1999/1 - Memon v Bank of Scotland [1999] UR 1 (6 January 1999)

BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £1, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!

Applications by the defendants in each action (hereinafter referred to as "the defendants") for the plaintiff in both actions to furnish the defendants with security for their costs in this action.

Advocate M P G Lewis for the plaintiff in both actions (hereinafter referred to as "the plaintiff")

THE GREFFIER SUBSTITUTE: On 15 December 1998, I heard these applications and reserved judgment.

The facts in both cases are very similar. The plaintiff held bank accounts with each of the defendants and in May 1994 they received a letter instructing them to transfer sums of $30,000 and £47,000 into an account in the name of the third party. The plaintiff alleges that the letter was a forgery and that the signature on the letter was not his. The plaintiff also alleges that the defendants were negligent in not checking that the signature was authentic and for other reasons.

The defendants find themselves in the difficult position of being caught between the plaintiff and the third party, who is the plaintiffs wife, and in each action have issued third party proceedings joining the third party upon the basis that if the letter of instructions is a forgery then they will be entitled to recover the moneys from the third party. The third partys case is that the signature was genuine and that the plaintiff had signed a blank document and given the third party the authority to fill this in in order to effect a transfer from these accounts when this was necessary and this for the reason that the third party was the beneficial owner of the money in the accounts with the defendants, in any event.

Initially the plaintiff did not realise that one of the relevant accounts was with Bank of Scotland (Jersey) Limited and the other with the Governor and Company of the Bank of Scotland and the first action commenced, which was 97/06, was against Bank of Scotland (Jersey) Limited for both sums. Subsequently, the Order of Justice in 97/06 was amended and a separate action, namely 97/111, was commenced against the Governor and Company of the Bank of Scotland.

On 27 February 1997, the parties to 97/06 agreed to a Consent Order by virtue of which the plaintiff provided the defendant in that action with security for its costs up to and including the close of discovery by paying to the Judicial Greffier the sum of £3,500.

The present applications for security for costs are seeking both an increase in the provision for security for costs up to the close of discovery in 97/06 and a provision in that Action up to the determination of the Action and a provision in Action 97/111 up to the determination of that Action.

The plaintiffs first line of argument was that the timing of the present application was premature inasmuch that discovery had not yet been completed. The Setting Down Order was made on 14 July 1998, with a 56 day period being stipulated for the making of mutual general discovery. However, that time period has been extended several times by agreement between the parties in order that the present applications might be completed before discovery is completed. The argument of the plaintiff was that until discovery had been completed it would not be possible to make an accurate assessment of the appropriate quantum of security for costs. The process of quantifying security for costs is always one which involves the making of assumptions and a general assessment of the probable costs which will be reasonably incurred by a defendant. The idea of dividing the application into 2 stages, the first being up to the close of discovery and the second being up to the conclusion of the Action, was an innovation in Jersey procedure which was introduced by me in the early 1990s. In principle, therefore, I could see no objection to the second stage of the application being made shortly before discovery is completed.

The second line of argument of the plaintiff is that the Consent Order made on 27 February 1997, is a contract between the parties and the defendants cannot go back on the terms of that contract by seeking an additional sum by way of costs for the period up to the close of discovery. There are a number of difficulties with this line of argument. The first difficulty is that the Consent Order was only made in relation to Action 97/06 because Action 97/111 was not served until 30 April 1997. Accordingly, any agreement could not affect that second Action. Secondly, even if an Order had been made for security for costs after a hearing, it would still be open to a defendant to seek to apply for an increase in the provision for security for costs upon the basis of a change of circumstances. It is an extremely well known principle that decisions in relation to interlocutory matters are not, in general, a res judicata and that applications to vary them can be made. However, a Court will not usually make a different order unless there has been some change of circumstances.

Thirdly, in this case there have been a number of changes of circumstances since the Consent Order was agreed. In addition to the launching of the second Action, the decision to join the third party was not made until after the Consent Order and, inevitably, that has had some effect upon the costs.

In assessing any level of appropriate security for costs in 97/06 up to the close of discovery, I am bound to take into account the level of costs agreed and to see what effect any change of circumstances has had on this.

The plaintiffs next argument is that the provision for security for costs should not make any provision for the costs relating to the third party proceedings in either action. The argument of the plaintiff was that the bringing of the third party proceedings went beyond merely defending the present action and that the costs in relation thereto should therefore not be included in any provision for security for costs.

