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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 >> Solid Capital Markets (UK) Ltd v Little Rock Mining Inc [2001] EWCA Civ 2104 (6 December 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/2104.html Cite as: [2001] EWCA Civ 2104

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(His Honour Judge Bowers)

		Royal Courts of Justice Strand London WC2 Thursday, 6th December 2001

Thursday, 6th December 2001

1. LORD JUSTICE MANTELL: This is an application for permission to appeal an order of His Honour Judge Bowers sitting as a judge of the High Court in the Queen's Bench Division by which the judge refused an application to set aside judgment obtained in default of defence.
2. The claimant/respondent is a firm of stockbrokers, though strictly speaking a limited company. The Managing Director is a Mr Milne. The defendant/applicant is a company incorporated in the British Virgin Islands and to all intents and purposes the trading vehicle for a Mr Pravin Khatur. Mr Khatur is experienced in trading on the stock market.
3. In April 1999 shares in a company called Supercom became available through a related company of the claimant. Discussions took place between Mr Khatur and Mr Milne in consequence of which (on behalf of the defendant) Mr Khatur instructed the claimant, through Mr Milne, to acquire 25,000 shares in Supercom at US $10 a share.
4. In fact the share offer was oversubscribed and only 19,500 shares were purchased. The purchase was made by the claimant through its related company.
5. The defendant has never paid for the shares, which suffered a drop in value almost immediately following the transaction.
6. On 30th April 1999 solicitors for the claimant wrote requesting payment. (That is to be found at tab 6 or page 158 of the bundle.) In that letter solicitors for the stockbrokers point out that "you have failed to make payment as required". And it was asserted that the client had paid for the shares. That was responded to on 5th May (tab 6, page 160) by solicitors acting for the defendant/applicant. The letter includes this paragraph:

"As we indicated on the telephone, our client does not believe he is contractually bound to pay for the 19,500 shares in Supercom Limited which you say were allocated to him on 19 April. We are considering further the issue of whether any binding contract was made and if so, what constituted the terms of that contract, and reserve our client's position in relation to these issues. We have, however, also advised our client that your client's conduct may entitle him to rescind any contract that was made, for negligent misrepresentation and/or breach of contract. In addition, our client's right to claim damages in respect of any losses arising from your client's negligence is also hereby expressly reserved."

7. Pausing there; subject to there being no merit in the assertion that there had not been any contract or, if there had, that it had been induced by negligent misrepresentations and was subject to a counterclaim, the position on the claimant's side would seem to be clear.
8. Although the instruction to buy the shares was given orally, the contract was governed by terms agreed on 30th March 1999 - see page 64 of the bundle - which incorporated the claimant's standard terms and conditions (to be found at page 290).
9. Indeed, as I would have thought, it is elementary that the contract was between the defendant as principal and the claimant as agent and, regardless of clause 8 of the standard Terms and Conditions, the claimant was entitled to be reimbursed for any sum expended on behalf of its principal in accordance with the instructions received. (I interpose, clause 8 provides for recovery of any sums expended by the agent on behalf of the principal.)
10. However, that is not how the claim, precipitated by the letter of 5 May, was framed. In its short form the claim reads:

"On 20 April 1999, the Claimant agreed to sell and the Defendant agreed to purchase 19,500 shares in Supercom Limited at a price of US$10 per share; payment was to be made by the Defendant to the Claimant on or before 22 April 1999. Transfer of the shares to the Defendant was to occur immediately upon payment. The Defendant has, in breach of contract, refused to provide payment of the purchase price to the Claimant."

