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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 >> MacKay & Ors v Ashwood Enterprises Ltd & Ors [2013] EWCA Civ 959 (31 July 2013) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2013/959.html Cite as: [2013] EWCA Civ 959, [2013] 5 Costs LR 816

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE PETER SMITH

[2012] EWHC 3637 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		31st July 2013

Lord Justice Lloyd:

Introduction and summary

1. This judgment is given on two linked appeals. One appeal is against an order of Mr Justice Peter Smith made on 29 June 2012, on a without notice application by the claimants. The other appeal is against the same judge's order dated 22 November 2012, on the application of the defendant appellants whereby he refused to set aside his earlier order.
2. The judge's order dated 29 June 2012 (which I will call the First Order) covered various matters, including injunctive relief and service of the proceedings (the first defendant is a company incorporated in the Isle of Man), but the only provision in the order which is at issue on the appeal is that which requires the defendants to pay the claimants' costs of and occasioned by the application, the amount of which was to be (and later was) assessed summarily by the judge. The judge had made another order (which I will call the Receivership Order) on the same day, appointing the claimants as receivers, in circumstances to which I will refer, and thereby conferring on the claimants the standing which they used to commence the proceedings in anticipation of which the First Order was made. By the first appeal, number 3266, the appellants seek to set aside the paragraph as to costs in the First Order, and to have it replaced by a provision either that there be no order for costs, or that costs be reserved.
3. The order dated 22 November 2012 (which I will call the Second Order) dismissed an application made by the first to fifth defendants, issued on 29 October 2012, to have the costs provision in the First Order set aside, and replaced by an order reserving the costs of the application to the trial judge. On that occasion the judge gave an extempore judgment, the reference to which is [2012] EWHC 3637 (Ch). He refused permission to appeal, but permission to appeal was given by Sir Stanley Burnton on a consideration of the papers, both for an appeal against the Second Order (which is appeal 3267) and, in case it were needed, against the First Order, with an extension of time for that appeal.
4. The appeals are brought by the first three defendants only. They are represented by Mr Hugo Page Q.C., as they had been below on the hearing which led to the Second Order and a number of other hearings, though not, of course, the hearing of the without notice applications on 28 and 29 June 2012. The claimants are represented by Mr Anthony Trace Q.C. and Miss Rosanna Foskett, as they had been (by one or other or both of them) at all hearings below. At the end of his judgment given on 22 November 2012 the judge thanked Counsel for their cogent and robust submissions. I am pleased to be able to express the same thanks for the submissions (written and oral) addressed to us on the appeals.
5. Mr Page argues that the provision in the First Order that the defendants do pay the claimants' costs of the application is an order as to which either the court had no jurisdiction to make it at all, at a hearing notice of which had not been given to the defendants, or if there was jurisdiction, that it could not properly be exercised at such a hearing so as to make such an order. It is, at first sight, a striking proposition that defendants should be ordered to pay such costs, notice of the hearing at which it was made having been withheld from them.
6. For the reasons set out below, in my judgment the judge had power to make the First Order, and he exercised that power in a proper manner so as not to be open to challenge on appeal. He was also justified in refusing to set the First Order aside. I would therefore dismiss both appeals.

