Case No: A3/2007/ 2655(B)
Neutral Citation Number: [2008] EWCA Civ 490
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(MR ROBERT HAM QC)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday, 24th April 2008

Before:

LORD JUSTICE RIMER
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Between:

	MERIDIAN INTERNATIONAL SERVICES LIMITED
	Appellant	
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(1)	IAN RICHARDSON
(2)	IP ENTERPRISES LIMITED
(3)	PETER ALDERSLEY	
Respondent	

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(DAR Transcript of 
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Official Shorthand Writers to the Court)

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Mr Richard Davis (instructed by Wright Hassall LLP) appeared on behalf of the Respondent.
Mr James St Ville (instructed by Wedlake Saint) appeared on behalf of the Appellant.

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Judgment
Lord Justice Rimer:

1.	These are proceedings in which Meridian International Services Limited (“Meridian”) is the claimant and the three defendants are Ian Richardson, IP Enterprises Limited and Peter Aldersley. The trial of Meridian’s claim came before Mr Robert Ham QC over seven days in July 2007.  Mr Ham was sitting as a deputy judge of the Chancery Division. On 2 November 2007 the judge made orders dismissing the claim, for delivery up and for an enquiry as to damages in favour of the defendants. He also ordered Meridian to pay the defendants’ costs of the claim and counterclaim, part of which was to be assessed on the indemnity basis, and ordered Meridian to pay £80,000 on account of that liability within 21 days. The enquiry as to damages was later settled by a consent order dated 20 December 2007 under which Meridian was to pay the defendants’ £30,000 in three equal instalments over the following three months. That order awarded the defendants the costs of the enquiry. 

2.	I gave Meridian permission to appeal on 29 January 2008.  On 4 March the defendants -- now the respondents to the appeal -- issued the application now before me for security for their costs of the appeal. The evidence in support is that of Iain Colville of Wright Hassall LLP, the respondents’ solicitors. The assertion that Meridian will be unable to pay the respondents’ costs if unsuccessful in the appeal is not in issue. It is a company of which John Bobeckyj is the sole shareholder and a shadow director.

3.	Mr Colville explained that in the court below Meridian, as claimant, gave security for £40,000 by way of a personal guarantee from Mr Bobeckyj and a bank guarantee from the Bank of Scotland. That security was limited to the costs of the proceedings below. It was provided pursuant to a consent order of 29 June 2007 and against a background of evidence that Meridian’s internally prepared management accounts for the year ended September 2006 showed net income of just over £4,000 and an unsubstantiated projection of earnings of £403,000 for the year ending September 2007. Meridian has never filed any statutory accounts, the first set of accounts that it ought to have filed being overdue since 1 July 2007. Meridian’s position since the filing of that evidence is that it has had to meet its own costs of the trial in July 2007; it has paid the interim sum of £80,000 on account of the costs ordered by the judge; it has paid the £30,000 damages; and it has had to incur the costs of launching its appeal.

4.	The present application has provoked some discussion about the security currently in place pursuant to the June 2007 order. The respondents’ trial costs amounted to some £180,000. After giving credit for the £80,000 already paid, the sum of £38,000 is said to be due, albeit subject to a detailed assessment.  In addition, the respondents claim costs of some £12,900 plus VAT by way of costs of the consequential enquiry as to damages, although these costs are also subject to a detailed assessment. The respondents’ position is that, even after such assessments, they are likely to be entitled to recover costs of more than £40,000 from Meridian, that being the amount of the security. Mr Bobeckyj, who has made a late witness statement, does not accept that the outcome of such assessments will be that the respondents will recover as much as they assert, and his position is that they are likely to recover no more than about £8,750.  I am in no position to assess the merits of the different positions as to that.  Some complaint is made by Meridian that the respondents have still not proceeded with the detailed assessment of their costs below. Their explanation for not doing so is the launching of Meridian’s appeal. They say that it is not surprising that they should wish to await its outcome before seeking a detailed assessment; and the fact of the pending appeal makes it practically impossible to part with their files for costs assessment purposes.

