THE SILVERDALE CASE: Mengi v Hermitage–Appeal-Security for Costs

“All cases brought by claimants from abroad engage the rights of the parties to access to the court. But where, as here, the right of freedom of expression is also engaged, it is all the more important that the parties should be on an equal footing in their ability to fund proper representation, so far as the court is able to achieve that.”

Neutral Citation Number: [2012] EWHC 2045 (QB)

Case No: HQ10D04585

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

20/07/2012

B e f o r e :

THE HONOURABLE MR JUSTICE TUGENDHAT
____________________

Between:

Reginald Mengi Claimant

- and -

Sarah Hermitage Defendant

____________________

Aidan Eardley (instructed by Whitman Breed ) for the Claimant

Jonathan Barnes (instructed by Carter-Ruck) for the Defendant

Hearing dates: 13 July 2012
____________________

Mr Justice Tugendhat :

The Defendant in this libel action appeals against the decision of the Master ("the Master") dated 28 February 2012. The Master ordered the Claimant to give security for costs by payments into court of instalments totalling £610,500, an amount which the Defendant submits is insufficient. The case is listed for a trial in October estimated to last four weeks.
This is an appeal brought by permission of the Master. The point on which the Master gave permission to appeal was his refusal to order any security at all in respect of any costs that might be payable by the Claimant to the Defendant (if she succeeded in her defence) by reason of her having a conditional fee agreement with her solicitors ("the CFA point").
There is also an application by the Defendant for permission to appeal on a second point ("the 75% point"). The Master had arrived at the figures which he ordered to be paid as security for costs by taking the figure for recoverable costs (which was substantially agreed between the parties on the basis of budgets) but awarding no more than 75% of that sum. On 17 May 2012 the application for permission to appeal came before me on the papers. I directed that it be heard on the date fixed for the hearing of the appeal on the ground for which the Master gave permission. So it has come back before me on this occasion.
On 13 July I heard full argument on both points from both counsel. This was on the footing that I would decide in this judgment whether or not to give permission in respect of the 75% point, for which permission has not yet been granted.
The Claimant is resident outside the jurisdiction of England and Wales, but he brought proceedings in England as a matter of right. The Defendant lives in England, but she and her husband formerly lived in Tanzania. It is events in Tanzania which form the background to this claim. In 2004, through a company named Silverdale Tanzania Limited, the Defendant and her husband, Mr Middleton, had purchased a lease to properties known as Silverdale and Mbono Farms. The vendor or assignor was a company controlled by Benjamin Mengi, who is the Claimant's brother. The Defendant and her husband abandoned their investment in the farms in 2008 following a dispute with Benjamin Mengi, and they left Tanzania.
That description of events in 2004 and 2008 is taken from the Claimant's Particulars of Claim paragraph 2. In the Defence it is admitted, save for the final sentence. The Defendant's account of how she and her husband left Tanzania is in the Defence at para 2.1.5 as follows:
"From October 2004 onwards Mr Benjamin Mengi sought to have the lease assignment cancelled or otherwise set aside, and in any event to avoid its registration. In October 2004 Mr Benjamin Mengi threatened to kill Mr Middleton and, from that date mounted a campaign to harass Mr Middleton, the Defendant and the staff at their Silverdale Farm, including by the taking out of frivolous court actions against Mr Middleton and involving the police and the courts in the bringing of trumped up criminal charges against him, on the basis of which Mr Middleton was repeatedly arrested and then imprisoned".
According to the Particulars of Claim the Claimant is a prominent businessman in Tanzania, with interests in the media and other businesses. Amongst other things he is the Chairman of the Media Owners of Tanzania and Executive Chairman of IPP Limited, a company whose subsidiaries publish a number of newspapers and operate TV and radio stations. IPP Limited also owns Bonite Bottlers Limited, a company which imports and markets the products of the Coca Cola Company in northern Tanzania.
The Claimant is resident and domiciled in Tanzania. He has numerous important business interests in addition to those briefly referred to in the Particulars of Claim.
The claim for libel, as summarised in the Claim Form, is in respect of words contained in:
"(a) Articles first published on or about 5 December 2009, 15 December 2009, 25 December 2009, 31 January 2010 and 11 March 2010 published online at http:\\thesilverdalecase.blogspot.com to readers in this jurisdiction and Tanzania;

(b) an email dated 24 January 2010 sent by the Defendant to 11 addressees with email addresses ending in '.tz ' and 2 addresses with email addresses ending in '.co.uk';