The background to the proceedings

7. In order to understand the circumstances in which the First Order was made, it is necessary to be aware of the relevant history, which was explained in the evidence put before the judge on the applications in June 2012 on which he made first the Receivership Order and then the First Order. I will set this out in summary form.
8. The second and third defendants (together, the McFeely brothers) are the registered proprietors of freehold property at 160-188 High Street Stratford London E15 (the Property), which they hold on trust for the first defendant (Ashwood). The Property is close to Stratford International Station and the Westfield Stratford Shopping Centre, and to the site of the Olympic Games held in London in 2012. Several blocks of mixed residential and commercial use have been developed on the land. The development was carried out by a company incorporated in Northern Ireland, Inis Developments Ltd (Inis). In order to finance the development work, Inis entered into a facility agreement with the Bank of Ireland (the Bank). The indebtedness under this was secured by a legal charge (the Charge) of the Property granted by the second and third defendants, with the consent of the first defendant, dated 26 June 2007 and duly registered.
9. The second defendant purported (on behalf of Ashwood) to grant a lease of residential parts of one of the blocks within the Property, Athena Court, in favour of a company called Filtons Leasing (London) Ltd (Filtons Leasing), dated 31 October 2010. In proceedings to which I will refer as the Filtons claim, Mr Justice Peter Smith declared on 24 May 2012 that this lease was a sham and of no effect: see his judgment at [2012] EWHC 1395 (Ch).
10. On 4 November 2011 the Bank demanded payment from Inis of sums in excess of £49 million. Shortly thereafter the Bank claimed the same sum from the McFeely brothers under the Charge. Neither demand was satisfied. The Bank then appointed receivers under the Charge and under the Law of Property Act 1925. Originally the persons appointed as receivers were partners in BDO LLP. They were later replaced by partners in Baker Tilly: Mr Graham Bushby, Mr Bruce Mackay, Mr George Maloney and Mr Matthew Haw. I will refer to these as the LPA receivers (including in that label, where relevant, their predecessors who acted at first). The McFeely brothers and Ashwood deny that the LPA receivers were validly appointed.
11. The LPA receivers experienced serious difficulties in carrying out their role as receivers in relation to the property comprised in the Charge. Thus, acting under the purported lease to Filtons Leasing, Filtons Ltd (Filtons) had let residential units in Athena Court to individual occupiers, and it purported to control the common parts as well. The LPA receivers started the Filtons claim against Filtons and Filtons Leasing. On 14 March 2012 in those proceedings the LPA receivers obtained an order by way of interim relief from Mr Justice Warren, on an application notice dated 8 March, of which notice had been given to Filtons and Filtons Leasing. This was later continued and extended by His Honour Judge Mackie Q.C., who also ordered an expedited trial. That trial came on before Mr Justice Peter Smith over four days from 23 to 26 April 2012. It was upon that claim that the judge gave the judgment to which I have referred on 24 May 2012 declaring (among other things) that the purported lease to Filtons Leasing was of no effect, being a sham. In the course of the proceedings it had transpired that on 13 March 2012, the day before the hearing of the application before Warren J, Filtons had paid £120,000 to the second defendant, something which Filtons would have been prohibited from doing if the order made the next day by Warren J had already been in force. The judge held that the real agreement between the second defendant and Filtons was a managing agency agreement under which Filtons never had any proprietary interest in Athena Court, but which entitled them to a 5% commission. He held that this had been terminated and that Filtons were accountable to the LPA receivers for any money received from occupiers of any part of the Property from 4 November 2011 onwards.
12. In the meantime the LPA receivers became aware that two other companies called Sector One Properties Ltd (Sector One) and Stratford City Residential Ltd (SCR) were advertising the letting of flats in Athena Court, holding themselves out as able to grant sub-tenancies or licences of such flats, and granting some purported lettings. Accordingly the LPA receivers commenced new proceedings against Sector One and SCR in May 2012 (the Sector One claim). In those proceedings they issued an application for interim relief which came before Peter Smith J on 11 May 2012. A Mr Stone, on behalf of both Sector One and SCR, provided a statement on behalf of the defendants to those proceedings, despite which the judge was satisfied that the LPA receivers were entitled to the relief claimed. He made orders against Mr Stone as regards the supply of information. Mr Stone's answers showed that his dealings with the Property were conducted on the basis of instructions or authority given by Ashwood in or about March 2012.
13. In the course of the hearing on 11 May 2012 the judge suggested that the LPA receivers should change the locks at Athena Court and take control of the Property as a whole. The LPA receivers took that suggestion up and applied to the judge on 16 May 2012 for orders, both in the Filtons claim and in the Sector One claim, that the Receivers were entitled to change the locks on the empty residential units in Athena Court and to secure the car park from unauthorised third parties. The order was made over until a return date of 24 May 2012 (the date on which the judge gave his reserved judgment in the Filtons claim) and was continued on that date against both Filtons and Sector One.
14. Acting on the basis of the order made on 16 May, the LPA receivers sent locksmiths to Athena Court to change the locks on the empty residential units and to secure the car park. According to their records there should have been 50 empty flats, but it turned out that no more than 15 were empty. Even after that, other locks were changed by third parties, and attempts were made to break the shutter which secured the car park.
15. I have mentioned the dispute as to the validity of the appointment of the LPA receivers. On 4 February 2011 solicitors acting on behalf of Ashwood served proceedings on the Bank asserting that the Bank had failed or refused to supply Ashwood with a redemption figure to enable Ashwood to redeem the Charge. I will call this claim the McFeely claim, consistently with the label used below. The issue of the transfer of the Charge by the Bank to the National Asset Management Agency (NAMA) was also raised. On 14 February SNR Denton, solicitors, (Dentons) replied, for the Bank and NAMA, that the loans had already been transferred to NAMA, and that the Bank considered that a proper redemption figure had been given in October 2010. In March 2011 Dentons served the Bank's defence and pointed out that the McFeely brothers, as chargors with the legal title to the property charged, should be added as parties. In reply the solicitors acting for Ashwood stated that they would amend the claim and would provide a draft within 14 days. Nothing more happened in those proceedings for a considerable time.
16. Some discussions took place between NAMA and Thomas McFeely, the second defendant, during 2011, but they did not satisfy NAMA's requirements, so the Bank made the demands in November 2011 to which I have already referred. In response, the solicitors who had acted for Ashwood wrote letters asserting that the appointment of the LPA receivers was invalid, but no application was made on behalf of Ashwood or the McFeely brothers to restrain the LPA receivers from acting.
17. On 20 March 2012 Merriman White, solicitors, wrote to Dentons to say that they would apply on behalf of the McFeely brothers to be joined as parties to the Filtons proceedings. They issued an application notice returnable before Master Marsh on 4 April. By then the Filtons proceedings were due for trial on an expedited basis starting on 23 April. Counsel had appeared before Judge Mackie at the hearing on 21 March in the Filtons proceedings to indicate that the McFeely brothers might apply to be joined to those proceedings, but no application had by then been made, so no order was made on that occasion as to this.
18. At the hearing on 4 April the application on behalf of the McFeelys was dismissed. Among other grounds on which the LPA receivers relied was the proposition that to join the McFeely brothers then would jeopardise the trial date, and that there was no indication of the relief, if any, which the McFeely brothers wished to seek.
19. In the course of the trial of the Filtons proceedings Thomas McFeely was present in court from time to time. The judge commented on this in his judgment, saying that one or other of the brothers was seen in court and giving instructions to Mr Kothia who (as a director) acted for the Filtons companies in the proceedings. He also noted that either of the brothers could easily have been called as a witness on behalf of Filtons to explain what was actually supposed to happen, but this was not done.
20. On 4 May 2012 Dentons received a letter from other solicitors, St John Law (who act for the Appellants in these appeals, and who operate from the same address as Merriman White) on behalf of Ashwood, saying that they intended to amend the Particulars of Claim in the McFeely claim commenced in February 2011, enclosing a draft of the proposed amendments. They asked that Ashwood be permitted to redeem the Charge at a figure said to be identified in the draft amended Particulars of Claim, but no such figure was in fact stated there. The amendments would have asserted that the Bank's appointment of the LPA receivers was not valid. On behalf of the Bank Dentons agreed to the making of the amendments, upon conditions as to costs.
21. To anticipate later developments in this respect, it appears that no further formal step was taken in these proceedings until a CMC was listed for 1 February 2013, which had to be adjourned until 12 April 2013 because Ashwood and the McFeely brothers were not ready to proceed. At that stage permission was given to amend the Particulars of Claim in the McFeely claim to bring the statement of case into line with the defence already pleaded to the Bank's Additional Claim, which included an allegation that the Bank had not been entitled to appoint receivers at the time that it appointed, or purported to appoint, the LPA receivers.
22. In the latter part of May 2012 and in early June 2012 the LPA receivers learned that a Mr Steve Evans, of SCR, was bringing pressure to bear on occupiers of flats in Athena Court to pay rent over to him, on behalf of Ashwood, including by conduct amounting to harassment. During June the unfortunate occupiers seem to have been in receipt of a spate of letters, some from Ashwood or solicitors acting in its name, and others from Dentons, asserting rival claims to receive the rents due. Letters sent by Dentons may not, however, have reached all intended recipients because the LPA receivers and those acting for them were unable to gain access in order to deliver the letters by hand, and it was feared that delivery by post might be intercepted.
23. These problems and others of a similar nature led the Bank to seek the assistance of the court by applying for the appointment of Mr Bushby and Mr Mackay as court-appointed receivers. This was the first of two applications that came before Mr Justice Peter Smith, first on 28 June 2012. Coupled with it was an application, contingent on the appointment of the receivers, for relief against Ashwood, the McFeely brothers and others to restrain interference with the exercise of rights under the Charge. The first application was to have been made in separate proceedings with a Part 8 claim form, but in the end, at the judge's insistence, it was in fact made in an additional claim by the Bank in the McFeely claim, by way of counterclaim against Ashwood and also against the McFeely brothers and others as additional defendants to the counterclaim. It was supported by affidavits by Mrs Rachel Anthony, of Dentons, which described the history and from which I have taken most of the account set out above, and Mr Bushby.

