CH 1997 W No. 751
Neutral Citation Number: [1998] EWHC Ch 316 
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Date: 04/12/1998
Before:

CHARLES ALDOUS QC 

B E T W E E N:-
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(1) WATERFORD WEDGWOOD PLC
(a company incorporated in the Republic of Ireland)
(2) WATERFORD CRYSTAL LIMITED
(a company incorporated in the Republic of Ireland)
Plaintiffs
- and -

(1) DAVID NAGLI LIMITED
(2) DAVID NAGLI
Defendants

- and -

(1) GABRIEL F. HAUGHTON
(2) BEXHILL CONSULTANTS LIMITED
(a company incorporated in the Isle of Man)
Third Parties
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JUDGMENT

At the previous hearing I acceded to Mr Haughton’s summons and set aside the Third Party Notice against him on the grounds that the claim was not one which this Court had jurisdiction to determine under either Articles 6(2) and 5(3) of the Brussels Convention.  I also made a costs order against Mr Nagli in the usual terms for a legally assisted party with directions for filing an affidavit of means.

I shall not repeat the facts and issues which underlay the main action and issue of Third Party Proceedings.  These are sufficiently set out in my earlier judgment to which reference should be made.  However, it is right to point out firstly that the Third Party Summons was only set aside on procedural grounds as the claim ought to have been brought against Mr. Haughton in the Republic of Ireland and not here.  Waterford, the Plaintiffs in the main action, had already obtained summary judgment and were not going to take any further steps in the proceedings against Mr Nagli other than possibly enforce their order for costs.  There were therefore no active proceedings being pursued here in which it was necessary to join Mr Haughton as Third Party.

However, insofar as it is material to the present application, I should state that I do not regard Mr Nagli’s conduct in issuing the Third Party Proceedings as unreasonable.  Indeed, had they been issued and served earlier so that they could have been heard together with Waterford’s application for summary judgment they may well have not been set aside.

The second observation to make is that the claim against Mr Haughton had not therefore been dismissed on its merits.  Whilst making it clear in my earlier Judgment that I was not to be taken as prejudicing the case against him, I found that Mr Nagli had established a good arguable case.

The third observation is that, whatever Mr Haughton’s role may prove to have been, there is a good reason to believe that Mr Nagli may have been the innocent victim of a fraud perpetrated on him by others with catastrophic consequences for him personally.  As I stated, Waterford have obtained judgment against him for costs which if it were to be enforced could be in the region of £300,000. His business has been ruined.  His company, David Nagli Limited is in liquidation; the shop premises have been disposed of and his and his wife’s trading partnership dissolved.  Because of this Mr Nagli has legal aid.

I was told that although Mr Nagli earnestly wishes to pursue his claim against Mr Haughton in Ireland he has not been able to through lack of money.

As is his right, Mr Haughton has pursued his claim to enforce the order against Mr Nagli for the costs incurred in setting aside the Third Party Proceedings; estimated in the region of £27,000.  Not only have two affidavits been sworn by Mr Nagli as to his means on which he was cross-examined, but Mr Haughton’s solicitor Mr Vine also swore an affidavit dealing amongst other things with the results of a private investigation to establish whether or not Mr Nagli was still carrying on business.  Issue is taken over a large number of items in Mr Nagli’s affidavits, both as to his income and expenditure as well as his capital and liabilities.  Mr Haughton also asserts, possibly with some justification, that Mr Nagli has given less than full and frank disclosure of some matters.  This may well be due in part to Mr Nagli’s determination to avoid, if he legitimately can, paying anything to Mr Haughton.  He genuinely believes that Mr Haughton is in part responsible for the ruin of his business and the loss of much of his capital in paying off his company’s debts.  He is now aged 70 and without capital or creditworthiness is unable to reestablish himself or fund proceedings against Mr Haughton.  He has a younger wife and children and has resorted to relying in part on the generosity of his wife’s mother.  He sees no justice if he were now to have to pay money to Mr Haughton.

Irrespective of the merits or otherwise of these sentiments, his disclosure of means coupled with his oral evidence is in my judgment quite sufficient to enable the Court to reach a clear decision on this application.

Although, as I have said, issue is taken on a number of the items in Mr Nagli’s affidavits of means, the major dispute is over the value to be attributed to the dwelling house in which he resides with his wife, children and mother-in-law.  At the time of the last hearing Mr Nagli and his family were living at 7 Brackenhill, Cobham, Surrey.  The house was in joint names.  It was a substantial property worth approximately £550,000 but subject to a mortgage of nearly £220,000.  After the collapse of his business they could no longer afford to service the mortgage and were forced to sell.  This produced net proceeds of £324,079.74.