In the case of Farrer -v- National Westminster Bank Finance (C.I.) Limited (20 October 1994) Jersey Unreported, I dealt with a similar situation in a section of the judgment commencing on line 10 of page 4 thereof which reads as follows:-

"One issue of some importance was the question as to whether I should take into account, in relation to the Order, the costs of the Defendant in joining a Third Party. The purpose of security for costs is to provide the Defendant with a fund out of which any Order for costs which he may obtain against the Plaintiff can be paid. If the Defendant were successful in defending the claim then it is conceivable that the Court might order that the whole of the costs of the action, including the costs of proceeding against the Third Party, be paid by the Plaintiff. To guard against that eventuality it is, in my view, necessary for the Order for security for costs to cover the costs of the Third Party proceedings."

In Jersey the rule in relation to security for costs is drafted in very wide terms and reads as follows:-

It has been noted on a number of previous occasions that the discretion under the Jersey Rule is wider than that in England. In England the appropriate rule is Order 23, Rule 1 and the relevant part thereof reads as follows:-

"(1)Where, on the application of a defendant to an action or other proceeding in the High Court, it appears to the Court-

……….then if, having regard to all the circumstances of the case, the Court thinks just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action or other proceeding as it thinks just."

It is not clear from the commentary in the White Book as to whether, in England, the rule is widely enough drafted in order to deal with Third Party costs.

Both counsel agreed that in a case such as this the Royal Court could make an order that the costs of the defendant in relation to the third party proceedings be paid by the plaintiff. In my view, it is reasonable in a case such as this, in which the defendant finds itself caught between the plaintiff and the third party on the issue as to whether or not the instructions were a forgery, that the defendant be able to bring third party proceedings. If it were ultimately to be found that the relevant letter was not a forgery and that the defendants had properly made payments upon the basis thereof, then it is, in my view, highly likely that the Royal Court will make an order that the plaintiff pay the costs of the defendant of and incidental to the third party proceedings. In these circumstances, in the exercise of my discretion, it seems to me to be reasonable that the costs of the third party proceedings be taken into account in relation to the matter of the quantum of security for costs.

The next objection which is taken by the plaintiff was in relation to the costs incurred by the defendant in bringing an action in England in order to obtain a Mareva Injunction against the third party. The defendants argued that if it were reasonable for them to bring third party proceedings then it was also reasonable for them to bring the Mareva Injunction Proceedings and that the fact that those proceedings had to be brought in England and not in Jersey should not alter the situation.

I cannot see that the costs of the Mareva Proceedings can in any sense be seen as costs of or incidental to the present actions, including the third party proceedings therein. Furthermore, I cannot see that the Royal Court can ever make any order which will determine the costs of the Mareva Injunction Proceedings because if it were so to do then it would be usurping the jurisdiction of the English Courts. Accordingly, I shall exclude the costs incurred either in England or with the defendant’s Jersey Lawyers in relation to the Mareva Proceedings.

The next argument which was presented by the plaintiff was that there is a high degree of probability that the defendants case will fail. The test to be applied in relation to this is set out in the case of Keary Developments Limited -v- Tarmac Construction Limited and another (1996) 3 All E R 534 and on page 540 thereof there is the following helpful section:-

"4. In considering all the circumstances, the court will have regard to the plaintiff companys prospects of success. But it should not go into the merits in detail unless it can clearly be demonstrated that there is a high degree of probability of success or failure."

The argument of the plaintiff here was that in order to obtain the Mareva Injunctions in England the affidavit in support of the application therefor would have to depose that there was a good arguable case against the third party. In the view of the plaintiff that was inconsistent with the defence in these actions being sustainable. The first difficulty with that line of argument is that I did not have the relevant affidavit before me. The plaintiff had made it clear at an earlier hearing that they wished to obtain a copy thereof and I had ruled that they would have to make an application for specific discovery of the affidavit before I could make an order in relation thereto but no such application has been made. In my view, in a case such as this in which the defendants are caught between the plaintiff and the third party, it is possible that the judge granting the Mareva Injunctions may have been willing so to do upon the basis that if the plaintiff succeeded in showing that the letter were a forgery then the defendants would have a very strong case against the third party.