The applications on 28 and 29 June 2012 and the orders made

24. There is no transcript of the hearing before the judge, but we have a note prepared by Dentons. It appears from this note that Counsel had applied to the judge on Monday 25 June for leave to serve the application on short notice on the defendants, but that the judge had indicated at that time that he would hear the application himself on 28 June but without notice having been given to the defendants. Counsel relied on the conduct of the McFeely brothers, and others associated with them, such as I have already summarised, as justifying the application being made without notice. On 28 June Counsel appeared before the judge, who had by then seen the skeleton argument and supporting documents including draft orders. Discussion took place as to the appropriate way to proceed. The upshot was that Counsel and Dentons went away to prepare revised documentation, in accordance with the judge's preferred method of proceeding, and returned to the judge the following morning for the orders to be made.
25. On 29 June, the judge raised a number of points of detail with Counsel as to the terms of the order, most of which do not matter for present purposes. He did wish a return date to be fixed, which was to be 11 July, with a report to be made to the court by the newly appointed receivers by that date as well.
26. Accordingly, on 29 June 2012 the judge made the Receivership Order, in an intended Additional Claim in the McFeely claim. Mr Mackay and Mr Bushby were appointed joint receivers of the Property, to take possession of it and all parts of it, and with specified additional powers. I will refer to them, in this capacity, as the court-appointed receivers. They were to return to court for a return date on 11 July to report on the receivership and to seek further directions if necessary or appropriate. The order referred to it being made on undertakings set out in a First Schedule, though this is missing from the copy in the appeal bundle. The order gave liberty to apply to the Bank and to the court-appointed receivers, and it referred to the right of any party to the application, under CPR Part 23 rule 10, to apply to the judge to set aside or vary the order.
27. Having made that order, the judge then made the First Order, in intended new proceedings to be brought by the court-appointed receivers as claimants and Ashwood, the McFeely brothers and others as defendants. This order had two Schedules, one listing the evidence on which it was made (an affidavit of Mrs Anthony and another made by Mr Bushby) and the other containing two undertakings: a cross-undertaking as to damages, and an undertaking as to the issue and service of the Claim Form in the new action, of the evidence in support, the First Order itself and a note of the proceedings in court on 28 and 29 June. I will call these new proceedings the CAR's claim. In substantive terms the order first declared that the defendants had no right to occupy or be present on the property, to obstruct the claimants' access to the property, or to do other things such as they had been doing or trying to do. Then the order gave directions as to service on Ashwood (by service on St John Law). It granted mandatory orders, including for delivery of all keys, for the payment of sums held or later received by way of rent, and for possession of the Property, and also interim injunctions until judgment at trial or further order of the court. Then there came the order as to costs, which is at issue on this appeal:

"The Defendants are jointly and severally liable for and must pay the Claimants' costs of and occasioned by the Application, to be summarily assessed on paper by Peter Smith J"

28. The Application was defined as the application by the court-appointed receivers. The order concluded with the statement that any party to the application has the right pursuant to rule 23.10 to apply to the judge to set aside or vary the order. Despite the reference in the course of discussion before the judge on 29 June to a return date, no return date was specified in this order, as it was in the Receivership Order.
29. The CAR's claim was commenced by a Part 7 Claim Form issued on 29 June, with short and simple Particulars of Claim endorsed upon it.

