This judgment was handed down remotely at 10.30am on 14 March 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
PAUL MITCHELL KC:
- There are two applications before me: the Defendant's application for security for costs dated 14 April 2023 and the Claimant's for summary judgment dated 19 August 2024. I address them in reverse order.
- I am most grateful to Mr Turlough Stone, for the Claimant, and Mr Alexander Pelling, for the Defendant, for the clarity of their written and oral submissions and their collaborative and sensible approach to assisting the court.
The facts
- The application for summary judgment arises from the following uncontroversial facts.
- The Claimant is an asset finance company. The Defendant, among other things, brokers finance agreements to other businesses. On or about the following dates, the Claimant received invoices ("the Invoices") on the Defendant's letterhead, sent by email:
i) 20 September 2021, in the sum of £1,199,509.20 (inclusive of VAT)
ii) 4 October 2021, in the sum of £1,238,730 (inclusive of VAT)
iii) 19 October 2021, in the sum of £1,287,300 (inclusive of VAT).
- Each invoice was a standard form document. The Invoices were addressed to the Claimant and showed a schedule of equipment for use in outdoor broadcasting ("the Equipment"). The unit cost of each item of Equipment was shown and VAT was applied to all items. There was a box at the top of the invoice titled "Equipment location", completed to show the address of a company called Arena Holdings Limited at Redhill Aerodrome ("Arena"). The Defendant's banking coordinates were provided showing where the Claimant was to remit payment; and at the bottom of the invoice was the rubric "Please refer to Lan Support Ltd's Terms & Conditions".
- The Defendant did not itself send the Invoices. Rather, they were emailed to the Claimant by representatives of a company called Primary Asset Finance ("PAF"). The Claimant says of PAF in its Particulars of Claim merely that it was "an asset finance broker on behalf of Arena in relation to the funding of the Equipment". In his evidence in support of the summary judgment application, the Claimant's Mr Royer says much the same: that PAF "sources and introduces finance providers/ lenders to its customers who require funding for the acquisition of assets". The Claimant says nothing further about PAF's role, on the basis, it contends, that the undisputed facts alone are relevant.
- The Defendant's Mr Stuart Tidy gives more evidence regarding PAF in his witness statement. I shall consider Mr Tidy's evidence further below after stating the remainder of the agreed facts.
- The Equipment which was the subject of the Invoices was intended by the Claimant and the Defendant to be leased by the Claimant to Arena.
- The Defendant was not the manufacturer of the Equipment. It believed it was acquiring title to the Equipment via a chain of contracts, as follows:
i) Arena purportedly sold the Equipment to a company called CMI Corporation Limited ("CMI").
ii) CMI was a company related to the Defendant: at the time of the Invoices, it, like the Defendant, was owned by Mr Tidy; and Mr Tidy directed the affairs of both the Defendant and CMI. Mr Tidy caused CMI, rather than the Defendant, to enter into the purchase from Arena in order to increase the turnover of CMI shown in its statutory accounts.
iii) CMI then sold the equipment to the Defendant in a "back-to-back" sale.
- Unknown to the Claimant or the Defendant at the time payments were made by the Claimant to the Defendant, and then by the Defendant to CMI, and finally by CMI to Arena, as a matter of fact the Equipment which was the subject matter of the invoices did not exist. On 10 November 2021, very shortly after the last payment was made to it by CMI in relation to the Equipment particularised in the third of the Invoices, Arena apparently ceased trading; it went into administration on 18 November 2021 and subsequently into liquidation. It is common ground that a fraud was perpetrated by Arena/ persons connected with Arena in relation to the procuring of finance from the Claimant.
- The total indebtedness of Arena and its related companies to asset-based lenders such as the Claimant was in excess of £1 billion, and there are currently claims by the liquidators of Arena and another company in the Arena group against those companies' former bankers in the order of £280,000,000 seeking reconstitution of the company's bank accounts in about that sum. No recoveries have yet been effected by the liquidators.
- It is common ground that:
i) The parties were seeking to contract with each other on terms that would result in the Claimant obtaining legal title to the Equipment;
ii) The Claimant paid the Defendant in full in relation to each invoice and at the moment of payment, a contract purportedly came into existence between the parties;
iii) Given the Equipment did not exist, then as a matter of law the contracts which the parties had purported to enter were void ab initio;
iv) In principle, the Defendant is liable to repay to the Claimant those sums which it received in respect of the Invoices.
- The Defendant has repaid the Claimant a sum which represents the commission it retained when passing money from the Claimant to Arena by way of the contractual structure outlined above at paragraph 9. It maintains, however, that it should not be ordered to repay the Claimant any further sum. By its Defence and Counterclaim, it pleads at paragraph 29.1:
"LAN has changed its position, in that of the money LAN received from Somerset further to the purported Contracts, all but the Profit Element was upon receipt, and/ or in reliance upon such receipt, paid away by LAN to Arena (through CMI) as intended consideration for the Equipment under the very back-to-back transactions of which the purported Contracts were a part, as Somerset knew it would be".
- The Defendant contends at paragraph 29.5 of its Defence and Counterclaim that "in all the circumstances of the case it would be inequitable to require LAN to make restitution of any more than the Profit Element".
- The Defendant also contends, at paragraph 27.3 of the Defence and Counterclaim:
"further, Somerset's restitutionary claim falls to be reduced by the value of such sums as Somerset has received from Arena in respect of the Equipment, which sums LAN understands to have been in the region of or in excess of £800,000"
- In its Reply and Defence to Counterclaim, the Claimant:
i) Denies that it was aware that sums paid to the Defendant would be paid away by LAN to Arena through CMI;
ii) Denies that the Defendant has changed its position as a result of receipt of the moneys transferred by the Claimant;
iii) Denies that it would have to give credit for any sum it had received from Arena on the basis that "there is no requirement in a restitutionary claim to take into account benefits received by the innocent purchaser [sic, sc. 'paying party']"
- On grounds which I shall address more comprehensively below, the Claimant seeks summary judgment on the Defendant's change of position defence. At the heart of the Claimant's argument is this proposition: "If A receives money from B and enters into a transaction with C which is void ab initio, A cannot rely on the transaction with C in answer to B's restitution claim". The Claimant contends that on this basis the Defendant has no real prospect of establishing its change of position defence.