(c) an email dated 21 August 2010 sent by the Defendant to Amadou Mahter Ba Linus Githai, a person with the email address jkisero@nation.co.ke and the Guardian Newspaper in London."
The Particulars of Claim contain no specific information as to the number or identity of any readers in England, or for that matter Tanzania, of the articles on the website.
The words complained of are a small part of the totality of the words on the website. For example, the words posted on 5 December 2009 were as follows and the words complained of are those underlined:
"Corruption n.1: lack of integrity or honesty; esp susceptibility to bribery: use of a position of trust for dishonest gain

REGINALD MENGI – A LOOK INTO HIS MIRROR

Tanzania's communications, science and technology Deputy Minister Doctor Maua Daltan has cautioned the media against attacking individuals. Responding, CEO of IPP Media Reginald Mengi (also Chairman of the Media Owners Association of Tanzania (MOAT)) urged journalists to adhere to media ethics and not distort the truth stating

' the media is like a mirror which reflects the reality, one whose face is dirty cannot look into a mirror and expect to see a clean one…'

What does Reginald Mengi and IPP Media mirror reveal?

In 2004 Benjamin Mengi, Reginald Mengi's brother, sold the lease to Silverdale and Mbono Farms (Hai district) to British investors Stewart Middleton and Sarah Hermitage. A year later Mengi began negotiating with British investor Konrad Legg (Tudeley Estates) to sell the lease a second time and demanded the lease back. Mengi claimed he had not been paid in full despite signing a receipt to the contrary. When the investors refused Mengi stated he would drive them out of Tanzania 'chopped up into pieces and in a coffin if necessary'. Mengi succeeded in driving the investors from Tanzania in a case described by the former Minister of Investment, Dr Juma Ngasongwa as bringing shame on Tanzania. [a web address is inserted at this point]

In late 2005, Reginald Mengi reported to the British government he felt the Silverdale case was damaging his business interests. He told former British High Commissioner to Tanzania Mr Andrew Pocock he was going to issue a statement on the case. Mengi was asked to explain IPP Media's defamation of the investors and he gave his assurance it would stop. Mengi lied. Three weeks later, IPP Media began a relentless campaign of defamation against the investors amounting to criminal libel under the penal code of Tanzania. [a web address is inserted at this point]

In September 2009 UK based Tanzanian journalist Ayoub Mze working for Ben Television interviewed Sarah Hermitage on the Silverdale Farm case, Ayoub Mze stated that high profile media editors in Tanzania had stated the Silverdale Farm case was far too dangerous for them to report on, they were afraid of being sued by Mengi.

The facts suggest that Mr Mengi wont see a clean face when he looks into his mirror".
The meaning which the Claimant attributes to the first website article he complains of is that he "lied when he assured the British High Commissioner that defamatory stories about the Silverdale Investors would cease to appear in IPP media titles, and that he instead directed, encouraged or permitted IPP Media to begin a relentless campaign of criminal defamation against them".
The same or similar meanings are attributed to the other publications complained of. But in relation to the other publications the Claimant attributes to them other additional defamatory meanings including that he openly supported corruption.
The claim form and Particulars of Claim were served at the end of 2010. By Application Notice dated 1 March 2011 the Defendant asked for security for costs. The hearing of that application took place on 22 June 2011 before a Deputy Master ("the Deputy Master"). He made an order that the Claimant provide security for the costs of the Defendant up to and including the filing and service of the Defence in the sum of £90,000.
On 30 September 2011 the Defence was served. It covers some 44 pages and includes pleas of justification or truth, amongst other defences. A Reply of some 34 pages was served on 19 January 2012.
On 16 November 2011 the Defendant had completed an estimate of costs in accordance with Precedent HA and CPR 51D. The grand total, including both incurred costs and estimated costs including the trial of the action, was £1,043,035.64. This estimate excluded VAT and the costs of detailed assessment. It also excluded any success fee payable under a CFA. The corresponding estimate of the Claimant was £1,240,183.07. His action is not funded under a CFA. The pre-action costs listed by the Claimant amount to £298,245.07.
On 1 February 2012 the Defendant issued an Application Notice asking for a further payment into court by way of costs such that the total is £1,981,000.
THE LAW
Making orders for security for costs
So far as material CPR 25 includes the following:
"25.12 (1) A defendant to any claim may apply under this section of this part for security for his costs of the proceedings…

(3) Where the court makes an order for security for costs, it will (a) determine the amount of security and (b) direct (i) the manner in which; and (ii) the time within which the security must be given.