The subsequent proceedings

30. The first response to the First Order being made and served was an application by Thomas McFeely dated 4 July, made under rule 23.10, which came before the judge on 5 July, by which the applicant sought to be allowed to gain access to a flat which he claimed was his own residence in Athena Court. That application was dismissed, save that he was given permission, in defined circumstances, to attend at the flat to remove his belongings. The details of the order in that respect do not matter. The judge ordered him to pay the costs of the application on the indemnity basis, and provided for them to be quantified by a procedure which involved the court-appointed receivers supplying a schedule of costs to Thomas McFeely's solicitors on 6 July, the latter putting in any points of objection by 10 July and the documents being referred to the judge, in the absence of agreement, for summary assessment at the return date of 11 July. As a result of an observation by Mr Page, who appeared for Thomas McFeely, the judge inserted in the First Order and in the Receivership Order the following provision giving a more general liberty to apply than is afforded by rule 23.10:

"Any person affected by this Order be at liberty to apply on two business days' notice to Mr Justice Peter Smith at 10am for 30 minutes, subject to the availability of Mr Justice Peter Smith"

31. On 11 July, the return date under the Receivership Order, Counsel appeared before the judge on behalf of the court-appointed receivers, with no defendant being present or represented. The receivers reported to the court that, despite initial difficulties experienced over some days, they had been able to secure possession of Athena Court pursuant to the Receivership Order. The judge gave some further directions as to service, of no present relevance, and he assessed the costs payable by Thomas McFeely as regards the hearing on 5 July, and by all the defendants under the First Order.
32. He also made an order against the defendants that they pay the court-appointed receivers' costs of the hearing on 11 July itself, and he assessed those costs summarily there and then. At the hearing in November, he came to the conclusion that he ought not to have made that particular costs order, and he set it aside. Nothing more turns on that.
33. The defendants' solicitors, St John Law, had notice of the hearing on 11 July, from the terms of the Receivership Order and of the order made on 5 July. They had been supplied with a schedule of costs from the 5 July hearing, and, on 10 July, also with a schedule of costs for the application leading to the First Order. On 10 July they told Dentons that their clients were not yet ready to do anything, were "taking stock" and would not be present or represented on 11 July.
34. It seems that Thomas McFeely was made bankrupt in Dublin on 30 July 2012. He had been made bankrupt on his own petition in England in January 2012 but that order was set aside on the basis that his centre of main interests was not here but in Ireland.
35. On 31 July 2012 Ashwood and the McFeely brothers served a Reply and Defence to Counterclaim in the McFeely claim, denying the allegations of intimidation made by the Bank, and alleging that the appointment of the LPA receivers was invalid. They also served defences in the CAR's claim on the same date.
36. On 28 July 2012 the court-appointed receivers served a statutory demand on Ashwood in the Isle of Man based on the costs order made on 29 June, as quantified by the judge's summary assessment on 11 July (as well as the liability under the order of 11 July itself which, as I have mentioned, the judge later set aside). The demand not being satisfied, on 2 October the court-appointed receivers presented a winding-up petition in respect of Ashwood in the Isle of Man. On the previous day St John Law had written to Dentons to say that the costs provision in the First Order would be challenged.

The application to set aside the costs order

37. That challenge materialised in the form of an application notice issued on 29 October 2012 on behalf of the appellants and also the fourth and fifth defendants. This came on for hearing before the judge on 21 November.
38. The application to set aside the costs order was put on four grounds: it is contrary to principle for a final costs order to be made without notice and without the defendants having the opportunity to make submissions; the order was unnecessary and should not have been made; the costs the subject of the order were incurred due to the fault of the LPA receivers, the Bank and NAMA; and there should have been a direction for an oral assessment of the costs. The application was supported by a witness statement of Mr Murphy, of St John Law, which did not go into the merits of the case. Mr Page provided a skeleton argument in which, so far as relevant, he made much the same points, while accepting that the second ground had been ruled on by the judge on 5 July and was not open for further argument at that stage. In particular he made the point that, if Ashwood and the McFeely brothers are right in their position as to the validity of the appointment of the LPA receivers, then Ashwood and the McFeely brothers were entitled to collect the rents and to deal with the property, the LPA receivers being trespassers. If that were to prove to be correct (and the court could not prejudge this on 29 June) then the need for the appointment of the court-appointed receivers arose from the invalidity of the appointment under the Charge, and was the fault of the Bank, NAMA and the LPA receivers, not of the defendants.
39. The judge heard the application and gave judgment immediately. He set out the background and the history. He commented that, just as he had not had evidence from the McFeelys at the trial of the Filtons action, so none of the McFeelys had provided evidence on the application that was then before him nor, he said, had any of them condescended to provide a witness statement as to the merits in any of the actions. Mr Page told us that there had been a witness statement as to the merits in support of the McFeely brothers' application to be joined as parties to the Filtons claim, but the judge did not see that, nor have we seen it, so we cannot take it into account, any more than the judge could have done.
40. The judge observed that if, supposing the McFeely claim were to come to trial, it were established that the LPA receivers had not been validly appointed, then the Bank and those receivers would have been trespassers and would be liable in damages. On the other hand there was on any basis a very large sum of money due the other way, secured by the Charge, against which any monetary liability could be set off. By contrast, any money paid to Ashwood or the McFeely brothers "would simply disappear", so that the balance of convenience required that the flats should be operated on an interim basis by persons such as the receivers.
41. The judge said at paragraph 15 that the order was made until trial or further order, not in respect of a return day, because of a wish to save the costs of an additional hearing which might not be necessary. Because the defendants could apply to set aside or vary the order, the order would be effective, but would cease to be effective (and as regards the costs order, retrospectively so) if a successful attempt were made to discharge it or vary its effect. He went on to say this at paragraph 16:

"I accept that the order was a strong order on an ex parte basis, but in my view that was fully justified by the court-appointed receivers' evidence and the long period of harassment in which the only evidence I had showed that the McFeelys were orchestrating it. Mr Page Q.C. submits that the evidence is not relevant evidence to show that the Defendants would disobey an order of a court-appointed receiver. I am not aware of any continued harassment but I do note that the operation of the flats has still not proceeded particularly smoothly, as set out in the receivers' reports which have been provided to me. But I simply do not accept Mr Page Q.C.'s proposition. The whole basis for going for a court-appointed receiver was because that was an application made by the bank who have rights to appoint receivers under its charge, which these Defendants could not contest. The purpose of the court-appointed receiver was plainly set out in the evidence in support because it was the only realistic way in which the out of court receivers could obtain orders which they could enforce and properly exercise control over the properties pending the resolution of the dispute. It seems to me that the need for the court-appointed receivers was strongly made out in the evidence I have referred to, was fully justified and in the event has still not been challenged."

42. The judge then described what happened next, and the liberty to apply. He said that the liberty to apply did not give the defendants a general ability to apply to vary or challenge the costs order. Later in his judgment he referred to it having become a final determination upon the summary assessment of the costs, and said that, accordingly, the proper route to challenge the costs order was an appeal, not an application to set it aside or vary it. Mr Trace did not support this proposition, which he had not advanced. For reasons which I will give later, I do not agree with the judge on this particular point.
43. Then the judge referred to the non-attendance of the defendants at the hearing on 11 July, and the absence of any explanation for this. He mentioned this at a number of points in the course of his judgment. He attached importance to it. In my judgment he was quite right to do so. He suggested things that the defendants could have done. In particular they could have attended court to raise the substantive points later taken by Mr Page as to the First Order, or to deal with the issues on the summary assessment of the costs, and to seek a timetable for the matters to be considered and addressed in a proper and timely manner. Instead they did nothing, and they waited until October to act, which tardy action the judge, for obvious reasons, took as a response to the petition to wind up Ashwood in the Isle of Man.
44. In his consideration of the basis on which the costs order might be challenged, the judge rejected any attempt to rely on rule 3.1(7), or on rule 23.10. The only basis that could be appropriate was the general liberty to apply inserted in the First Order on 5 July.
45. He rejected Mr Page's attempt to rely on that general liberty to apply, by reference to the court's general discretion, treating all relevant circumstances as material to the exercise of the discretion. He identified in particular the failure to attend court on 11 July and to explain that failure, and in turn the absence of any explanation for the failure to apply promptly thereafter. At paragraph 35 (in the context of rule 3.9, relevant to a possible extension of the time under rule 23.10) he had said that the application to set aside or vary the costs order "should have been made promptly unless there was something which prevented them making the prompt application". He had noted that he had been available himself during July and during the latter part of August. He said that the application could have been made and heard much earlier, if it was genuinely justified or needed, and that it was not in the interests of the administration of justice to entertain a late application which could have been made much sooner, in the absence of any good reason being given for the delay.

The appeals

46. Mr Page addressed us under three headings in his oral submissions on the appeals. His first point was that to make a final costs order on a without notice application is outside the court's jurisdiction, or alternatively that it cannot be a proper exercise of the court's discretion as regards orders for costs. Secondly he contended (without opposition from the respondents, as I have mentioned) that, contrary to the judge's statement, the liberty to apply did allow his clients to seek to have the costs order set aside or varied. Thirdly he submitted that the judge had been wrong to hold that the right to apply under the general liberty could be lost by delay, and had been lost in the present case. He did not engage with the merits of the position except to the extent of saying that, because the Bank's right to appoint the LPA receivers was in dispute in other proceedings, which could not be prejudged, it might turn out that it was the fault of the Bank and the LPA receivers that the Bank found it necessary to apply for the appointment of receivers by the court, in which case it would be wrong for the defendants to have to pay the costs of that application.
47. For the respondents Mr Trace submitted that there was jurisdiction to make the order as the judge had made it, that in the circumstances it was a proper discretionary exercise, and that the judge's refusal to set it aside was fully justified.

Jurisdiction

48. The court's power to make orders as to costs is conferred in general terms by the Senior Courts Act 1981, section 51, in the following terms:

51 Costs in civil division of Court of Appeal, High Court and county courts

(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in—

(a) the civil division of the Court of Appeal;

(b) the High Court; and

(c) any county court,

shall be in the discretion of the court.

