A High Court judge was wrong to order a defendant to make a £1m security for costs payment – almost the sum the claimant was seeking – to rely on a witness statement it had served late, the Court of Appeal has ruled.
Lord Justice Males said both the sum and the sanction for not doing so – entering judgment against the defendant – were disproportionate.
Gama Aviation (UK) Ltd v Taleveras Petroleum Trading DMCC  EWCA Civ 119 concerned $1.4m that the claimant said the defendant owed under an aircraft management contract.
The claimant had sought summary judgment after the defendant failed to serve a defence, but on the Monday before the hearing on the Friday, the defendant issued and served an application to be permitted to rely on a witness statement of its senior legal manager, Alex School, by way of relief from sanction.
It said that, “due to an oversight”, the claim did not come to his attention until after the summary judgment application was issued.
Mr Richard Salter QC, sitting as a deputy High Court judge, said that, if he allowed the witness statement in, an adjournment was inevitable so that the claimant could consider it.
He adjourned the application for summary judgment on terms that, if the defendant provided £1m in security for the claim, it would have permission to rely in response on the witness statement.
Otherwise, judgment would be entered against the defendant for the full sum claimed, together with interest and costs.
Though there was a “reasonable inference from the defendant’s dilatory conduct” and unsatisfactory explanation for the delay that the defendant was “simply playing for time”, Mr Salter concluded – “not without some hesitation” – that the order he made constituted “pragmatic justice”.
The defendant did not provide the security and asserted that it was unable to do so. It appealed.
Males LJ said that, once the judge had suggested a conditional order, it was incumbent on him to give the defendant a reasonable opportunity to explain why it would be unable to comply – but Mr Salter did not do so.
He should then have gone on to hear the summary judgment application without admitting the witness statement, or given the defendant an opportunity to adduce evidence of its available resources. This could have been done “promptly”.
“In the event the judge took neither of these courses. In my judgment his failure to do so was an error of principle,” Males LJ said.
The appeal court went on to admit evidence on the defendant’s resources, but said it fell “far short of what is required to discharge the burden” of establishing that funds would not be available.
“It follows that, if the judge had allowed the defendant an opportunity to adduce the evidence which it has now adduced, it would have been open to him to conclude (and I would conclude) that the defendant had failed to show that making a conditional order requiring a payment into court would have the effect of stifling its defence of the action.
“That does not mean that such an order was appropriate, but it does mean that the defendant’s objection to the order based on impecuniosity and stifling of the defence is ill founded.”
Males LJ continued that a lesser payment would have enabled the defendant to demonstrate its good faith: “To require payment into court of something approaching the full sum claimed was in my judgment disproportionate.”
More fundamentally, he said, it was difficult to see how the judge could fairly conclude that the defendant was simply playing for time when it had, albeit belatedly, set out its case on the merits and the judge had not yet heard submissions about it.
“For these reasons I consider that the judge was wrong to impose the condition of payment into court. He lost sight, in my judgment, of the caution which the court must exercise before making such an order.”
Even if the condition had been appropriate, the sanction was disproportionate: “The effect of this further sanction was that the defendant was worse off than if it had simply been refused permission to rely on the witness statement.
“In that event it would have been able to put forward the arguments which did not depend on any new factual evidence and which, as it happens, were set out in the witness statement.”
Deciding what order to make, Males LJ said: “In the end this is simply a case where the defendant served late evidence which required an adjournment of the hearing.
“There is no reason to suppose that an adjournment of what was no more than a two-hour hearing need have been particularly lengthy.
“Once the judge decided to admit the evidence, justice would have been served if the judge had ordered the defendant to pay the costs thrown away as a result of the adjournment.
“He could have assessed those costs summarily and made prompt payment a condition of the defendant’s entitlement to rely on the factual matters set out in the witness statement.”
The judge did not consider the costs wasted, however, so Males LJ substituted an order that the defendant could rely on the witness statement and that it pay the claimant’s costs thrown away as a result of the adjournment – but did not make a condition of it doing so.