- Although there is a counterclaim by the Defendant, that counterclaim is predicated on the court at trial finding, contrary to the submissions of both the parties, that the contracts between them were not void ab initio. If the contracts were valid, then, the Defendant says, it has various rights arising under the terms and conditions which it says were incorporated into the contracts by the rubric at the end of each of the Invoices (see above, paragraph 5).
- If, however, the contracts were void ab initio, then the areas of dispute between the parties are more narrow:
i) The Claimant alleges by way of alternative to its restitutionary claim that the Defendant represented to it that the Equipment was in existence and/ or that it had good title to the Equipment;
ii) On the basis of these alleged representations, the Claimant avers that it is entitled to damages for breach of a collateral warranty alleged to have been given by the Defendant/ damages for negligent misstatement on the part of the Defendant.
- Unlike with its restitutionary claim, where liability is strict (subject to any change of position defence), to establish either of the alternative claims the Claimant would have to prove that it relied on that which it says was impliedly represented by the Defendant.
- I now turn to the facts raised by the Defendant in its evidence. Some of these are disputed but the Claimant's position is that even if such disputes were resolved in the Defendant's favour, that would make no difference to the outcome of its application for summary judgment.
- The Defendant contends that the circumstances which would make it inequitable to require it to make restitution of the full sums received by it in payment of the Invoices include the following:
i) It was as much deceived by Arena as was the Claimant;
ii) It acted in good faith throughout;
iii) The Claimant knew that in reality what it was doing was advancing finance to Arena on the security of equipment which Arena already owned; and that the Invoices merely created a form of security by transferring title to that equipment to the Claimant.
- The Defendant points to the following facts and documents in support of its contentions summarised in paragraph 22 above.
- First, it notes the role played by PAF. This company, explains Mr Tidy, was his only point of contact throughout the transaction: he did not deal directly with the Claimant at all. Mr Tidy's evidence is that the Defendant liaised between Arena and PAF; and PAF liaised initially between the Claimant and the Defendant, but, after heads of terms for finance had been agreed, PAF dealt directly with Arena and liaised between Arena and the Claimant, with the Defendant merely being copied on relevant emails.
- Second, the Defendant says that the Claimant had every opportunity to obtain proof that the Equipment existed; but that at Arena's request, communicated to the Claimant by PAF, it waived its usual requirement that Arena, as hirer, pay the costs of someone inspecting the Equipment on the Claimant's behalf.
- Third, the Defendant points to a document which the Claimant required Arena to sign called the "Certificate of Acceptance". On 22 September 2021, the Claimant entered a "Master Hire Purchase Agreement" with Arena. By this agreement, Arena agreed to hire "the Equipment described in each Equipment Schedule from time to time executed by the parties". Appended to the Master Hire Purchase Agreement there was a pro forma Equipment Schedule, to be completed on each occasion Arena agreed to hire a further tranche of equipment.
- The terms of the Equipment Schedule were designed to create a separate contract whenever such a schedule might be executed; the Master Hire Purchase Agreement contained all the detail, and the Equipment Schedule contained specific information about the particular equipment hired on each occasion. The terms of the Master Hire Purchase Agreement were incorporated by express reference into the contract formed upon the execution of any given Equipment Schedule.
- Clause 3.2 of the Master Hire Purchase Agreement provided:
"Prior to the execution of an Equipment Schedule, the Hirer agrees, at the Owner's request, to execute and deliver, or if applicable supply, to the Owner in a form and substance acceptable to the Owner such documents as the Owner may reasonably require including without limitation an incumbency certificate, board resolutions, powers of attorney and related documents, evidence and matters and/ or a legal opinion. With respect to each Equipment Schedule executed pursuant to this Master Hire Purchase Agreement, the Hirer shall execute and deliver to the Owner a Certificate of Acceptance".
- A "Certificate of Acceptance" was defined in Clause 2:
"a certificate of acceptance in a form and substance acceptable to the Owner evidencing the Hirer's absolute and unconditional acceptance of and satisfaction with the Equipment hired under a HP Contract [meaning the contract created by the execution of an Equipment Schedule], following a complete examination of that Equipment by the Hirer"
- The form of the Certificate of Acceptance was the same on each occasion these were signed on behalf of Arena by Mr Richard Yeowart, a director. On 24 September 2021, 7 October 2021 and 25 October 2021, Mr Yeowart signed a declaration which included the following terms:
"(3) The Hirer confirms that all items of Equipment have been delivered to the Hirer and that the Equipment is approved and accepted by the Hirer and suitable in all respects for the Hirer's purposes.
(4) As of the date hereof, the Hirer confirms that its interest in the Equipment is free and clear of any liens and encumbrances, other than those created by and in favour of the Owner".
- In relation to each of the Invoices, the Certificates of Acceptance were signed before any funding was sent to Arena by the Claimant via the Defendant. The Defendant contends that the wording of paragraph (4) of the declaration contained in the Certificate of Acceptance stands as evidence that:
i) Arena made a representation to the Claimant regarding the existence of the Equipment, upon which the Claimant must have relied;
ii) The Claimant knew Arena had title to the Equipment at the time it gave the Certificate of Acceptance; and thus knew the structure of the transaction was effectively that it was lending money to Arena secured against equipment which Arena already owned, and would be obtaining title to that equipment by way of security, title being passed from Arena to the Defendant and thence to the Claimant.
- The potential relevance of these contentions of fact is more conveniently addressed below in the context of applying the law to the facts. I turn now to the applicable law.
The law
Summary judgment
- I gratefully adopt the summary recently provided by Mr Andrew Hochhauser KC, sitting as a Deputy High Court Judge, in Lee v National Westminster Bank Plc [2024] EWHC 1811 (Comm):
"23. There was little dispute as to the principles to be applied to the applications. The power to award summary judgment is to be found in CPR 24.2, which, so far as material, states that:
'The court may give summary judgment against a claimant or a defendant on the whole of the claim or on a particular issue if-
(a) it considers that -
(i) that claimant has no real prospect of succeeding on the claim or issue; or
(ii) that defendant has no real prospect of successfully defending the claim; and
(b) there is no other compelling reason why the case or issue should be disposed of at a trial.'