The plaintiffs also sought to attack the credibility of the third party’s case. Advocate Lewis produced a photocopy of the relevant letter of instructions and a photocopy of a previous letter and submitted that if there had been signatures in both cases on a blank piece of paper then it would not have been possible to have lined up the typing with the signature in the way which had occurred. I was unable to agree with Advocate Lewis on this point. In my view, it would be relatively easy for an experienced typist to do this.

Accordingly, I came to the conclusion that it had not been demonstrated that there was a high degree of probability of success on the part of the plaintiff.

The next argument of the plaintiff was that if the amount by way of security for costs which was being sought by the defendant were to be ordered then this would have the effect of stifling the present actions.

The principles in relation to the danger of the stifling of an action are well known in Jersey and have been set out in a number of cases but these principles are most clearly set out in a section which commences on page 539 of the Keary case which reads as follows:-

"1. As was established by this court in Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] 2 All ER 273, [1973] QB 609, the court has a complete discretion whether to order security, and accordingly it will act in the light of all the relevant circumstances.

The possibility or probability that the plaintiff company will be deterred from pursuing its claim by an order for security is not without more a sufficient reason for not ordering security (see Okotcha v Voest Alpine Intertrading GmbH [1993] BCLC 474 at 479 per Bingham LHJ, with whom Steyn LJ agreed). By making the exercise of discretion under s 726(1) conditional on it being shown that the company is one likely to be unable to pay costs awarded against it, Parliament must have envisaged that the order might be made in respect of a plaintiff company that would find difficulty in providing security (see Pearson v Naydler [1977] 3 All ER 531 at 536-537, [1977] 1 WLR 899 at 906 per Megarry V-C).

The court must carry out a balancing exercise. On the one hand it must weigh the injustice to the plaintiff if prevented from pursuing a proper claim by an order for security. Against that, it must weigh the injustice to the defendant if no security is ordered and at the trial the plaintiff’s claim fails and the defendant finds himself unable to recover from the plaintiff the costs which have been incurred by him in his defence of the claim. The court will properly be concerned not to allow the power to order security to be used as an instrument of oppression, such as by stifling a genuine claim by an indigent company against a more prosperous company, particularly when the failure to meet that claim might in itself have been a material cause of the plaintiff’s impecuniosity (see Farrer v Lacy, Hartland & co (1885) 28 Ch D 482 at 485 per Bowen LJ). But it will also be concerned not to be so reluctant to order security that it becomes a weapon whereby the impecunious company can use its inability to pay costs as a means of putting unfair pressure on the more prosperous company (see Pearson v Naydler [1977] 3 All ER 531 at 537, [1977] 1 WLR 899 at 906.

The court in considering the amount of security that might be ordered will bear in mind that it can order any amount up to the full amount claimed by way of security, provided that it is more than a simply nominal amount; it is not bound to make an order of a substantial amount (see Roburn Construction Ltd v William Irwin (South) & Co Ltd [1991] BCC 726).

In this particular case, the plaintiff has produced a number of affidavits in order to set out his means which have been partially challenged by the defendant. However, even on the plaintiff’s own case, he has available assets of £32,315 together with an excess of income over expenditure of between £7,300 and £8,300 per year. Out of this he is financing the present action. In addition to these sums he has shares in various joint accounts, the total value of which joint accounts are substantial and exceed £600,000, although his share of the joint accounts is not currently available to him.

In my view, the appropriate way for me to deal with this matter is to first determine what would be the appropriate amount of an order for security for costs, including the third party proceedings but not including the English Mareva proceedings. Having done that, I will have to apply the principles set out in Keary in relation to stifling and determine at what point the present actions will probably be stifled.

The defendants have at various times produced 3 skeleton outline bills. The latest of these is attached to an affidavit of James Richard Diamond, who is a specialist costs draftsman. There are 4 sections to the outline bill. The first section is for the period up to 1 July 1998 and is for the total sum of £19,214.80, which includes fees of Wilde Sapte in relation to the English Mareva proceedings in the sum of £7,730 and fees of Mr Diamonds company in the sum of £322.50. The second part is for work done from 2 July 1998 to 13 October 1998 and is in the sum of £6,710.44 of which £1950 relates to work done by Mr Diamonds company. There is a clear error in relation to an item for a legal assistant engaged for 2 hours 48 minutes in the sum of £480 which ought to be the sum of £134.40.