…

(3) The court shall have full power to determine by whom and to what extent the costs are to be paid."

49. It seems to me that Mr Page's contention as to the absence of jurisdiction cannot be reconciled with the generality of this provision. The court's jurisdiction as regards costs is fully general, and is not limited by any rule such as Mr Page argues for.
50. Moreover, the CPR themselves provide for an order for costs to be made on a without notice application, in rule 44.10(2)(c) (previously rule 44.13(1A)), as follows:

"(2) Where the court makes –

(a) an order granting permission to appeal;

(b) an order granting permission to apply for judicial review; or

(c) any other order or direction sought by a party on an application without notice,

and its order does not mention costs, it will be deemed to include an order for applicant's costs in the case.

(3) Any party affected by a deemed order for costs under paragraph (2) may apply at any time to vary the order."

51. Such an order does not give rise to an immediate obligation to pay the costs, since the applicant will only be entitled to the costs if he wins the case and gets an order for his costs at the end of the day. That is a material difference from the order made by the judge. Under his order, once the costs were quantified by assessment (as they were on 11 July), a debt was owed by the defendants which was immediately enforceable. It was on that basis that the court-appointed receivers presented the winding-up petition against Ashwood in October.
52. Nevertheless, a deemed order under rule 44.10(2)(c) would define the obligation as regards costs of the relevant application for once and for all, subject to any application to set it aside or vary it under rule 44.10(3). That is not consistent with the proposition that no such order can possibly be made, for want of jurisdiction.
53. Moreover, the judge's order, though expressed in final form and capable of becoming immediately enforceable on assessment of the costs, was subject to being set aside, just as a deemed order made under rule 44.10(2) is. Because the First Order was made without notice to the defendants, it was subject to the provision in rule 23.10, as follows:

"(1) A person who was not served with a copy of the application notice before an order was made under rule 23.9, may apply to have the order set aside or varied.

(2) An application under this rule must be made within 7 days after the date on which the order was served on the person making the application."

54. In compliance with rule 23.9(3) the First Order contained a statement of the right to apply under rule 23.10. This was later varied so as to include a more general liberty to apply for the same purpose, as I have mentioned. At all material times, therefore, the First Order was subject to the right of the defendants to apply to have it set aside or varied, thereby enabling them to advance whatever arguments they wished as to the merits of the order.
55. Mr Page relied on the judge's observation, in paragraph 13 of his judgment, that he had had no jurisdiction to make an order for costs against the defendants on 11 July in respect of the hearing on that day. This, he said, showed that issues of jurisdiction could and did arise as regards an order for costs made without notice. I do not think that in that passage the judge was using the word jurisdiction in the same sense as Mr Page has to, for this purpose. Instead, he recognised that there was no basis for such a costs order, since nothing had been left over in this respect under the Receivership Order (for which that day was the return date) and no application had been made, whether or not with notice, for an order that those costs should be paid by the defendants. That is not a pure issue of jurisdiction, in the sense of saying that such an order was ultra vires. Rather it amounts to saying that there was no proper basis on which the court's powers as regards costs could be exercised in that way in the given circumstances.

Discretion

56. Mr Page then argued that, even if the court had the power to make such an order, it was, first, not a power which could ever be properly exercised so as to make a final order for costs against a person who had not been given notice of the hearing and, secondly, in any event it was not one whose exercise could be justified on the facts of this case.
57. On his first contention, he submitted that it would be a fundamental breach of the rule of natural justice requiring the defendant to be given the opportunity to address the court as to the rights and wrongs of the order in question. The same would not always apply to an order for interim relief, if an adequate justification could be shown to the court for not giving notice, however short, but such relief should be granted over until a return day, on which the applicant would have to justify the continuation of the order. By contrast, the making of a final order for costs could never be justified on the grounds of urgency nor of any need for secrecy, those two factors (separately or together) being the grounds on which it could be justifiable to make an application without giving notice of it to the respondent.
58. As regards the circumstances of the present case, he criticised the judge's reasoning at paragraph 16 (quoted at paragraph [41] above) and elsewhere in a number of ways. He emphasised that, as the judge had accepted at paragraph 8 and 9, there was a genuine dispute as to the validity of the appointment of the LPA receivers, which remained to be determined in the McFeely claim. He said that the outcome of that dispute would have a clear materiality as regards the proper order for costs in respect of the appointment of the court-appointed receivers. If the LPA receivers were not properly appointed, then it was their fault, or that of the Bank, that it was necessary to apply to the court for receivers to be appointed, and the defendants ought not to bear those costs.
59. He submitted that the judge was wrong to say that any case had been made out of interference by the defendants with any orders made in the Filtons claim, and that the evidence as to money from occupiers being passed to the McFeely brothers after orders prohibiting this was generalised and speculative.
60. I do not accept Mr Page's first proposition as to the impossibility of a proper exercise of the discretion to make an order for costs on a without notice application which carries a right to immediate payment (or does so subject to quantification). I agree that such an order would be most unusual and, in the judge's word, "strong", and that it could only very rarely be appropriate. I would not wish to encourage judges to make such orders. But it seems to me that it cannot be a case of "Never"; rather it is one of "hardly ever".
61. A party who is ordered to pay costs in these circumstances has the protection of rule 23.10, even if no wider liberty to apply is conferred by the order. Mr Page contends that the respondent to the application ought not to have to take the initiative to get the order set aside or varied. Rather the applicant ought to be required to come back to court on proper notice to have the order made in a final form. In many cases it would be proper for the court to take that position, but I do not accept that this is essential and that the court cannot in any circumstances proceed as the judge did in this case.
62. As to Mr Page's alternative argument, that if the discretion could ever properly be exercised in this way, it was not justified on the facts of the present case, I will return to that later.