11. That short statement of the claim would seem to be on the basis that there had been a contract of sale as between the claimant and the defendant. But when one goes to the particulars of claim which accompany that document - and the full factual background is there recounted - one sees that the claim was precisely on the basis which I have attempted to describe, namely that the claimant was suing for monies expended as stockbroker on the defendant's behalf.
12. In fact by selling part of the shareholding the claimant's losses were somewhat reduced. It may be that, contrary to the manner in which the claimant put it in the particulars of claim, that reduction was achieved by a sale made by its related company in New York. Nevertheless, the outcome was the same.
13. No defence was ever filed and on 30th November 1999 the claimant obtained judgment by default.
14. No step was taken for another 12 months. Then on 28th November 2000 Mr Khatur applied to set aside the default judgment. A similar application by the defendant followed in January this year.
15. The result was the hearing before His Honour Judge Bowers on 19th January 2001.
16. At that hearing much time was taken up in considering criticisms of the pleadings and, in particular, a criticism that it failed to disclose that the claimant had been acting as agent for the related company from which the shares had been purchased.
17. In my view that submission was wide of the mark for the reason already given. This was a claim by an agent against its principal. Of course, it had to show loss arising out of or under the contract, and that it did by a statement produced by Mr Milne which the judge accepted. In that statement Mr Milne asserted that his company had become liable to its United States relative and, whether or not payment had been made for the shares, there was a continuing liability for their price.
18. That was something which the judge accepted, as he was entitled to do. Although it has been suggested that the accounts of the claimant company do not disclose any such indebtedness, I am far from convinced from what we have been shown this morning that such is the case. In my view there was nothing before the judge to contradict Mr Milne and there is nothing before us. Certainly there was nothing from Mr Khatur at the time of the hearing before His Honour Judge Bowers. That deficiency, if such it is, the defendant has sought to remedy in this application by putting in an extensive witness statement from Mr Khatur dealing with, amongst other things, the reason for not having put in a defence and making allegations of misrepresentation on Mr Milne's part which could, if true, have the effect of vitiating the contract. The reason for not filing a defence is said to be that Mr Khatur took the view that it was not economic to do so.
19. That application was made at the outset by Mr Gruder QC (on behalf of the applicant) and was refused. The court took the view, and I certainly did, that it was far too late for a statement of that sort to be put in. The court retains a discretion, and although we accept Mr Gruder's submission that the constraints are not as they were previously and that in any event in this case there has been no trial on the merits, nevertheless there must be some finality in proceedings of this sort, and, in my view certainly, it is far too late for that statement to come in. Indeed, it was only served towards the end of October this year.
20. Turning to the application on its merits, I would say that in the first place the judge was quite right to point to the extraordinary delay in applying to set aside, 12 months bar two or three days. Part 13.3(2) of the Civil Procedure Rules provides:

"In considering whether to set aside or vary a judgment entered under Part 12, the matters to which the Court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly."

21. It was, in my view, quite right for the judge to do as he did - that is to say, to point to that delay - and in my opinion, for that reason alone, he was entitled to dismiss the application. Indeed, he could have been quite properly criticised had he chosen not to do so.
22. The judge was also treated to a submission that the claim having been cast in a deliberately misleading form that that in itself was sufficient reason for setting the judgment aside.
23. We have received a similar submission from Mr Gruder. He has pointed to inaccuracies in the particulars of claim. In my view those inaccuracies are of no real consequence. It is perfectly true that paragraph 10 of the particulars of claim does not accord precisely with the contents of Mr Milne's statement. But there could be no suggestion that there had been any attempt on Mr Milne's part to mislead the court and it does not in any way at all affect the merits of the claim, as did not any inaccuracies, if such they be, in paragraphs 18 and 19 as asserted in the submission which Mr Gruder has made today.
24. That argument was rejected by the learned judge on the basis of a comparison between the particulars of claim and Mr Milne's statement. In my view there is absolutely no merit in the criticism made and I would hold that the judge was right to reject it.
25. Lastly, there was in my view an over-complicated and essentially misconceived submission before the judge that the claimant had no right to recover losses which had fallen upon its disclosed principal. That submission has been brought to the court's attention by Mr Gruder; and I put it no higher than that because it seems to me to have been advanced with little enthusiasm. Although the judge rejected the argument for other reasons, I would support his decision on the analysis of the legal position as I have attempted to set it out.
26. Accordingly I would refuse this application.
27. LADY JUSTICE ARDEN: I agree that the application should be dismissed for the reasons given by my Lord. I would simply add a few observations of my own on some of the points made by Mr Gruder concerning the accounting aspects of this matter.
28. It was submitted by Mr Gruder that the correct interpretation of the evidence filed on behalf of the claimant was that, in effect, the claimant only became indebted to the New York company at a much later stage and not at the time of the transaction in question. This submission was made on the basis of paragraphs 36 and 37 of the first witness statement of Angus Inglis Milne, signed on 17th January 20001. In effect Mr Gruder submitted that, on the basis of this evidence, Mr Milne deposed that the liability arising in respect of the transaction with the defendant was that of LLC, the New York company, and that Solid UK, the claimant, only became indebted at a later point.
29. What Mr Milne said was this:

"36As a result of Little Rock's failure to take up its shares, Solid LLC has, therefore, suffered a loss in respect of the shares it has sold, and a significant potential loss in respect of the 12,000 shares it still holds. That loss is reflected in the accounts of Solid LLC. At all times, however, Solid LLC has been looking, as it is entitled to do, to Solid UK to make good that loss which had occurred by reason of the failure of one of Solid UK's clients to take up the order for Supercom shares which Solid UK placed with Solid LLC."