5.	As regards the respondents’ costs of the appeal, in February 2008 the respondents entered into conditional fee agreements with their solicitors and with leading and junior counsel. Notice of that was serviced on Meridian on 3 March. Mr Colville’s assessment of the respondents’ costs of the appeal already incurred and to be incurred (including success fees) is £105,610.74 plus VAT, a figure shown by a draft bill prepared by 4 March. The success fees provide for an uplift of 33% on the base costs. The respondents ask for security in the sum of £75,000. That represents 71% of the total costs estimate.  

6.	On 10 March Meridian’s solicitors, Wedlake Saint, proposed that the existing £40,000 security provided pursuant to the June 2007 order should be extended to cover the respondents’ costs of the appeal. By that I understand them to have offered no more than that any surplus on that guarantee should be available to meet those costs. They also raised criticisms of the size of the respondents’ estimated bill, including the costs already incurred. On 12 March Wright Hassall rejected the offered security. On 18 March Wedlake Saint offered a guarantee of £40,000 for the costs of the appeal. That was plainly in addition to the existing £40,000 security. Their letter suggests -- wrongly, according to my understanding -- that that is what they had offered on 10 March. The £40,000 offer of 18 March was repeated on 26 March. It was rejected on 8 April and again on 18 April.

7.	The only issue before me is, as I have said, not whether any, but how much, security should be provided. Under CPR Part 25.13(1)(a) I can only make an order for security if I am satisfied that it is just in all the circumstances of the case to make such an order. That goes to the amount of any security order as well as to whether any security at all should be ordered. In his skeleton argument for Meridian, Mr St Ville submitted that it would be just to order security for costs in a figure of between £21,000 and £30,000 and no more. In his oral argument, however, he made it clear that the £40,000 offer, earlier made by Meridian, has not been withdrawn. 

8.	The appeal is estimated to last between one and two days. It was originally going to raise an issue as to the express terms of the arrangements between the parties, but in March the parties agreed that it would be confined to an issue as to whether the parties’ relevant relationship included certain alleged implied terms. The base rates claimed in the respondents’ bill amount to some £79,000. The success fees account for an additional 33%, or £26,000, taking the total bill to the £105,000 figure. Mr St Ville does not criticise the 33% uplift as being in principle unreasonable in the context of the issues in this appeal, but he does make the point that Meridian has no knowledge of the circumstances in which the respondents themselves might become personally liable to pay that success fee, since the CFAs have not been disclosed and nor is that contingency explained in Mr Colville’s evidence. He says that in these circumstances it would be unjust for Meridian to have to provide security in respect of the success fee element of the bill, although he does not submit that it would be unjust for it to have to provide security for the base element of the respondents’ costs in an amount that the court adjudges fair. 

9.	In making this submission, Mr St Ville relied on the decision of this court in Hollins v Russell [2003] 1 WLR 2487, in particular on paragraphs 71 and 80, in which the court indicated that, in costs proceedings, a receiving party seeking to rely on CFAs should, as a matter of fairness, ordinarily be put to his election as to whether to produce the CFA, perhaps redacting parts of it. The point he made is that, if that is a matter of fairness in costs proceedings, it must be a matter of like fairness in an application for security. The court cannot, it is said, make a fair assessment of the amount of security without being informed of the essential provisions of the CFAs. It is on this basis that Mr St Ville submits that the court should be cautious about providing security for the success fee element of the bills.

10.	For the respondents, Mr Davis submitted that, whatever may be the practice in costs proceedings on a detailed assessment, the like considerations do not apply on an application for security for costs. I did not understand him to submit that Mr Colville’s evidence makes clear the circumstances in which the respondents will become liable to pay the success fees to their lawyers. His point was a more general one that the respondents are not at this stage seeking any order for payment of any such success fee. They are merely seeking security for their costs and, if they are ultimately successful on the appeal, the indemnity principle will prevent them from recovering any more costs than they have to pay. 

