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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 >> Citadel Management Inc v Equal Ltd & Ors [2001] EWCA Civ 2058 (12 December 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/2058.html Cite as: [2001] EWCA Civ 2058

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr Justice Crane)

		Royal Courts of Justice Strand London WC2 Wednesday, 12th December 2001

1. LORD JUSTICE ROBERT WALKER: This is a not on notice application on behalf of Mr. Johan Hertzog, who appears today by Mr. Mark Living of counsel. The application is to reinstate an appeal which was automatically dismissed on 6th March last, that is 28 days after an order for security for costs of an appeal which I made on 6th February last. I ordered Mr. Hertzog, who was neither present nor represented at the hearing, to provide security for costs in the sum of £50,000 within 28 days. The application for security had been made by Citadel Management Inc ("Citadel"), a Bahamian company, the respondent to Mr. Hertzog's appeal, then pending, against an order of Crane J made on 15th May 2000.
2. The grounds of the application are that the order for security for costs would not have been made had Mr. Hertzog been represented on 6th February and had his counsel represented to the court, as Mr Living has represented to me this afternoon, first, that Citadel was in breach of undertakings which it gave to the court on applying for and obtaining freezing orders from the English court in 1998; second, that Citadel had, through legal proceedings in New York, obtained about $280,000 from bank accounts which Mr Hertzog held with Chase Manhattan Bank in New York; and, third, that Mr Hertzog's appeal has substantial merit, both as to the point on which Crane J gave permission to appeal, and as to the other points for which Mr Hertzog is seeking permission to appeal.
3. This matter has a complex and contentious history. Citadel's action was started in 1998. It had, at any rate at one stage in its life, 25 defendants, Mr. Hertzog being the fourth defendant. Citadel's claim against about half a dozen of the principal defendants, including Mr Hertzog, was for damages for conspiracy in the form of a fraudulent investment scheme, in which Citadel invested $11m on representations that the sum invested would yield 52 per cent interest or profit every 6 banking days. On 7th May and 14th May 1998 freezing orders were made against various defendants, including Mr Hertzog, and undertakings were given to the court as part of those orders. On 5th August 1998 Citadel entered judgment against Mr Hertzog in default of defence. The judgment was for rather over $40m. Mr Hertzog contended that the judgment was irregular and ought to be set aside as of right. Alternatively, he contended that it should be set aside as a matter of discretion. On 15th May 2000 Crane J made an order refusing that application. As I have mentioned, he gave permission to appeal on limited grounds. Crane J had already dealt with most of the matters in a long judgment which he had given on 7th April 2000, in which he held that Mr. Hertzog was in contempt of court for breaches of his freezing orders. Crane J said of this aspect of the matter:

"I accept that Citadel did intend, before Mr Hertzog's application, to make a committal application. I think his threat to attempt to set aside the judgment may well have acted as an additional spur. I do not regard it as illegitimate, on the facts of the present case, when faced with an application to set aside a judgment entered long before, to seek to persuade the court that the application is being made by a man who, on the claimant's case, was flagrantly in breach of the Mareva injunctions."