Did the liberty to apply extend to the order for costs?

63. I need not deal with this point in great depth, since Mr Trace did not submit to us that the costs order was not subject to the liberty to apply, either under rule 23.10, as the First Order stood originally, or under the general liberty inserted on 5 July. However, it seems to me worth saying something (albeit obiter) about the point, for the sake of the present case and of possible wider significance.
64. At first sight it seems clear that the right under rule 23.10, at any rate, applies to any and all aspects of the order made without notice to the party affected. If that is so, there is no apparent reason why the general liberty to apply should not have the same wide scope. It does not seem that it can have been intended that the wider liberty inserted on 5 July should be more limited in scope, even though less limited as regards the time for the application to be made, than the provision made by rule 23.10.
65. It seems to me that what may have underlain the judge's observation that the costs order was not subject to the liberty to apply was his view that the right avenue of challenge was not an application to set it aside but an appeal. What he said about this at paragraph 28 suggests that he was influenced by the fact that the amount of the costs had been quantified by assessment, and that this took place on notice to the defendants, so that that aspect would not be within the liberty to apply, either under rule 23.10 or under the more general provision inserted into in the First Order.
66. Although Mr Page was critical of the amount at which the costs were assessed, that is not within the scope of the appeal. I agree with the judge that the assessment itself, if open to challenge at all, could only be challenged by way of an appeal. But it does not seem to me that the same follows as regards the costs order as made in the First Order itself. It seems to me that the party against whom such an order is made on a without notice application does have a right to apply to the court which made the order (preferably to the same judge, as here) and to have the merits of the order reconsidered at first instance. That is a different exercise from an appeal, and the party affected is entitled to a proper hearing at first instance, as well as (subject to obtaining permission) to an appeal.
67. Although it was not cited to us (no doubt because this point was not in dispute) it seems to me that assistance by analogy is to be gained from the judgment of this court in Bank of Scotland v Pereira [2011] EWCA Civ 241. That was concerned with the different provision in the CPR by which a party who has not attended a trial may apply to have the order made set aside or varied, upon strict conditions: CPR rule 39.3(3) to (5). Both Lord Neuberger MR and I discussed the interaction between the exercise of that right and the parallel right to appeal. Although the potential range of circumstances in such cases may be wider and more various than in the present type of case, because the party applying will have had notice of the hearing, and has to show a good reason for non-attendance, nevertheless one theme that runs through the Master of the Rolls' judgment, with which both I and Gross LJ agreed, is that, normally, the right to apply to have the order set aside should be the first to be invoked. As to that Lord Neuberger said, at paragraph 25:

"It is a fundamental principle of any civilised legal system, enshrined in the common law and in article 6 of the Convention, that all parties in a case are entitled to the opportunity to have their case dealt with at a hearing at which they or their representatives are present and are heard."

68. Later, at paragraph 35, he said:

"CPR 39.3 exists essentially to ensure that a defendant has an opportunity to present her case to a judge."

69. The same, as it seems to me, can be said of rule 23.10. In the cases to which that rule applies the order will have been made without the party affected having had any opportunity to present a case to the judge. The rule ensures that there is such an opportunity. The making of orders by way of substantive relief (as distinct from case management) without notice to one party is exceptional. If such an order is made, the party affected should have the right to a first instance hearing at which arguments can be presented that would have been relevant if the original hearing had been on notice and attended by the party affected.
70. Mr Justice Peter Smith said at paragraph 27 that the affected party in such a situation "has an absolute unfettered right … at least once to come back to court to challenge the making of the order". I agree that there is and must be such a right. In general, it seems to me, that right is conferred by, and confined to, rule 23.10. In a case in which the party affected can fairly say that seven days from being given notice of the order is too short, it is likely to be possible to obtain an extension of the time, so long as the party has acted reasonably promptly. I am not sure that I would recognise the existence of a free-standing right to apply, outside the scope of the rule 23.10 or whatever express provision is made in the original order by way of liberty to apply. I do, however, agree with the underlying point, that a party affected by an order made without notice must have a right to apply back to the first instance court, and not merely a right to appeal. That applies to the order for costs, as it does to other aspects of the order made without notice.