25.13 (1) The court may make an order for security for costs under Rule 25.12 if (a) it is satisfied, having regard to all the circumstances of the case that it is just to make such an order and (b)(i) one or more of the conditions in paragraph (2) applies [there is no dispute in these proceedings that the claimant is resident out of the jurisdiction, and so that one of the relevant conditions is satisfied]."
In Nasser v United Bank of Kuwait [2002] 1 WLR 1868; [2001] EWCA Civ 556 the Court of Appeal held that in making an order for security for costs the court must not discriminate unfairly against persons who are not ordinarily resident in England and Wales, or in a jurisdiction which is not a party to the Brussels or Lugano Conventions. So where an order for security is made on the ground that the claimant is resident out of the jurisdiction (but no other ground), the court should not exercise its discretion to order security for costs unless it does so on grounds relating to obstacles to, or the burden of, enforcement of a subsequent order for costs in the context of the particular foreign claimant or jurisdiction concerned.
Both sides agree that guidance is to be found in the case of Nasser. But Nasser is a rather different case as appears from the facts stated in the judgment. The claim was in respect of jewellery said to have been stolen from a deposit box in 1993. The claimant had gone to the United States in 1994, but returned in 1996 and obtained legal aid. An order had been made erroneously for security for costs in the sum of £25,000 - erroneously because orders for costs should generally not be made if they would stifle genuine proceedings. The very limited amount of the claimant's resources was a significant feature of the case. There is no corresponding feature in the present case. There is no suggestion in the evidence that the Claimant's claim would be stifled or impeded by the making of an order for security in the sums asked for by the Defendant.
Nasser had a complicated procedural history, and the Court of Appeal was concerned with issues which have no relevance to the ones advanced before me. The state of affairs as they were when the Court of Appeal was considering the matter was set out in the headnote. The claimant's action had been struck out for want of prosecution and she appealed from that order. She had no assets within the jurisdiction. On the defendants' application for security for under CPR 25.15 (that is, security for the costs of the claimant's appeal against the strike out), Judge LJ (as he then was) ordered the claimant to pay £17,500. The claimant applied to revoke or vary that order. Simon Brown and Mance LJJ heard the application to revoke the order of Judge LJ. They did revoke the order and substituted an order in the sum of £5,000. The reason why they did that is set out in the following passages from the judgment of Mance LJ
Mance LJ (as he then was) explained the law at paras 58 and following:
"58. … That discretion must itself be exercised by the courts in a manner which is not discriminatory. In this context, at least, I consider that all personal claimants (or appellants) before the English courts must be regarded as the relevant class. It would be both discriminatory and unjustifiable if the mere fact of residence outside any Brussels/Lugano member state could justify the exercise of discretion to make orders for security for costs with the purpose or effect of protecting defendants or respondents to appeals against risks, to which they would equally be subject and in relation to which they would have no protection if the claim or appeal were being brought by a resident of a Brussels or Lugano state. Potential difficulties or burdens of enforcement in states not party to the Brussels or Lugano Convention are the rationale for the existence of any discretion. The discretion should be exercised in a manner reflecting its rationale, not so as to put residents outside the Brussels/Lugano sphere at a disadvantage compared with residents within. The distinction in the rules based on considerations of enforcement cannot be used to discriminate against those whose national origin is outside any Brussels and Lugano state on grounds unrelated to enforcement.

59. In this connection, I do not consider that one can start with any inflexible assumption that any person not resident in a Brussels or Lugano state should provide security for costs. Merely because a person is not resident in England or another Brussels or Lugano state does not necessarily mean that enforcement will be more difficult. The modern European equivalent of the Queen's writ may not run. But the entire rest of the world cannot be regarded as beyond the legal pale. For example, the United Kingdom has reciprocal arrangements for recognition and enforcement with many Commonwealth and common law countries which have introduced legislation equivalent to Part I of the Foreign Judgments (Reciprocal Enforcement) Act 1933 (or Part II of the Administration of Justice Act 1920), and which have highly sophisticated and respected legal systems. Many other countries have well-established procedures for recognising English judgments. The exercise of the discretion on grounds of foreign residence should not be either automatic or inflexible…

61. Returning to Part 25.15(1) and 25.13(1) and (2)(a) and (b), if the discretion to order security is to be exercised, it should therefore be on objectively justified grounds relating to obstacles to or the burden of enforcement in the context of the particular foreign claimant or country concerned…