24. The relevant principles were summarised by Floyd LJ in TFL Management Services Limited v Lloyds TSB Bank Plc [2014] 1 WLR 2006 at [26] to [27]. In that passage, Floyd LJ referred to an earlier decision of Lewison J (as he then was) in Easy Air Limited (Trading as Open Air) v Opal Telecom Limited [2009] EWHC 339 (Ch) at [15], where he summarised the principles in the following way:
'…the court must be careful before giving summary judgment on a claim. The correct approach on applications by defendants is, in my judgment, as follows:
i) The court must consider whether the claimant has a 'realistic' as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 1 All ER 91;
ii) A 'realistic' claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];
iii) In reaching its conclusion the court must not conduct a 'mini-trial': Swain v Hillman;
iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10];
v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;
vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;
vii) On the other hand, it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725"
25. I also remind myself of the following:
(1) the criterion 'real' is not one of probability, it is the absence of reality: see Lord Hobhouse in Three Rivers District Council v Bank of England (Number 3) [2003] 2 AC 1, [158];
(2) an application for summary judgment is not appropriate to resolve a complex question of law and fact, the determination of which necessitates a trial of the issues having regard to all the evidence: see Apvodedo NV v Collins [2008] EWHC 775 (Ch);
(3) in relation to the burden of proof, the overall burden of proof rests on the applicant to establish that there are grounds to believe the respondent has no real prospect of success and there is no other compelling reason for trial. The standard of proof required of the respondent is not high; it suffices merely to rebut the applicant's statement of belief"
- To Mr Hochhauser's analysis I add one further principle: just as it is not normally appropriate in an area of the law which is uncertain or developing to strike out a claim (Barrett v Enfield London Borough Council [2001] 2 AC 550, per Lord Browne-Wilkinson at p 557), in my judgment the same principle can apply to an application for summary judgment. If the law might be developed by a judgment, then it is usually better for that judgment to be based on actual facts found at trial.
Restitution
- The defence to a claim for money had and received of change of position was first recognised in Lipkin Gorman v Karpnale [1991] 2 AC 548. Lord Goff said this at 578D to 580C:
"The claim for money had and received is not, as I have previously mentioned, founded upon any wrong committed by the [defendant in that case] against the [claimant in that case]. But it does not, in my opinion, follow that the court has carte blanche to reject the [claimant's] claim simply because it thinks it unfair or unjust in the circumstances to grant recovery. The recovery of money in restitution is not, as a general rule, a matter of discretion for the court. A claim to recover money at common law is made as a matter of right; and even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where recovery is denied, it is denied on the basis of legal principle…
Historically… the defence has received at most only partial recognition in English law. I refer to two groups of cases which can arguably be said to rest upon change of position: (1) where an agent can defeat a claim to restitution on the ground that, before learning of the plaintiff's claim, he has paid the money over to his principal on the faith of the payment; and (2) certain cases concerned with bills of exchange, in which money paid under forged bills has been held irrecoverable on grounds which may, on one possible view, be rationalised in terms of change of position… [W]here change of position has been relied upon by the defendant, it has been usual to approach the problem as one of estoppel… But it is difficult to see the justification for such a rationalisation… estoppel is not an appropriate concept to deal with the problem.
In these circumstances, it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him to repay outweighs the injustice of denying the plaintiff restitution…
I am most anxious that, in recognising this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way… At present, I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full".
- Lord Goff's analysis was thus that the defence was one governed by legal principle; and that the principle in question was broad. It is not surprising that this should be so: in Lipkin Gorman the defence was recognised for the first time.
- There are dicta in the authorities that can be read as suggesting the elements of the defence recognised in Lipkin Gorman are no more than the facts of the given case, with the court exercising a broad discretion depending on those facts in each case: see in particular Commerzbank AG v Price-Jones [2003] EWCA Civ 1663, per Munby J at [56] (albeit neither of the other members of the Court expressly agreed with him); and Niru Battery Manufacturing Co v Milestone Trading Ltd [2003] EWCA Civ 1446, [2004] QB 985, per Clarke LJ at [147]-[149], [152], [162], Sedley LJ at [172] and Dame Elizabeth Butler-Sloss P at [193].
- These dicta could be said to overlook the significance of Lord Goff's analysis that a change of position defence is not "as a general rule, a matter of discretion for the court" but rather is something which operates to deny restitution "on the basis of legal principle". In Scottish Equitable Plc v Derby [2001] EWCA Civ 369, [2001] 3 All ER 818, Robert Walker LJ at [32] and Simon Browne LJ at [53] both made clear that were the defence to be unguided by principle and merely discretionary, the result would be a disintegration of legal analysis prompted by "well-meaning sloppiness of thought". Scottish Equitable was not cited to the Court of Appeal in Niru Battery, and it seems possible that the terms in which the Court expressed itself about the defence in Niru Battery might well have been different if it had (albeit the result would surely have been the same).
- The debate about the breadth of the defence is relevant to its development. There have since Lipkin Gorman been many cases which have begun to illustrate the facets of the broad principle expressed by Lord Goff. These decided cases now act as guiderails for the exercise of the discretion; but the fact is that the law of restitution is still in relative infancy, with new appellate judgments still appearing as the principles are worked out.
- In the current, tenth, edition of Goff & Jones on Unjust Enrichment, the editors say at paragraph 27-08 by reference to numerous cases cited in the footnotes to that paragraph that the onus of pleading a change of position defence lies on the defendant; who must put it forward "fairly and squarely" in his statement of case so that "its factual merits can be explored at the trial".
- As noted above (paragraph 14), the Defendant's plea in this case is that it would be inequitable "in all the circumstances of the case" for it to be ordered to make restitution. In my judgment, the Defendant's said plea is an appropriate one: having regard to Lord Goff's speech in Lipkin Gorman, it is clearly entitled to contend before the court that its defence must be assessed by reference to all the circumstances; and having regard to Goff & Jones paragraph 27-08, if it wishes so to contend, then it must plead so. The guidance from the decided cases will of course reduce the scope of what factual circumstances are relevant; but the Defendant is entitled to put the full picture before the court at trial and invite the court to make its determination on the basis of that full picture.
