Cibc Mellon Trust Company & Ors v Mora Hotel Corp NV & Anor

A court has jurisdiction under the Civil Procedure Rules to stay proceedings subject to payment into court, including payment relating to past costs. Jurisdiction does not determine whether the condition is just.

Security for the future costs of an application may properly be required from a corporate applicant where its controlling shareholder or backer can provide the money, provided that the application is not stifled. A different consideration applies to past costs. The court should not use a procedural application retrospectively to enlarge the assets available to satisfy earlier costs orders where the applicant cannot pay from its own assets and the only available funder is a third party who is not liable for those costs.

The appellants sought to set aside substantial default judgments entered after failures to comply with disclosure and unless orders. Jacob J stayed their applications unless they paid £1.6 million into court. Of that sum, £1.5 million related to past costs orders and £100,000 secured the respondents’ future costs of the setting-aside applications.

The appellants’ assets were frozen and subject to enforcement arrangements in New York. The judge intended that their majority shareholder and litigation funder would provide the required money. The central issues were whether the court had jurisdiction to impose the conditions and whether it was just to require a third party, who was not liable under section 51 of the Supreme Court Act 1981, effectively to fund payment of the appellants’ past costs.

1. Appeal allowed in part. Peter Gibson LJ gave the leading judgment. Mance LJ agreed and gave additional reasons. Hale LJ agreed. The £1.5 million condition relating to past costs was discharged, while the £100,000 security for the costs of the current applications remained.

2. The court had jurisdiction under rules 3.1(2)(f) and 3.1(3)(a) of the Civil Procedure Rules. Rule 3.1(2)(f) permits a stay in any appropriate case. A stay may be made subject to a condition requiring payment into court. The jurisdiction was broad enough to cover future and past costs, although its exercise remained controlled by the requirement to deal with the case justly.

3. The judge failed to distinguish between prospective security and a retrospective attempt to improve recovery of past costs. There is ordinarily no injustice in requiring security for the future costs of an application where the applicant has access to a backer’s resources and the condition will not stifle the application. The £100,000 condition was therefore within the judge’s discretion.

4. The £1.5 million condition had a materially different effect. The appellants could not pay from their own assets because those assets were frozen and controlled through the New York enforcement process. The order deliberately required their shareholder to inject new money. If the setting-aside applications failed, that money would enlarge the pool available to meet existing costs orders. It would therefore improve the respondents’ position solely because the applications had been made.

5. The shareholder’s controlling interest and desire to protect his investment justified requiring security for future costs. They did not justify making him bear past costs when no order had been sought or could properly be made against him under section 51 of the Supreme Court Act 1981. The judge erred by treating the shareholder’s third-party status as irrelevant and by giving no weight to the retrospective benefit conferred on the respondents.

6. Re-exercising the discretion, the court declined to require any payment for past costs unless the respondents agreed to variation of the freezing order so that payment could be made from the appellants’ own assets. The court refused permission to appeal and ordered repayment of the £1.5 million to the appellants’ solicitors.

1. Court of Appeal (Civil Division): By [2002] EWCA Civ 1688, unanimously allowed the appeal against the past-costs condition but dismissed it in relation to £100,000 security for the costs of the setting-aside applications.
2. High Court, Chancery Division: Jacob J ordered on 13 May 2002 that the appellants’ setting-aside applications be stayed unless £1.6 million was paid into court, and refused to vary the freezing order to permit payment from frozen assets.