Subject to a retention of just over £25,000 demanded by Mr Haughton pending the outcome of this application, the balance was applied as follows:-

	£287,639.68 in the purchase of a new house Marrowells in Weybridge;
	£3,000 into Mr and Mrs Nagli’s joint account to clear the overdraft;
	£8,363.70 to Mrs Nagli.

Therefore, as 7 Brackenhill was jointly owned, Mr Nagli’s half share of the net proceeds (£162,039.87) can be accounted for as follows:-

as to £132,490.51 towards the purchase of Marrowells;
as to £25,049.36 held pending the application
as to £1500 representing Mr Nagli’s equal contribution to the overdrawn joint account.

Although a substantial five bedroom house in a relatively expensive area, Marrowells was bought not only as a house for Mr and Mrs Nagli and their two daughters when at home but also for Mrs Nagli’s mother who was to assist in a major way in its purchase.  The house in fact cost £457,693.68 (including costs and expenses), paid for as to £287,693.68 by Mr and Mrs Nagli from the proceeds of Brackenhill and as to £170,000 by a temporary mortgage to be repaid by Mrs Nagli’s mother out of the proceeds of sale of her own house, which had by then been put on the market.  I was told that the house has since been sold and the £170,000 mortgage redeemed by her out of the proceeds.

Despite having been purchased with £135,000 odd from Mr Nagli’s share of the proceeds of Brackenhill, Marrowells has been registered only in the joint names of Mrs Nagli and her mother.  Whatever the motives behind this, it was accepted by Mr Nagli for the purposes of the present application that I should proceed on the same basis as if Mr Nagli held a beneficial interest in the new house commensurate with his contribution of £135,000.

In his second affidavit sworn on 23 November Mr Nagli sets out his income and assets, which can be summarised as follows:-

Income	(State and small private pension)	£ 744.51 per month	
Expenses	(arrived at by notionally halving the household expenditure between himself and his wife)	£ 831.21 per month	
Capital	notional interest in Marrowells	£ 135,490.51	
	retained sum	£ 25,049.36	
	half interest in car	£ 4250	
Liabilities	(including a half share of loans totalling £21,323.79 from Mrs Nagli’s mother)	£ 51,000 approx.	

In addition Mr Nagli remains liable to Waterford for their costs although realistically this may never be enforced.  The last contract with Waterford was in August 1997 when they indicated they were seeking a sum in the order of £300,000, however they have taken no steps to enforce the order or have their costs taxed.

The liability of a legally-assisted person is governed by Section 17 of the Legal Aid Act 1988.  Section 17(1) is in the following terms:-

“The liability of a legally assisted party under an order for costs made against him with respect to any proceedings shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances, including the financial resources of all the parties and their conduct in connection with the dispute.”

So far as material Subsection (3) provides:-

“None of the following, namely a legally assisted person’s dwelling house, clothes, household furniture...shall

(a)	be taken into account in assessing his financial resources for the purposes of this section;
(b)	... except so far as regulations may prescribe.”

The regulations referred to are the Civil Legal Aid (General) Regulations 1989 S.I. 1989/339.

As well as providing for the right of any party other than the assisted person to file an affidavit of means (Regulation 125) - Regulation 126 provides:-

“In determining the amount of the assisted person’s liability for costs;

(a)	his dwelling house, clothes, household furniture ... shall be left out of account to the like extent as they are left out of account by the assessment officer in determining his disposable income and disposable capital.”

Therefore the assisted person’s dwelling house is to be left out of account for the purposes of considering whether to make a personal order for costs under Section 17 to the same extent as it is left out of account by the assessment officer when applying for assistance.

This, in turn, is governed by the Civil Legal Aid (Assessment of Resources) Regulations 1989 S.I. 1989/338.  Schedule 3, paragraph 10 provides that - “in computing the amount of capital of the person concerned, the value of any interest in the main or only dwelling in which he resides shall be taken to be the amount for which that interest could be sold in the open market, subject to the following rules -

...
(b)	the first £100,000 of the value of that interest ... shall be disregarded.”

Paragraph 14A has the effect of disregarding a further £5,000 in Mr Nagli’s case because of the level of his annual disposable income.

Dealing first with Mr Nagli’s interest in Marrowells, Mr Halkerston, Counsel for Mr Haughton, submits that as a spouse’s resources are treated as the assisted person’s resources in computing his disposable income and capital when assessing whether he is to be granted legal aid (see Regulations 7 and 7(A) of the 1989 Regulations); so also must the spouse’s interest in the dwelling house be aggregated with the assisted person’s in determining the value to be taken into account for the purposes of Section 17(1).  Hence, he submits, Mr Nagli’s interest in the house shall be taken to reflect the combined amount paid towards the purchase by both him and his wife (namely £267,693.68) less £105,000 - that is £182,693.68.