- If the Claimant is going to succeed on its summary judgment application, therefore, it has to show that even in "all the circumstances" before the court on this occasion, the Defendant has no real prospect of making out its defence.
- Against that background, I turn to the submissions made by the parties in this case regarding the defence of change of position.
- Mr Stone submitted that the defence was available only where all three of the following criteria were satisfied:
i) First, that the defendant has suffered a qualifying detriment;
ii) Second, that the said detriment was "caused by receipt of the enrichment". As Mr Stone put it, "a defendant seeking to rely on change of position must show that, but for the payment received, their circumstances would not have changed";
iii) Third, that the defendant is not disqualified from relying on the defence by reason of bad faith or unconscionable conduct on its part.
- Furthermore, Mr Stone submitted, there were two additional guiding principles from the authorities.
- First, he contended that the fact restitution might, from a defendant's point of view, cause hardship, is not in itself a defence to a restitutionary claim. He referred in this context to Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759, per May LJ at [67]. I do not consider that case is authority for the proposition for which Mr Stone contends, as the observation he cites was made about the equitable remedy of subrogation rather than the defence of change of position. There is, however, support for Mr Stone's contention in Scottish Equitable v Derby, where both Robert Walker LJ, at [34], and Simon Brown LJ, at [53] acknowledged the hardship of Mr Derby's plight but held that hardship alone could not amount to a relevant consideration.
- Second, Mr Stone submitted that the fact a defendant does not have the resources to make restitution is an irrelevant consideration. Mr Stone relied on the Canadian case of Hydro-Electric Commission of the Township of Nepean v Ontario Hydro [1982] 1 SCR 347, per Dickson J at 377. Dickson J gave a lengthy and erudite dissenting judgment in that case, which concerned a restitutionary claim in respect of moneys paid under a mistake of law at a time when the common law world still considered such payments to be irrecoverable. In a passage at 377 he made this observation:
"In my view the trial judge in denying Nepean's claim was wrong in law in considering the possible source of funds to satisfy any judgment Nepean might obtain. We have not been referred to any case, and I know of none, where the court has applied what amounts to a 'means' test and a plaintiff, without fault, has been denied recovery because of doubt as to the 'source of funds' to satisfy the judgment".
- Dickson J's observation there, while clearly correct as far as it goes, does not go very far at all: it is a statement of the obvious and generally applicable, not a specific analysis of the legal significance of a particular factual circumstance tendered by a defendant to a restitutionary claim. In my judgment, Mr Stone's contention here is too broadly expressed: it cannot be irrelevant to a defence that a defendant does not have the resources to make restitution if the reason he does not have those resources is that he paid away the moneys he had received in circumstances which give him a defence of change of position.
- Mr Stone's submissions rested on three propositions:
i) First, the Defendant has suffered no qualifying detriment, because, says Mr Stone, it was not under any legal liability to pay any sums to CMI.
ii) Second, the Defendant has not actually lost the unjust enrichment (or sustained a 'disenrichment') which it obtained upon receiving money from the Claimant, because the benefit it conferred on CMI is, it is contended, entirely reversible.
iii) Third, the Defendant cannot in conscience rely on a change of position defence because it, qua seller of the Equipment under contracts with the Claimant, assumed the risk that it would not be able to transfer title and can be taken to have known that if the contracts were void for mistake, it would be obliged to repay the purchase price to the Claimant.
- I take Mr Stone's argument on each of these submissions in turn, as well as considering Mr Pelling's submissions in opposition, which focussed on certain of Mr Stone's propositions only.
No qualifying detriment?
- At the heart of Mr Stone's arguments was the proposition that since the contracts between the Defendant and CMI were as void as the contracts between the Claimant and the Defendant, therefore the Defendant's payments of money to CMI cannot amount to a detriment. He said first that the change of position defence requires the defendant to have entered a transaction which it would not have entered but for the receipt of the claimant's money; and since the Defendant here entered what he called a "void transaction" with CMI, therefore it had not entered a transaction at all with CMI; and so could not begin to make out the defence. In his submission, the position here contrasted with that in Banca Intesa Sanpaolo SpA v Comune di Venezia [2022] EWHC 2586 (Comm), [2023] Bus LR 384, a case where the claimant bank sought declarations regarding the effect of its having entered swaps contracts with the defendant local authority, which contracts had subsequently been declared unlawful under Italian law. One of the declarations sought was that the bank would have a change of position defence to any restitutionary claim on the basis that before purportedly contracting with the local authority, it had hedged its exposure under the swaps contracts. As Mr Stone put it, the claimant bank had entered valid "transactions" back-to-back with the void "transactions" with the local authority, whereas here the Defendant had entered void "transactions" back-to-back with the void "transactions" with the claimant.
- Foxton J's judgment, for all that it was recognised as "impressive and well-reasoned", was overturned by the Court of Appeal: see [2023] EWCA Civ 1482, [2024] Bus LR 228. Accordingly, the decision at first instance is of little assistance, even in the illustrative use to which it was put by Mr Stone. In any event, I cannot accept Mr Stone's first argument, which in my judgment arises from an imprecise meaning of the word "transaction".
- A transaction is a piece of business which involves two or more parties doing things intended to create new rights for themselves. A very common form of transaction is where an asset changes hands in exchange for money. Law has developed in relation to all types of transaction, with the aim and effect that the acts of the participants have significance within a legal framework. It is that legal framework which effects changes in the parties' relationships to the subject matter of the transaction. Thus, although it is common to refer to specific types of transaction by reference to the legal framework which the parties rely upon to give effect to what they are trying to do, there is a conceptual distinction between what the parties did, and what the law makes of what they did.
- If the legal framework the parties believed applied turns out to be void, that does not mean a "transaction" has not taken place: money might still have changed hands, for example. What it means is that the legal rights of the parties are undisturbed from what they were immediately before the transaction: money handed over to a purported counterparty remains the property of the one who handed it over, because the recipient has no right he can assert to retain the money.
- In this case, the Defendant did not enter a "void transaction" with CMI. There is not, strictly speaking, such a thing as a "void transaction": the facts are what they are, even if the legal consequences attaching to them might be the subject of argument. Here, the Defendant entered a transaction with CMI (it sent CMI money) because it believed that it needed to do that in order to obtain from CMI the title to the Equipment which it was, it believed, transferring to the Claimant. Both the Defendant and (presumably) CMI believed that their transaction was proceeding pursuant to the terms of a contract. As matters turned out, that was not the case because as a matter of law the contract was void; but that does not mean a transaction did not happen at all.