37.Solid LLC did not until recently call for payment of that debt, albeit that it was a liability that it required to be satisfied, because payment of that liability by Solid UK would have required a fresh capital injection to be made by Solid LLC itself in order to maintain Solid UK's capital adequacy requirements in the absence of a payment by Little Rock. Solid UK, however, has looked and is looking to Little Rock, as it is entitled to do, to recover from Little Rock in respect of the liability which Solid UK undoubtedly has as a result of Little Rock's failure to pay for the shares which it ordered. Payment (by the appropriate adjustments in the inter-company accounts) is now going to be made by Solid UK to Solid LLC, as Solid UK no longer needs to comply with the SFA capital adequacy requirements and so, no fresh capital injection is required."

30. As I read those paragraphs, they are saying that the liability of LLC was to the lead underwriter in respect of the allocation of shares - they are not saying that that liability was exclusive on the other liability on the part of the claimant who had placed the order - and that when the evidence refers in the final sentence to "payment", it is talking about an off-setting of a liability rather than the institution and collation of a liability. Accordingly, that evidence does not, in my judgment, bear the interpretation which Mr Gruder sought to place on it.
31. Mr Gruder also relied on the related party disclosures in Note 19 to the claimant's accounts for the year ended 31st December 1999. This note states that during the year ended 31st December 1999 the claimant had entered into certain transactions on normal commercial terms with related parties. There are then two sub-items with which I am not concerned. The note then states that as at 31st December 1999 the following amounts were outstanding with related parties. Within the list that follows is a loan due to the group payment undertaking of £35,000 and then other loans incurred and amounts due to the group undertaking of £49,381.00.
32. Mr Gruder submits that there is no disclosure here of the liability owed to the claimant by Little Rock or of the fact that the company is indebted to its own parent company in respect of the amount claimed, and in respect of the amount incurred, on the allocation of shares. As to that, it seems to me that this disclosure does not in fact take the matter very much further. These amounts are likely to be met, for reasons that may well be that within these figures the appropriate items are indeed shown. The amounts due to the group undertaking, therefore, may include the liability to the parent company. It does not therefore follow that in the accounting records of the claimant there is not in fact an appropriate entry for the amount due to LLC. Accordingly it seems to me that this paragraph cannot be relied upon as any form of admission by the claimant as to the indebtedness of the defendant to it.
33. Likewise, in the particulars of claim to which my Lord has referred the claimant has alleged that it paid the lead underwriters for the Supercom shares and the shares were transferred to the claimants. As I see it, what is likely to have happened is that the claimant became indebted to his parent company in the sums which the parent company paid to KBC. But the fact of the matter is that certainly on the judge's findings and on the evidence we have seen it became so liable. The amount was in fact paid to the lead underwriter - indeed would have to have been paid - and all that happened was that the parent company extended some credit to its subsidiary for the amounts outstanding for the reasons explained in the passages Mr Milne agrees which I have already read. It seems to me that when the court looks at the particulars of claim the court is entitled to take a commercial construction of the words "the claimant paid", the claimant became liable for an amount presently due in respect of the commitment made by the defendant which was not honoured.
34. Mr Gruder further submits that the court should take account of the fact that there may be another defence available to the defendant in respect of (as he put it) the manner in which the shares were sold to it. That is an allusion to the evidence, which was not alluded to on this application, but also to the correspondence from solicitors in 1999, which makes reference to there being a claim for negligent misrepresentation. However, that claim is not particularised in the evidence before the judge. Mr Gruder submitted that the court could not assume that there was no defence of this nature because it had been referred to in the correspondence. I would take the contrary view that, if that matter has not properly been put into evidence before the court, the court cannot assume that there is such a defence. Therefore I would disregard that matter altogether.
35. Finally, Mr Gruder submits that the court should grant this application because there was a statement of truth attached to the particulars of claim. Those particulars, on his submission, are inaccurate and, therefore, the court should set aside the judgment in order to demonstrate to litigants generally that they must investigate claims carefully before pleading to them and the judgment should be set aside "pour encourager des autres". I agree that the court should not discourage claims to be made which are not wholly accurate and that the court should insist upon statements of truth being exactly what they set out to be. However, there are a number of competing policies in the Civil Procedure Rules.
36. The overriding objective (Civil Procedure Rule 1.1) is to deal with cases justly. A number of specific considerations are then set out in rule CPR 1.1(2). In my judgment, dealing with a case justly is not served by allowing a judgment to be set aside on what I perceive to be a highly technical ground which lacks merit.
37. Accordingly I would dismiss the application.
Order: Application dismissed with costs against both applicants subject to detailed assessment.