The third section is for anticipated work from 14 October 1998 to the completion of discovery and is in the sum of £4,892 which includes £850 in relation to Mr Diamonds fees. The fourth section is anticipated costs from completion of discovery up to the completion of the trial and is in the sum of £25,158 of which £9250 relates to expert’s fees for preparing reports and attending trial.

The total sum sought is therefore £55,865.24 less the sum of £3,500 already provided.

In my view, this is a relatively simple case. The main issue before the Court will be the issue as to whether or not the signature on the relevant document is that of the plaintiff. Indeed, Advocate Lewis indicated that the plaintiff was not now intending to run arguments in relation to negligence which went beyond the matter of the forgery of the signature. I can understand that reputable banks are anxious to protect their reputations. However, it is a very well established principle of taxation that if a party chooses to run up costs in the defence of an action beyond that which is considered by the taxing officer to be reasonable then they may do so but cannot expect the taxing officer to allow them to recover costs beyond what is reasonable from any other party.

In this particular case, I can only describe the estimated bill of costs upon a taxed costs basis of £55,865.24 as substantially unreasonable. This is not merely a case of "overegging the pudding". In this case, to follow the metaphor, half the hen has been included in the pudding.

I am alarmed by the inclusion in the outline bills of the costs of Mr Diamonds company in a total sum of in excess of £3000. As far as I can see from what has been provided to me, this charge has arisen from the production of the outline bills for the purposes of the present application for security for costs. In relation to the claims for experts fees, Advocate Landick indicated that it was envisaged that there be experts both in relation to handwriting and in relation to what was good practice for a bank. The latter area will now fall away. All I have before me is bald figures in relation to preparing a report and attending a trial. I am bound to say that this is not a satisfactory basis upon which an appropriate estimation can be made.

The plaintiffs lawyer also produced an estimation of future costs in relation to these proceedings, including the third party proceedings in the sum of just under £12,000. This outline bill is far more in accordance with my own estimation that for a case such as this, which is not particularly complex, and in relation to which 3 days at trial should suffice, the final taxed bill would be expected to be somewhere between £20,000 and £25,000.

Accordingly, because of the unsatisfactory nature of these estimations of the defendants, with the existing hours claimed to date being thoroughly unreasonable and the future estimations grossly inflated, I am going to make my own estimation of what will be reasonable and that is in the total sum of £22,500. However, I need next to consider the effect which the previous Consent Order of £3,500 has upon this. The fact that the one action has now turned into two actions and that the third party proceedings have been added constitute, as I have said before, a relevant change of circumstances. In my view, that would have the effect of increasing the provision for both actions up to close of discovery from £3,500 to £8,000. My estimated figure thereafter, including an allowance for experts is £12,000. Accordingly, my estimated figure of £22,500 is reduced to £20,000 by virtue of the effect of the Consent Order.

Thus, an additional sum of £16,500 would, subject to the issue of oppression and stifling, have to be produced. Because there are now 2 actions, it seems to me that some adjustments will need to be made between them. As 97/6 was started first, it seems to me that the total provision there should be slightly greater than in 97/111. I think that the breakdown should be £10,500 for 97/6 and £9,500 for 97/111.

I come now to the question of oppression. There is no indication in the affidavit of means of the plaintiff that any outstanding debts are owed by him for legal fees. At the very least he currently has available to him the sum of £32,315 by way of capital together with disposable income of between £7,300 and £8,300 per year to put towards legal fees. In these circumstances, I cannot see that if I order that a further sum of £16,500 be provided by way of security for costs that the present actions will probably be stifled.

Accordingly, my order is that the plaintiff furnish an additional sum of £7,000 in relation to Action 97/6 and a sum of £9,500 in relation to Action 97/111.

I shall need to be addressed by both parties both in relation to the time period within which this should be furnished and in relation to the matter of the costs of and incidental to the present applications for security for costs.

Farrer -v- National Westminster Bank Finance (20 October 1994) Jersey Unreported

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Jersey Unreported Judgments
You are here: BAILII >> Databases >> Jersey Unreported Judgments >> 1999/1 - Memon v Bank of Scotland [1999] UR 1 (6 January 1999) URL: http://www.bailii.org/je/cases/UR/1999/1.html Cite as: [1999] UR 1

Jersey Unreported Judgments