- Accordingly, it does not seem to me a complete answer to the Defendant's defence that it happened to pay money away to a third party pursuant to a contract which was void. That payment was still a transaction, even if its legal consequences were not as the Defendant and CMI had intended.
- Furthermore, and in any event, what the Defendant must plead and prove to establish its defence is that it has been "disenriched", i.e., that it is no longer in the position of being enriched because the money it received has gone. In this case, there is no dispute that the moneys transferred by the Claimant are no longer in the Defendant's possession; the question is whether the circumstances in which the moneys left the Defendant's possession amount to a qualifying detriment.
- Mr Stone's second submission was that, since the Defendant was never entitled to receive payments from the Claimant, therefore it "cannot be heard to say that it acted to its detriment or has been 'disenriched' in reliance upon receiving those payments". That cannot be right: if it were, there could be no defence of change of position at all, because in many claims where the defence is available, a claimant has transferred money to a defendant to which the defendant had no entitlement, e.g., pursuant to a contract which turned out to be void.
- Accordingly, I am not persuaded that the Defendant has no real prospect of succeeding on its change of position defence on the basis that it paid the money it had received away to CMI pursuant to a contract which was itself void.
Reversible detriment?
- Mr Stone's next argument was that since the Defendant had a restitutionary claim against CMI, therefore the Defendant could reverse the disenrichment prima facie sustained when it transferred moneys to CMI. He relied on Test Claimants in the FII Litigation v HMRC (No 2) [2014] EWHC 302 (Ch), [2015] STC 1471, where Henderson J observed at 354 that "it may be relevant to consider whether the loss relied upon is reversible"; and Investment Trust Companies (in liquidation) v Revenue & Customs Commissioners [2017[ UKSC 29, where Lord Reed JSC observed at [73] that the paying of VAT did not amount to a change of position because where VAT had been paid that ultimately should not have been paid, it was reclaimable.
- Mr Stone contended that since the Defendant had a claim against CMI for the full amount paid over to it, therefore it had merely exchanged cash for a cause of action in restitution of equal value to the cash. Faced with the objection from Mr Pelling that CMI had itself paid over the money to Arena, which had collapsed into insolvent liquidation, Mr Stone said that CMI had in its turn an unanswerable restitutionary claim against Arena; and that, even though recovery from Arena might be difficult, that fact in and of itself did not mean that the Defendant's expenditure had been irretrievably lost.
- Mr Pelling submitted that the defence of change of position was one that protected an innocent recipient who had changed position in good faith and that it would be unprincipled if such a recipient could be denied the defence because he had a valid but worthless claim against a third party. He pointed to the decision of Michael Green J in Atkinson & Anor v Varma & Ors [2021] EWHC 2027 (Ch):
"74. There was a debate before me as to how far a defendant has to go in proving the irreversibility of his or her unjust enrichment for the purposes of the change of position defence. Or put another way, in the language of restitution lawyers, what steps are required to have been taken by a defendant in order to reverse the disenrichment so as to prove change of position?
75. Under the heading 'Reversible Expenditure', Goff & Jones, at paras. [27-21] to [27- 23] state as follows:
'The foregoing cases suggest that a wider principle is emerging, that transactions entered by a defendant do not count as detriment if they can be unwound: in the words of an Australian judge, a qualifying change of position 'must be legally or practically irreversible or there must be significant difficulties in reversing the change'. This principle also seems to be at work in several cases where the courts have refused the defence in respect of tax payments made on the defendant's receipts, because these could be recovered from the tax authorities. [27-21]
Some questions arise with regard to this rule. How much time, effort and expense can be expected of a defendant in unwinding a transaction? Where he has paid money to a third party, should he be required to pursue legal proceedings against the third party? The answers will turn on the facts of individual cases, but in analogous damages cases concerning the duty to mitigate, the courts have held that claimants need not undertake difficult litigation but may be required to act against third parties where this would be easy. A further consideration is that in cases involving sequential transfers of value the law may allow claimants to recover from remote recipients of benefits, in which case it would seem to be unnecessarily complex to require an intermediate recipient to recover from his own payee in order to hand over the fruits of recovery to a claimant. This is discussed in Ch.6. [27-22]
In Australian Financial Services & Leasing Pty Ltd v Hills Industries, the High Court of Australia held that 'irreversible detriment' should itself be the test to determine whether a defendant's circumstances have changed to such an extent that he should be entitled to the defence of change of position. However, we agree with Henderson J's observations on this point in Test Claimants in the FII Litigation v HMRC (No.2), where he said that:
'…it may be relevant to consider whether the expenditure or loss relied upon is reversible, and (if so) how easily the defendant could take steps to reverse it…But it would be wrong to elevate this consideration into a general test of irretrievability. Expenditure may well be irretrievable, for example because it is immediately consumed, or for some other reason cannot be recouped from the payee, but that fact alone does not stamp the expenditure as a relevant disenrichment. Among other things, it also has to satisfy the causal 'but for' test if the defence is to be made out.' [27-23]
76. Mr Brown relied particularly on the mitigation of loss cases but, as the extract above makes clear, a damages claimant need only undertake litigation against third parties where this would be 'easy'. If there is little chance of recovery, I do not think that a defendant to an unjust enrichment claim is obliged to pursue litigation to prove irrecoverability.
77. But the law on this is uncertain and it will have to develop on a case by case basis (as was said in Goff & Jones)"
- In the instant case, the parties are agreed that at present the prospects of any recovery by anybody from Arena are uncertain. There is clearly an issue between the parties regarding the legal significance of this agreed state of affairs; and the law remains uncertain. I am not persuaded by Mr Stone's submissions that the Defendant has no real prospect of establishing at trial that the facts disclose it has sustained an irreversible detriment: there is arguably merit in the proposition that, by analogy with cases like Pilkington v Wood [1953] Ch 770, a defendant can prove that money is lost when he proves that his prospects of recovering it by action against a third party are beset by significant difficulties.
Assumption of risk?