In my judgment this is not the correct approach when assessing an assisted person’s financial resources for the purposes of a costs order under Section 17.  Even if a spouse’s or other third party’s resources are to be treated as the resources of the person being assessed for legal aid, it does not follow that the spouse’s or third party’s resources are to be treated as the assisted person’s when it comes to considering whether to make a personal costs order against him.  Ordinarily one would suppose that any costs order would be confined to the assisted person’s own financial resources out of which he will be able to pay whatever sum is ordered, as opposed to his spouse’s or other third party’s assets over which he may have no control.

There is in my judgment no ambiguity.  Section 17(1) requires the Court to determine the Nagli’s own financial resources.  Section 17(3) then provides for certain of his assets to be left out of account, as distinct from treating other assets as included.  By virtue of Regulation 126 which applies to Section 17(3) his dwelling house is to the like extent as they are left out by account by the assessment officer.  There is no requirement here or elsewhere for the purpose of Section 17 to include the assets of the assisted person’s spouse or of any other person who may have been maintaining him and whose assets may be treated as his by the assessment officer when considering whether to grant legal aid.  Had it been intended that the spouse’s assets should be treated as the assets of the assisted person under Section 17 there would not only have been an express provision to that effect (which there is not) but there would have been no sense in distinguishing between a spouse’s interest in the dwelling house and his or her’s free disposable assets.  If anything, there would have been more sense in including the latter rather than the former.

Furthermore in the context of determining the assisted person’s financial resources, Schedule 3 paragraph 10 of the 1989 Regulations requires his interest in the house to be valued at the price for which it could be sold in the open market disregarding the first £100,000.  I can see no requirement to include Mrs Nagli’s beneficial share arising from her contribution to the purchase any more than including any other free assets of hers.

I was not addressed on how to assess the open market value of such a beneficial interest.  Does one presume that Mr Nagli could arrange for the house to be sold with vacant possession against the wishes of Mrs Nagli and her mother?  In any event treating his interest as worth the full £135,000 this leaves a net value of only £35,000 after the statutory deduction.

Looked at purely as an accounting exercise, and deducting the further £5,000 because he is a pensioner, Mr Nagli’s assets, including a share in the house valued in this way only marginally exceed his liabilities.  Despite contrary submissions from Mr Halkerston, I am not prepared to disregard the obligations to repay the monies lent by Mrs Nagli’s mother.  Mr Nagli quite properly regards himself as under an obligation to repay her if and when he can whether or not she should ever sue for its recovery.

Furthermore I am not prepared to treat any shares in the house in the same way as the £25,000 cash retention.  I see no reason to criticise Mr Nagli for reinvesting his share of the proceeds of Brackenhill in a new house for his wife and family.  The fact that his wife and mother-in-law were also prepared to contribute substantial funds to enable a five bedroom house to be bought in the same area as his mother-in-law was already living does not amount to profligacy on his part as was suggested.  Whatever criticisms may have been made about one or two items I am satisfied that his outstanding personal liabilities substantially exceed £25,000; several of which have been outstanding for a considerable time and should be paid.

As well as attacking Mr Nagli’s contribution to the purchase of Marrowells, Mr Haughton challenged his income and expenditure.  It was alleged that Mr Nagli was still carrying on business using his daughter as a “front” for him.  Mr Haughton engaged a private investigator.  He produced evidence showing that Mr Nagli had been selling or assisting his daughter to sell at one or two trade fairs and possibly operating a mail order business from home.   However, whether he is simply assisting his daughter or running a business himself, there is no evidence of this generating any significant income.  Mr Nagli is now aged 70.  Without any capital behind him there appears little prospect of his ever reestablishing himself.  I am not therefore prepared to regard Mr Nagli’s income as undeclared to any significant extent (if at all)  Nor am I prepared to treat any part of his wife’s or mother-in-law’s resources as his, other than the share in Marrowells acquired out of his contribution from the proceeds of Brackenhill, which I have already dealt with.

Apart from registering Marrowells in the joint names of his wife and mother-in-law, there is no evidence of his transferring assets into his wife’s name or otherwise concealing them to avoid his debtors.  Finally I see no possible justification for Mr Haughton’s attack on Mr Nagli for not obtaining greater assistance from his elderly mother-in-law.

On the basis of his financial resources above I am not therefore prepared to make any order against Mr Nagli.

Section 17 requires the Court to have regard to all the circumstances including the financial resources of Mr Haughton.  Mr Haughton has filed no evidence of means and does not claim any financial need.

On the other hand Mr Nagli has an outstanding liability for approximately £300,000 of costs to Waterford, which although unlikely to be enforced, cannot just be ignored.  Particularly where that liability has arisen from events in respect of which I have held Mr Nagli has a good arguable case against Mr Haughton for recompense.  Although I set the Third Party Summons aside I do not, as I have already stated, regard Mr Nagli’s conduct in issuing the proceeds as unreasonable.

For all the above reasons I propose to dismiss Mr Haughton’s application.
3.12.98