The liberty to apply: timing

71. The right to apply under rule 23.10 is exercisable within 7 days after first having notice of the order, subject to the possibility of obtaining an extension of that period. The general liberty to apply inserted by the order made on 5 July was not time-limited in terms. Nevertheless, I agree with the judge that discretionary factors arise when such an application is made, and one of the factors that is plainly relevant is that of delay or, on the other hand, diligence and promptness in making the application. Mr Page argued that the applicant's position under such a right is not affected by the lapse of time. I do not accept that. In a case where the party affected has known of the order in question for some time, has not taken steps to have it set aside or varied despite that knowledge over an extended period, and does not offer a convincing explanation for its failure to act sooner, then it seems to me that the court is well entitled to take the unexplained delay into account in considering how to deal with the application. It may not be conclusive, if the merits are very strong in favour of allowing the application, but it is at least relevant and, often, the delay may suggest that the merits are far from strong, since otherwise the applicant would have made its application much sooner.
72. Mr Page pointed to the fact that the Bank had taken six months after appointing the LPA receivers before it applied to the court for the appointment of the court-appointed receivers. I do not see what relevance that comparison has for this exercise. He pointed to the Bank having proceeded against Filtons and against Sector One and SCR but not against the defendants. That is correct but also seems to me irrelevant. I will come back to the question of the proceedings to which the Bank and Ashwood are parties later. He pointed out that if there was to be a time limit in the general liberty to apply it could and should have been expressed. No such limit could be implied. I agree. Nor did Mr Trace argue that there was a time limit. But to accept that proposition does not show that delay, or the opposite, in making an application, and all the more so unexplained delay, is irrelevant to the discretionary exercise which arises if such an application is made.
73. Mr Page also challenged the conclusion that it would be unfair to the Bank or to the court-appointed receivers to hear the application when it was made in October 2012. That bears on the merits of the case, to which I will return shortly.
74. In my judgment the judge was right to hold that, even though there was no defined time limit on the liberty to apply, the circumstances in which the application to invoke it was made, including delay before making the application and the presence or absence of any explanation for such delay, are relevant to the exercise of the court's discretion on the application when made.

The merits

75. At last I turn to the factors which the judge gave as his reasons for making the First Order, the challenge to those reasons and the issue as to the merits generally.
76. The judge relied above all on the unexplained delay in making the application, from soon after 29 June when notice was given of the First Order, or 5 July when the general liberty to apply was inserted into the First Order, to 29 October when the defendants' application notice was issued, with a letter giving warning of such an application dated 1 October 2012. The judge regarded the defendants' failure to attend court on 11 July as particularly relevant, especially given that he took it to be a deliberate failure, with notice, albeit short, of the hearing. It has not been suggested that he was wrong to treat it as deliberate. Likewise he took as significant the absence of any explanation of the delay that elapsed from then until October.
77. As regards what had happened in the meantime, the judge noted the terms of the Reply and Defence to Counterclaim served on 31 July 2012 in the McFeely claim which he regarded as unsatisfactory. In one sense, the purpose of the additional claim in those proceedings was complete once the judge had made the Receivership Order, so the terms of the subsequent pleadings are not of great importance. But this was all of a piece with the McFeely brothers' conduct of the dispute as the judge saw it, by which they had acted at first through third parties, such as Filtons (using a sham document) and Sector One and SCR. They had changed locks of flats, despite orders to the contrary against Filtons, Sector One and SCR. They had pre-empted an application for interim relief on notice to Filtons by procuring the payment of £120,000 by Filtons to themselves on the day before the hearing. They had also asserted disputes, in particular as regards the validity of the appointment of the LPA receivers, but had taken no steps to challenge this, even in litigation which was on foot and could readily be used for the purpose. In the latter respect they showed every sign of being willing to wound but afraid to strike. It is one thing to assert a contention in correspondence. The McFeely brothers knew that they needed to put their case forward in the current litigation (brought by Ashwood itself) or otherwise, and their solicitors said they would, but they had not made good their stated intention by the time of the hearing before the judge in June 2012. The judge was most unfavourably impressed by this conduct, and by their failure to put before him any evidence as to the relevant facts, as they saw them or contended them to be. In my judgment his response was fully justified. The position was somewhat mitigated in this respect by the pleading, first in the Defence to the Additional Claim and later by amendment of the Particulars of Claim in the McFeely claim, of the invalidity of the appointment of the LPA receivers, but after 29 June 2012 this was of only historical significance.
78. In paragraph 43 the judge put forward a possible sequence of events, if the defendants had sought to make their case good promptly and supported by relevant evidence. They could have applied under rule 23.10 or under the general liberty to apply, if they had done so promptly, and if they had put in evidence challenging the allegations against them. They would have obtained a hearing before the judge at which they could have argued that "the costs of the applications should be reserved to the trial because they challenged on their evidence the allegations and it would be quite wrong to make an order against a party who, it turns out subsequently, is telling the truth". As the judge said, there is, or there would have been, force in that suggestion, but for the fact that the defendants chose not to take that course, and made that choice deliberately. They did not act promptly, and when they did eventually make their application they did not do so with the support of any evidence on the substance of the issues.
79. In my judgment the judge was fully entitled to take a critical view of the appellants' conduct. The application under the general liberty ought to have been made promptly. Not having been so made, a proper explanation of the delay was called for, but was not forthcoming. The application should have been supported by evidence as to the merits of the dispute, if the defendants wished their position on those merits to be taken into account. This is especially so since, although they had asserted a position on the merits in correspondence, they had not (until after the hearing in June 2012) followed it up by amendment of their own subsisting proceedings which, so far from being pursued in this way, had fallen into almost complete inaction.

Conclusion

80. These are the reasons for which I have come to the conclusion that the judge was entitled to make the First Order, and that he did so in the proper exercise of his discretion. It was open to the appellants to apply to set aside the costs provision in the First Order, rather than only to appeal against it. However, the judge was entitled to reject the application to set the costs order aside or vary it because of the unexplained delay by the appellants in making that application and because of their conduct that I have described.
81. Accordingly, I would dismiss the appeals.

Lord Justice Jackson

82. I agree.

Lord Justice Ryder

83. I also agree.