- Mr Stone's third argument was that since the Defendant was the seller of the Equipment, it took the risk of any defects in title: and since it made no attempts to check whether Arena had title to the Equipment, nor whether the Equipment even existed, therefore it is disabled from relying on a defence of change of position. This submission was founded on two authorities relating to the effect of a failure of basis, Goss v Chilcott [1996] AC 788, PC and Haugesund Kommune v Depfa ACS Bank [2010] EWCA Civ 579, [2012] QB 549, CA.
- In Haugesand itself, Aikens LJ said at [127] that the judge at first instance had been right to say that Haugesand was indistinguishable from Goss v Chilcott insofar as concerned the application of the defence of change of position. I accordingly focus here on Goss v Chilcott, which contains the statement of principle relied upon by Mr Stone. I note also in passing that Aikens LJ observed in Haugesund at [116] that Goss v Chilcott had been criticised by Professor Birks in the second edition of Unjust Enrichment as being a "problematic" decision which might have to be "reviewed": as so often in this area of the law, Goss v Chilcott is a leading case which, although of high authority, cannot be said to have finally settled the questions that arose for decision in it.
- In Goss v Chilcott, a finance company had loaned money to Mr and Mrs Goss secured by a mortgage over their property. Mrs Goss's brother, Mr Haddon, was a director of the finance company. The Gosses agreed with Mr Haddon that they would pass the borrowed money straight to him, and he would repay it on the terms of the mortgage they were entering with his finance company. Mr Haddon secretly amended the terms of the mortgage instrument to extend time for repayment of the loan; and then did not in fact repay the loan at all. The finance company went into liquidation and the liquidator sought to recover the outstanding principal sum from the Gosses.
- The Privy Council held that Mr Haddon's unauthorised alteration of the mortgage instrument rendered it unenforceable; but also that, since the Gosses had totally failed in their obligation to repay the capital sum, there had been a total failure of consideration for the money advanced. From that it followed that the Gosses were liable to hand back the sum transferred to them by the finance company. The Gosses' change of position defence – that they had handed the money to Mr Haddon – failed because they always knew the money would have to be repaid to the finance company; and it was no excuse that they had decided to take the risk that Mr Haddon would not be able to repay it.
- Mr Stone's submission based on Goss v Chilcott was that in the instant case the non-existence of the Equipment amounted to a failure of the basis upon which the parties contracted; the Defendant always knew (or should be taken to have known) that if the Equipment did not exist, it would have to repay the money; and it was no excuse that the Defendant had decided to take the risk that CMI would not be able to repay the money in the event the Equipment did not exist.
- Mr Stone also said that the fact the Defendant made no check to ascertain that it would be able to give good title to the Equipment "compounded the injustice" for the Claimant and was another good reason to deny the defence.
- In answer to this, there was considerable focus in the oral submissions before me on a passage from Goff & Jones which was cited by Foxton J in Venezia at first instance. That passage (which appears in the current edition of Goff & Jones at paragraphs 27-68 to 27-70) contained reference to BP Exploration Co (Libya) v Hunt (No 2) [1979] 1 WLR 783, but there was no copy of Hunt in the authorities bundle. Given the emphasis placed on the effect of Hunt in argument, I indicated that I would read over it and told the parties that if they wished to make submissions on Hunt then they were at liberty to do so; both Mr Stone and Mr Pelling then filed further written submissions.
- For convenience, I set out here the passage from Goff & Jones cited by Foxton J, but in the form it appears in the current edition, and then consider the arguments founded on Hunt. The passage reads as follows:
27-68. When money is paid to a recipient on an agreed basis, he knows that he may have to repay a like sum if the basis fails to materialise, suggesting that he cannot spend the money in the honest belief that the transferor had an unqualified intention to benefit him. So, for example, if a claimant pays a defendant money to build a house, and the defendant spends it on a holiday that he would not otherwise have bought, the law will almost certainly not permit him to rely on this fact in the event that the house is not built and the claimant sues to recover his money.
27-69. Goss v Chilcott was like this. The defendants borrowed money from the claimant under a void agreement, which was paid to a third party at the defendants' request. This arrangement did not constitute a change of position because the defendants knew that if the third party failed to repay the money then the claimant would require the defendants to repay it themselves. This decision was affirmed and followed by the Court of Appeal in Haugesund Kommune v Depfa ACS Bank, where the defendant local authorities could not raise the defence in response to claims by a bank from which they had received money under void interest swap agreements, and which they had used to invest in financial instruments that declined in value.
27-70. An exception to this principle is that payments to meet preparatory expenses will constitute expenditure on which a defendant can rely: in BP Exploration Co (Libya) Ltd v Hunt (No.2) Robert Goff J held that the statutory allowance for such expenses given by the Law Reform (Frustrated Contracts) Act 1943 s.1(2), should be seen as a statutory example of the change of position defence. However, a defendant cannot invoke the defence if he spends money on materials which will not actually help him to perform his agreement. These were the facts of a New Zealand case, Saba Yachts Ltd v Fish Pacific Ltd, where the defendant commissioned plans for a boat that fell outside the specification of the boat which it had agreed to build for the claimant.
- Mr Pelling contended that the payment by the Defendant to CMI was analogous to a payment made to meet preparatory expenses; the difference was that here there were not just preparatory minor expenses, but rather, the entire sum received from the Claimant was necessarily paid over to CMI to obtain the assets which the Defendant were selling to the Defendant.
- As to Hunt, having considered the written submissions of the parties, my view is as follows.
- Hunt was a case concerning the application of the Law Reform (Frustrated Contracts) Act 1943. The claimant, BP, sought the award of a just sum to compensate it for work done under a contract with Mr Hunt that had been frustrated. It claimed to be entitled to such a payment pursuant to Section 1(3) of the 1943 Act. The court – Robert Goff J – was accordingly seeking to determine what sum should be paid to BP by Mr Hunt in exchange for benefits received from BP pursuant to a valid contract that was subsequently frustrated.
- Robert Goff J held at page 799 that the principle underlying the 1943 Act was the principle of unjust enrichment, "which underlies the right of recovery in very many cases in English law, and indeed is the basic principle of the English law of restitution, of which the Act forms part". He then went through section 1 of the 1943 Act and in the course of so doing made observations about the operation of section 1(2).