11.	Mr St Ville also says that Meridian’s position on the present application has been made worse by the respondents’ failure to commence a detailed assessment of their costs below within the three-month period, since this has prevented it from establishing that, and the extent to which, the £40,000 security already provided is free to be deployed for the purpose of providing security for the appeal costs. I have already referred to what the respondents’ position on that is. I think that by the end of the argument this consideration was merely being invoked by Mr St Ville as a matter to take into account in assessing the justice of making a security order in any particular amount.

12.	Mr St Ville also submitted that the respondents’ estimated costs bill is anyway manifestly excessive. Their total costs for a seven-day trial was some £118,000, whereas their costs for an appeal lasting no more than two days are estimated at £105,000. That is said to be ostensibly disproportionate, particularly when compared with Meridian’s estimated costs as appellant of about £30,000 using just junior counsel, or £45,000 with leading counsel. 

13.	The first element of the bill is Wright Hassall’s costs for work actually done on the appeal down to 4 March. It amounts to £27,717.74, including the 33% uplift.  Mr St Ville does not challenge all the items which go to make up this figure, but does submit that 5.2 hours, by a Grade A fee earner on telephone calls with the respondents is apparently excessive and suggests some two hours would be more appropriate. He similarly challenges 12 hours in attendances on the court, counsel and others and suggests that two to three hours would appear to be a more reasonable figure. He likewise challenges 45 hours spent on documents and suggests that ten hours would be more reasonable. He does not of course question that the time recorded in the bill was actually spent, but his point is that the more relevant consideration is what it would be reasonable for Meridian to have to pay for work of this order. The financial effect of Mr St Ville’s suggested revisions is to reduce the figure of £26,717.74 to £15,346.24.  

14.	The next part of the bill deals with future costs, for which the total solicitors’ costs amount to £35,378. Mr St Ville questions another 25 hours’ attendances on the respondents and suggests that five hours is more than reasonable. He challenges 40 hours’ attendances on Meridian, counsel, the court and others and suggests again that five hours is more reasonable. He challenges a further 60 hours by a Grade A fee earner on documents and suggests that ten hours is a fairer amount. Those adjustments reduce the overall figure to £8,844.50.  Finally, the costs of leading and junior counsel for the appeal are included at £43,515, which Mr St Ville suggests is excessive, and he proposes that a more reasonable figure for leading and junior counsel is £28,000 in all. The overall effect of his suggested revisions is to produce, in place of a current total of £105,610.74, a revised total of £52,190. After then taking off the 33% uplift which is included in that revised figure, the net figure is £39,100, which is in line with Meridian’s £40,000 offer. 

15.	Mr Davis defends the amount of time spent on documents on the basis that the nature of the issues raised by the appeal is such that it has been necessary for the respondents to perform a detailed trawl through the documents in order to identify the factual basis against which the issues on the appeal, now reduced to issues as to implied terms, are to be contested. I am told that, once that exercise was done, the respondents’ skeleton argument was prepared by 10 March and served by about 20 March. I am disposed to accept that Mr St Ville may have been too harsh in his criticism of the time spent on documents down to 4 March, although I would still regard 45 hours as apparently an excessive amount of time on documents for which it would reasonable to expect Meridian to have to pay. On the other hand, I regard Mr St Ville’s criticisms of the estimate of future solicitors’ costs as, on the face of it, justified. 

16.	In my judgment, admittedly adopting a fairly broad brush approach, a fair figure for solicitors’ past and future costs is £30,000 and a fair figure for leading and junior counsel is £40,000. That totals £70,000, including the uplift. I have been persuaded by Mr St Ville that, on the basis of the material at present before the court, it may be unjust to provide security also for the uplift. I propose therefore to order security be provided in the lesser sum of £53,000. There is no evidence that an order for security in this amount will in any manner stifle the appeal. Nowadays the court has to have regard not just to whether the corporate appellant can itself provide security, but whether those behind it can put it in funds to do so; and there is no suggestion that Mr Bobeckyj cannot do that (see, in this context, Keary  Developments  Ltd  v  Tarmac  Construction  Ltd  and Another [1995] 3 AER 534, at 540, per Peter Gibson LJ).  

17.	I will therefore order Meridian to provide security in the sum of £53,000.

Order:  Application granted