4. The judge concluded that Mr. Hertzog was indeed in breach of the Mareva injunctions, although he did not find it proved to the requisite high standard of proof that his breach had been of the most flagrant sort. Crane J also had to deal with alleged breaches of undertakings on the part of Citadel, an aspect of the matter that I will have to come back to.
5. Before Crane J Mr Hertzog was represented by leading and junior counsel. Since then the solicitors previously acting for Mr. Hertzog (that is Shaw & Croft) ceased to be in funds. New solicitors, W H Matthews & Co, came on the record on 8th March 2001, that is two days after the appeal had been automatically struck out. The application for security for costs was made on notice in the ordinary way. Shaw & Croft had notice of it and it is to be expected that they informed Mr. Hertzog of it. However, in the event, neither Mr Hertzog nor Shaw & Croft or anyone else on his behalf appeared. The evidence on the application indicated that Mr. Hertzog was resident in the United States and that it was an appropriate case in which to order security for costs. The quantum of costs ordered was a good deal less than the applicant was seeking and was commensurate with a conservative estimate of the likely costs of the appeal.
6. Where an application is made to reinstate an appeal which has been struck out in circumstances such as this, the factors relevant to the exercise of the court's discretion are in effect codified in rule 3.9(1) of the Civil Procedure Rules. They are well known and I need not read them all out. They include the interests of the administration of justice, whether the application for relief has been made promptly, whether the failure to comply was intentional, whether there is a good explanation for the failure and so on: see generally, in the context of orders for security for costs, the judgment of this court in two cases which were heard together on 30th August last, Ferrotex Industrial v Banque Francaise de L'Orient and Zappia Middle East Construction Co v Clifford Chance [2001] EWCA Civ 1387.
7. Mr. Hertzog's new solicitors wrote to the Civil Appeals Office promptly on 8th March 2001. However, no application to reinstate the appeal was made, nor was any fee paid in respect of that application until 18th September 2001, that is more than six months later. Moreover, on 7th November last Master Venne had occasion to make an order on a summons to show cause why the application should not be dismissed for non-compliance with an 'unless' order for the lodging of proper bundles.
8. The evidence on the application consists in the first place of two witness statements of Mr Colin Davis of WH Matthews. He has deposed to various misadventures with the papers in the case and has referred to a substantial recovery already made, a sum of $280,000 (out of $40m). He has submitted that the effect of that recovery is that no serious prejudice could arise. More recently there has been a witness statement made on 20th November 2001 by a New York attorney, Mr. Morris Mitrani, who has been retained by Mr Hertzog since 1999. He has deposed to the recovery of the sum of $280,000 and to his belief that the courts of New York ought not to have enforced the English default judgment and that the English appeal has merit. That is the legal and factual background to the discretion which I have to exercise.
9. Mr Hertzog's prospects of success in this appeal are of relatively little materiality to the application for security for costs since the whole point of security is to provide for the possibility, whether it be large or small, of an appellant failing in his appeal. I will, however, assume that Mr. Hertzog, having obtained permission to appeal at least on one point, would have had some reasonable prospect of success. It seems to me that the fact that Citadel has recovered the sum of $280,000 out of $40m is also of only marginal relevance because that money is now Citadel's. Mr. Living correctly points out that if Mr Hertzog were to be successful in his appeal, then the sum of $280,000 would no longer be Citadel's and would have to be returned. However, I have to look at the situation as it is, since no stay of execution is in place in connection with the proposed appeal.
10. On the basis that that sum must at present be regarded as Citadel's, the essence of the matter is that Citadel wants to get security for costs from Mr Hertzog and not out of its own money. If Citadel had, in breach of undertakings to the court, made it impossible for Mr Hertzog to provide security out of funds which are in his hands, I would have regarded that as an important point to be weighed in the balance and probably decisive in favour of reinstating the application. However, the only breach of undertaking which Crane J found established was an unauthorised use by Citadel of information obtained from Mr. Hertzog under compulsion when the freezing orders were obtained. Crane J investigated another alleged breach of undertaking but found it unproved. I am told that that is another point on which Mr. Hertzog wishes to appeal. However, the fact is that the only breach of undertaking so far established is one which Crane J evidently found to be relatively venial, since he gave retrospective permission for some of the information to be used.
11. I am not therefore persuaded that this is a case in which Citadel has, in breach of its duty to the court, made it impossible for Mr. Hertzog to comply with an order for security for costs. I also have in mind that in cases of this sort it is often necessary to consider not only the means of the individual appellant but also the resources of companies or other entities associated with him who may be in a position to provide security. Mr. Hertzog has not provided any proper explanation, backed by a statement of truth, of his non-appearance on 6th February last or of events which have occurred since then. Had Mr. Hertzog himself placed a statement of truth before the court, it would have been important to consider exactly what it contained. Instead, Mr. Hertzog's new solicitors have placed before the court the evidence which I have mentioned. They have, as Mr. Living candidly accepted, been slow in making an application which should have been made with the greatest promptness.
12. Whatever difficulties they may have encountered, I have also to consider the interests of Citadel, which for the last six months has believed that the appeal has been automatically dismissed. I have to have regard to the need for finality in litigation. I am not persuaded that I would have made any other order on 6th February last, even if Mr. Hertzog had been represented and had put forward, through his counsel, all that Mr Living has, with great clarity, put forward today, and even if Mr. Hertzog had apologised, as he has not so far apologised, for the contempt of court which Crane J found to have been established.
13. Looking at all these matters and at the checklist in rule 3.9(1) of the Civil Procedure Rules, it seems to me that the clear balance of justice is against this application to reinstate the appeal and I dismiss it.
Order: Application refused.