- Section 1(2) of the 1943 Act provides:
"All sums paid or payable to any party in pursuance of the contract before the time when the parties were so discharged (in this Act referred to as 'the time of discharge') shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and, in the case of sums so payable, cease to be so payable: Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred"
- Of the proviso regarding the non-recoverability of expenses incurred "in, or for the purposes of, the performance of the contract", Robert Goff J said at page 800:
"Where an award is made under section 1 (2), it is, generally speaking, simply an award for the repayment of money which has been paid to the defendant in pursuance of the contract, subject to an allowance in respect of expenses incurred by the defendant. It is not necessary that the consideration for the payment should have wholly failed: claims under section 1 (2) are not limited to cases of total failure of consideration, and cases of partial failure of consideration can be catered for by a cross-claim by the defendant under section 1 (2) or section 1 (3) or both. There is no discretion in the court in respect of a claim under section 1 (2), except in respect of the allowance for expenses; subject to such an allowance (and, of course, a cross-claim) the plaintiff is entitled to repayment of the money he has paid. The allowance for expenses is probably best rationalised as a statutory recognition of the defence of change of position. True, the expenses need not have been incurred by reason of the plaintiff's payment; but they must have been incurred in, or for the purpose of, the performance of the contract under which the plaintiff's payment has been made, and for that reason it is just that they should be brought into account [emphasis supplied]".
- It will be recalled that the common law in England did not recognise the defence of change of position in 1979: Lord Goff, as he had by then become, first recognised it in Lipkin Gorman only in 1991. It can be seen therefore that Robert Goff J's observations about the "allowance for expenses" proviso in Section 1(2):
i) Were obiter;
ii) In any event, concerned the construction of Section 1(2) of the 1943 Act; and
iii) Anticipated the development of the defence of change of position at a time when it was not formally recognised by the common law.
- In the Court of Appeal, Robert Goff J's analysis that the 1943 Act represented a statutory framing of common law principles of restitution was rejected: see [1981] 1 WLR 232, CA per Lawton LJ (giving the judgment of the Court) at 243. The meaning of the Act is purely a question of construction of the statute. The House of Lords did not comment on this point: [1983] 2 AC 352.
- That being so, it is clear that the ratio of Hunt is limited to the correct construction of the 1943 Act; that which was said about the "allowance for expenses" proviso, having been said by Robert Goff J, is clearly of value but it establishes no precedent.
- All that said, given that what a defendant must prove is that the disenrichment was caused by receipt of the enrichment, it is clearly arguable by the Defendant, without reference to Hunt at all, that the sums it paid to CMI would not have been paid but for its receipt of the enrichment. Accordingly, to the extent that the Claimant contends it has a complete answer to the Defendant's change of position defence based on the application of Goss v Chilcott, I do not accept that the Defendant has no real prospect of success. I also bear in mind that the decision in Goss v Chilcott has in any event been subject to cogent criticism and might not necessarily be correct.
"All the circumstances"
- I accept that there is obvious merit in the proposition that if a party enters a contract which on its face purports to transfer title to a thing, then that party is entitled either to the thing or to its money back. It seems to me however that, as well as the arguments reviewed above, the following circumstances (by way of example, and without intending to limit the range of circumstances that might emerge at trial) also might, after full consideration and argument, have a bearing on the court's final decision:
i) The Defendant's case is that the Claimant knew perfectly well that it was lending money to Arena on the security of the Equipment, which Arena was going to transfer to the Claimant by means of a transaction with the Defendant;
ii) The Defendant also says (pointing to the pre-contractual negotiations regarding the expense of inspecting the Equipment) that the Claimant knew it should make some effort to check that the Equipment existed and had the necessary value to stand as security for its loans, but it failed to do that;
iii) The Defendant maintains the Claimant should give credit for rental payments it allegedly received from Arena (receipt of which payments the Claimant denies).
- For the avoidance of doubt, nothing I have said above should be taken to indicate that I have formed any view on the outcome. My concern is that these alleged facts seem capable of complicating the determination whether it would be inequitable in all the circumstances to require the Defendant to make restitution, or alternatively to make restitution in full.
- There are two more factors that seem to me to require that this case be determined at trial. First, it might potentially be a complication that the Defendant collected VAT from the Claimant, which sum the Defendant might be capable of recovering from HMRC.
- Second, in this case the Claimant and the Defendant effectively blame each other for failing to take steps to look after their own interests: each says that the other should have satisfied itself that the Equipment existed/ had adequate value to give the Claimant security against the loan it was making to the Claimant.
- Such allegations engage another controversial area of the law relating to the change of position defence: whether relative fault has any relevance in determining what, if any, payment should be ordered. The current state of the law applicable in England is stated in Dextra Bank & Trust Co Ltd v Bank of Jamaica [2001] UKPC 50, [2002] 1 All ER (Comm) 193. There, Lord Bingham and Lord Goff, giving the judgment of the Privy Council on a case from Jamaica, dismissed an argument that Dextra had any restitutionary claim against the Bank of Jamaica. They nevertheless went on to consider whether, if it had been necessary, the Bank of Jamaica could have made out a defence of change of position. Between paragraphs [40] and [46], they considered an argument made by Dextra that, where a defendant tendered a defence of change of position, "it was necessary to balance the respective faults of the two parties, because the object of the defence is to balance the equity of the party deprived with the equity of the party enriched". At [45], they declined "to recognise the propriety of introducing the concept of relative fault into this branch of the common law".
- The section of the Privy Council's judgment dealing with relative fault is clearly obiter; and it has been the subject of criticism. The current editors of Goff & Jones observe, at paragraph 27-57:
"These cases were reviewed in Dextra Bank & Trust Co Ltd v Bank of Jamaica, where the Privy Council declined to introduce the concept of 'relative fault' into the common law version of the defence. The court gave two reasons for this. One was that the process of comparing the degrees of fault displayed by the parties was too uncertain. The other was that a claimant's carelessness does not prevent him from establishing a cause of action, and so it would be 'very strange' if 'the defendant should find his conduct examined to ascertain whether he had been negligent'. The first of these reasons ignores the fact that the courts routinely assess the comparative fault of two parties in many other areas of civil litigation, including tort claims where a defence of contributory negligence is pleaded, and contribution claims in unjust enrichment. The second reason is also unpersuasive. The claimant's fault is irrelevant when asking whether he has a claim, because this enquiry assumes that the benefit still exists and asks which of the parties has the better right to it. At the later stage when the defence of change of position is considered, this assumption no longer holds good. Ex hypothesi, the benefit has been lost and a different question must be addressed, namely which of the parties should bear the loss. Hence there would be no inconsistency if the court ignored the claimant's fault at the first stage, but took it into account at the second stage."
