgment. The claimants should have awaited the result of the appeal, and have "waited until any such condition was actually imposed" before commencing and pursuing the detailed costs assessment – paragraph 141. If the claimants were concerned about time limits, they should have applied for a general extension.
39. In reaching his conclusion that the detailed costs assessment had been commenced and pursued as "a purely tactical weapon", the judge rejected the explanation given by Mr Pugh in a witness statement made on 23 January 2004. Mr Pugh had said that "the detailed assessment proceedings of the costs of the action were commenced because of the assertion by Mr Ford [in his witness statement of 1 May 2002] . . . that the costs of the action should be disallowed in part, if not in their entirety". The judge accepted that Mr Pugh was recalling events to the best of his ability; but observed that "it is to be noted that that statement appears for the first time in a witness statement made in January of this year". He preferred the more contemporary explanation given in counsel's skeleton argument dated 22 November 2002.
40. For my part I think that the judge was correct to take the view that the claimants' decision to commence and pursue detailed assessment proceedings in respect of the costs awarded on 21 October 1999 was driven, primarily at least, by their concern to establish, both in the context of their application for a stay of the set aside applications and in the context of the set aside applications themselves, that those costs were very substantial. He was, I think, entitled to give little weight to a suggestion that the explanation in Mr Pugh's witness statement of 23 January 2004 was the real reason – or a substantial reason – for the decision; although the need to comply with the requirements of the costs rules may have some part in that decision. But, in holding that the fact that the detailed assessment proceedings were commenced and pursued for the reason which he identified – and were, in the event, of no value to the claimants – was a sufficient reason to refuse to make an order against Mr Cavazza in respect of the costs of those proceedings, the judge overlooked three important factors.
41. First, as it seems to me, the judge overlooked the fact that, in commencing detailed assessment proceedings, the claimants were doing what the costs rules required. Detailed assessment proceedings are commenced by the receiving party serving on the paying party notice of commencement and a copy of the bill of costs – CPR 47.6(1). That should be done before the expiry of three months from the date when the court has finally determined the matters in issue in the claim in relation to which costs have been awarded – CPR 47.7, read with CPR 47.1 and section 28.1(1) of the Costs Practice Direction (47PD.1). A party may apply for an order extending that period – section 33.2 of the Costs Practice Direction (47PD.6). Failure to commence detailed assessment proceedings may attract sanctions – CPR 47.8. In particular the court may disallow all or part of the interest that would otherwise be payable on costs awarded – CPR 47.8(3). Further, the paying party may apply to the court for an order requiring the receiving party to commence proceedings within a specified time – CPR 47.8(1). On such an application the court may direct that, on failure to commence proceedings within the time specified, all or part of the costs to which the receiving party would otherwise have been entitled will be disallowed – CPR 47.8(2). True it is that the claimants could have applied for an extension of time. But it did not lie in the mouths of Mora and Chascona (or in the mouth of Mr Cavazza, who as the judge found was the moving force behind the conduct of the proceedings by Mora and Chascona at the relevant time) to criticise the claimants for doing what the rules required; a fortiori, in the circumstances that their solicitor, Mr Ford, had taken the point (in his witness statement of 1 May 2002) that there had been "inordinate delay" in commencing the detailed costs assessment and that that delay had given rise to prejudice to Mora and Chascona as the paying parties.
42. Second, the judge was wrong to take the view (at paragraph 143 of his judgment) that the claimants could derive no assistance from the comments of the senior costs judge in his ruling of 26 September 2003. He was, of course, correct to point out that those comments were made "specifically in the context of the question whether the Claimants should be deprived of interest on their costs during the period following the [1999 judgments]". But he overlooked – or gave no weight to – the observation of the senior costs judge that, once Mora and Chascona had applied to set aside the 1999 judgments "it became not only justifiable but necessary to draw up a bill and have that assessed". And he overlooked the fact that the senior costs judge had made an order that Mora and Chascona pay the claimants' costs of the detailed assessment; based, no doubt, on the fact that the claimants had been successful on the point of principle which had been in issue in July 2003 and on the fact that the exercise had been justifiable and necessary.
43. Third, the judge seems to have failed to appreciate that there was a need, in the context of the set aside applications and the claimants' application to stay those applications, to determine the point of principle which had been in issue in July 2003. This was not a case in which there was broad consensus as to the amount at which the costs payable under the 1999 order would eventually be assessed. The point of principle which was in issue was whether Mora and Chascona were liable under that order for the whole of the costs of the proceedings, or liable only for the costs of the proceedings attributable to the claims against those two companies. The difference was not as to a couple of hundred thousand pounds; but, as it proved in the event, between, say £1 million and £10 million. If the claimants were entitled to ask the court to take into account the existence of the 1999 costs order when deciding whether or not to set aside the 1999 judgments – as it was acknowledged they were by the concessions made at the hearing in December 2002 – then that issue of principle needed to be determined. The judge was wrong to hold, in the particular circumstances of this case, that "it would have been more reasonable of the Claimants to have waited until [a condition as to the payment of past costs] was actually imposed before embarking upon the exercise of the Costs Assessment" – paragraph 141 of his judgment. In July 2003 the two companies were seeking permission to appeal the order which the judge had made on the set aside applications. At that stage the concession made in December 2002 had not been withdrawn. If, on an appeal for which permission were obtained (as it was, in November 2003), this Court were to be invited to consider setting aside the 1999 judgments on the basis of a condition as to the payment of past costs, it would want to know the range within those costs were likely to fall.
44. The need to comply with the costs rules and the need to resolve the issue of principle provided solid support for the comments of the senior costs judge that it was not only justifiable but necessary for the claimants to draw a bill and have it assessed. It seems to me impossible to avoid the conclusion that Mr Justice Etherton thought that the senior costs judge was wrong to order Mora and Chascona to pay the claimants' costs of the detailed assessment proceedings. On analysis it can be seen that his reasoning, when addressing the application in relation to the costs assessment costs is not directed to the question "If it were right for Mora and Chascona to pay the costs assessment costs, is it right to make an order against Mr Cavazza in respect of those costs?" The answer which he had already given to the comparable question in relation to the set aside costs would have required him to answer that question in the affirmative. The question to which the judge's' reasoning is addressed in relation to the costs assessment costs is whether it was right for the claimants to have those costs from anyone – Mora, Chascona or Mr Cavazza. He answered that question in the negative without explaining why he disagreed with the senior costs judge.
45. I accept, of course, that it was open to the judge to disagree with the senior costs judge on the question whether it was right for the claimants to have the costs assessment costs from anyone. But, in a case of this nature, it was necessary for the judge to explain why he took the view that the senior costs judge was wrong. It was not enough to suggest that that judge was addressing a different point. The question whether it was justifiable and necessary for the claimants to draw a bill and have it assessed was central both to the question whether the claimants should have an order for the payment of the costs assessment costs against Mora and Chascona and to the question whether the claimants should have an order for the payment of those costs against Mr Cavazza.
46. In my view the senior costs judge was right to reach the conclusion which he did on the question whether it was justifiable and necessary for the claimants to draw a bill and have it assessed. I think that Mr Justice Etherton's conclusion on that question was flawed, for the reasons which I have sought to explain. It follows that his exercise of discretion in relation to the question whether an order should be made against Mr Cavazza in respect of costs assessment costs was made on a false basis. I would allow the claimants' appeal.

The Court of Appeal costs

47. That leaves for decision the question whether an order for costs should be made against Mr Cavazza in relation to the claimants' costs of the appeal to this Court from the order of 3 February 2003. It was, I think, accepted on his behalf that, if the Court were against him in relation to the costs of the set aside applications before Mr Justice Etherton (that is to say, if he failed in his cross appeal from the order of 19 February 2004), there was nothing further that could be said in relation to the costs of the appeal. But, in any event, it seems to me that, if he should pay the costs of the set aside applications before the judge, it must follow that he should pay the costs of the unsuccessful appeal. The position has remained unchanged. Mr Cavazza has been pursuing this litigation for his own benefit; and he should be required to do so at his own risk as to costs.

Conclusion

48. I would dismiss Mr Cavazza's cross appeal from the order of 19 February 2004. I would allow the claimants' appeal from that order. I would order that Mr Cavazza pay the claimants' costs of the appeal to this Court from the order of 3 February 2003.

Lord Justice Jonathan Parker:

49. I agree.

Lord Justice Kennedy:

50. I also agree.
ORDER:

1. The appeal be allowed

2. The 56^th Defendant do pay, on the standard basis, the Claimants' costs of and occasioned by the detailed assessment proceedings against the 10^th and 38^th Defendants pursuant to the Order of Senior Costs Judge Hurst dated 26 September 2003.

3. The 56^th Defendant do pay the costs of the appeal and the costs of the application dated 6 February 2004; such costs, unless agreed, to be the subject of detailed assessment on the standard basis.

4. The 56^th Defendant do pay the costs of the cross appeal dated 30 April 2004; such costs, unless agreed, to be the subject of detailed assessment on the standard basis.

5. The 56^th Defendant do pay assessed on the standard basis, the Claimant's costs of and occasion by the 10^th and 38^th Defendants' appeal and application for permission to appeal the Order of Mr Justice Etherton dated 3 February 2003, (such costs to include the costs of the Claimants' application for an Order that the 10^th and 38^th Defendants provide security for costs of the appeal and that conditions be imposed on the appeal heard by Dir Swinton Thomas on 30 January 2004 and 4 February 2004).

6. The 56^th Defendant do pay the Claimants; costs of the Application dated 22 September 2004; such costs; unless agreed, to be the subject of detailed assessment on the standard basis.

7. The 56^th Defendant do pay the sum of £88,000 by way of interim payment of the costs payable under paragraphs A(3), B(2) and C(2) above.

8. The 56^th Defendant's application for leave to appeal to the House of Lords to be dealt with on paper.

(Order does not form part of approved Judgment)