- Given that the facts of this case and the arguments being made by the parties appear to require the court to consider the state of the law relating to the relevance, if any, of relative fault (if any such be established on the facts), this too seems to me to be a factor militating against the grant of summary judgment now.
Conclusion on summary judgment
- The Claimant has not satisfied me that the Defendant has no real prospect of succeeding in its change of position defence. I consider that the Defendant's arguments on the law might succeed; that the circumstances pointed to by the Defendant which require findings of fact at trial might be relevant to the court's determination of the claim and the change of position defence; and I consider that it would not be appropriate to give summary judgment on a point of law in view of the relatively unsettled state of the applicable law. I accordingly dismiss the Claimant's application.
The application for security for costs
- The facts relevant to the application for security for costs are as follows.
- The claim form in these proceedings was issued on 9 September 2022. Pleadings closed on 5 December 2022, with the service of the Claimant's 30-page Reply and Defence to Counterclaim. The application for security for costs was made on 14 April 2023.
- The case has not yet been listed for a CCMC; the Claimant's Mr Royer explained in his witness statement that the Claimant was waiting to see if any recoveries might be effected by the administrators and then liquidators of Arena. Proceedings were issued by the liquidators against various potential defendant banks on 28 June 2024, at which point the Claimant took the view that it was apparent no recovery was likely to be made by Arena in the near future. It accordingly then applied for a CCMC to be listed; and at that point, the Defendant's security for costs application came back into focus.
- The evidence in support of the application for security is limited. Insofar as relevant, the evidence is:
i) The statutory accounts of the Claimant show that it has been insolvent on a balance-sheet basis since at least the year ended 31 December 2018; and its overall net indebtedness has been increasing every year since then. At year end 2018, its indebtedness was £1,855,466; by year end 2023, that had risen to £8,121,648.
ii) The Claimant's directors and auditors have satisfied themselves that the Claimant is a going concern despite the balance sheet insolvency by reliance on the so-far reliable support of the Claimant's parent company, Somerset Capital Group Ltd, a company incorporated in one of the states of the United States of America and whose head office is in Connecticut. I refer to this company henceforth as "the Parent Company".
iii) The amount of security sought by the Defendants is not evidenced by a schedule of costs akin to a Precedent H, but rather by way of a high level estimate prepared by the Defendant's former solicitors. The estimated solicitors' fees of the proceedings for the Defendant were estimated in April 2023 at £200,245. That sum included no estimate of counsel's brief fee for any trial.
- Mr Stone argued that no security should be ordered because there was no reason to believe the Claimant will not be able to pay the Defendant's costs if ordered to do so. He said that the evidence showed that the Parent Company had supported the Claimant in the past, and that the statutory accounts contained statements of belief from the directors of the Claimant that the Parent Company "fully intends to, and continues to remain committed to, supporting [the Claimant's] operations for the near and the long term".
- Mr Stone was unable to explain why the Parent Company had not offered to enter some agreement with the Defendant, enforceable in England, guaranteeing that it would indeed ensure that the Claimant met any adverse costs order.
- In my judgment, there is indeed reason to believe that the Claimant will not be able to pay the Defendant's costs if so ordered. The Claimant's ability to pay those costs apparently turns entirely on the attitude of the Parent Company, from whom there is no direct evidence. The Parent Company is based in the United States; the fact that it has supported its deeply insolvent UK subsidiary consistently in the past is no guarantee that it will be able or willing to do so in the future.
- Accordingly, I consider that the threshold in CPR 25.13(2)(a) is crossed.
- Mr Stone next pointed to the Defendant's counterclaim, which, he contended raised the same issues as arose on the claim. He submitted that the costs incurred by the Defendant in defending the claim would also be incurred in prosecuting the counterclaim.
- While it is true that the Defendant has brought a counterclaim, it is an extremely simple one and is expressly predicated on the hypothesis that the court rejects the shared contention of the parties that the contracts they purportedly concluded for the sale and purchase of the Equipment were void. The counterclaim is simply that, if the contracts were not void, then pursuant to the terms implied into the contracts, the Defendant is entitled to repayment from the Claimant of the profit element which it refunded upon learning of Arena's fraud. The defence to the counterclaim is, in short, that the terms the Defendant claims were incorporated into the contracts were not so incorporated. This issue is being litigated anyway in the context of the Claimant's claim (wherein the Claimant makes an alternative case on the basis that the contracts were not, contrary to its primary case, void ab initio). I do not consider that the costs of the counterclaim, if it were litigated at all, would amount to very much even in absolute terms.
- As to the possibility that, were the claim struck out as a result of non-compliance by the Claimant with any order that it pay security, the Claimant would then be exposed to the counterclaim in any event, Mr Pelling informed me that the Defendant would not oppose an order that automatically struck out the counterclaim in the event the claim were struck out (cf Dumrul v Standard Chartered Bank [2010] EWHC 2625).
- Accordingly, I shall order that the Claimant give security for the Defendant's costs. As to the amount, Mr Pelling proposed during the course of argument that the Claimant be ordered to give security in relation to the Defendant's costs already incurred (some £64,000) plus its estimated costs up to the CCMC (£25,000); the sum of those two amounts to be discounted by 30% to reflect the possible effect of detailed assessment. The result was that he sought security in the sum of £58,000 (rounded up).
- Mr Stone said that the sum ordered should be less, but in my judgment, bearing in mind my experience of the costs of litigation in this court generally and applying a broad brush approach to the numbers, the £58,000 suggested by Mr Pelling is an appropriate figure. When the parties have prepared adequately for the CCMC and have their Precedent H forms completed, they can review the position.
- I invite the parties to prepare a form of order and if possible to agree consequential matters. If agreement cannot be reached, I shall list a short further hearing to address whatever might be outstanding.