64. The courts may and should, however, take notice of obvious realities without formal evidence. There are some parts of the world where the natural assumption would be without more that there would not just be substantial obstacles but complete impossibility of enforcement; and there are many cases where the natural assumption would be that enforcement would be cumbersome and involve a substantial extra burden of costs or delay. But in other cases - particularly other common law countries which introduced in relation to English judgments legislation equivalent to Part I of the Foreign Judgments (Reciprocal Enforcement) Act 1933 (or Part II of the Administration of Justice Act 1920) - it may be incumbent on an applicant to show some basis for concluding that enforcement would face any substantial obstacle or extra burden, meriting the protection of an order for security for costs. Even then, it seems to me that the court should consider tailoring the order for security to the particular circumstances. If, for example, there is likely at the end of the day to be no obstacle to or difficulty about enforcement, but simply an extra burden in the form of costs (or an irrecoverable contingency fee) or moderate delay, the appropriate course could well be to limit the amount of the security ordered by reference to that potential burden…"
It can be seen from the judgment that the £5,000 was said to be related to the probable extra burden in terms of costs and delay of taking enforcement steps in the United States compared with enforcement steps in the United Kingdom or another Brussels/Lugano state. And since that extra burden is the burden identified in paragraphs [66] and [67] of the judgment of Mance LJ, it is in that respect that the order was "tailored" in that case.
First Mance LJ made some observations about the law of the United States of America. These observations are, as he said, remarkable. In Nasser there was no claim in defamation. If a claim in defamation were to come before the courts in which the claimant was resident in the USA, it may well be that these observations would not apply to such an action because, for reasons discussed in Adelson v Anderson [2011] EWHC 2497 (QB) paras [70]-[87], there are obstacles to the enforcement in the United States of all non-American (including British) judgments in defamation proceedings. Mance LJ said:

"65. … It is a remarkable fact that no country has ever entered into any treaty providing for recognition and enforcement of judgments with the United States of America. But the reason is concern about the breadth of American jurisdiction, the corollary of which has been a willingness on the United States part to recognise and enforce foreign judgments by action on a similarly liberal and flexible basis: see e.g. Jurisdictional Salvation and the Hague Treaty, Kevin M. Clermont (1999) 85 Cornell Law Review 89, 97-98. I am not aware that anyone has ever suggested that access to justice or to the means of executing justice is an American problem. Certainly no evidence has been put before us to suggest that the defendants would, or even could, face any real obstacle or difficulty of legal principle in enforcing in the United States any English judgment for costs against this claimant".
So far as defamation is concerned, the 'breadth of the American jurisdiction' includes the multimillion dollar awards of damages which are not held by US courts to be contrary to the protection of freedom of speech under the First Amendment, but are contrary to the right to freedom of expression under Art 10 of the European Convention, as noted in Adelson at para [85].
Mance LJ then continued as follows:

"66. There is also no express suggestion in any evidence in this case that the defendants would face any extra burden in taking any such enforcement action against the claimant for costs. But we can, I think, infer without more that it would in the case of this particular claimant resident in Milwaukee. First, the respondents would have to bring an action on any English judgment for costs, before proceeding to any enforcement steps that United States law or the law of Wisconsin permits. Second, the claimant's impecuniosity has collateral relevance, in so far as it is likely that the respondents would have to investigate whether it is as real and great as she asserts, and this is likely to be more expensive to undertake abroad than it would be if she was resident in the United Kingdom or a Brussels/Lugano state. Third, the course of the present litigation to date suggests that the claimant is a determined litigant who can be relied upon by one means or another to take every conceivable step she can to defend what she asserts to be her rights, but whose very lack of means to fund the appropriate conduct of litigation appears prone to add to the difficulty faced by the defendants. Fourth, there would be likely to be delay in enforcement, by reason of each of the first three points. Viewing the matter both in the light of these factors and as a matter of general common-sense, I consider that it is open to us to infer that steps taken to enforce any English judgment for costs in the United States would thus be likely to involve a significantly greater burden in terms of costs and delay than enforcement of a costs order made against an unsuccessful domestic or Brussels/Lugano claimant or appellant. It is possible that an irrecoverable costs burden (or an irrecoverable contingency fee) would also be involved, even if the claimant proved to have sufficient assets to satisfy any judgment, but I do not think that this can be assumed without evidence.

67. The risk against which the present defendants are entitled to protection is, thus, not that the claimant will not have the assets to pay the costs, and not that the law of her state of residence will not recognise and enforce any judgment against her for costs. It is that the steps taken to enforce any such judgment in the United States will involve an extra burden in terms of costs and delay, compared with any equivalent steps that could be taken here or in any other Brussels/Lugano state. Any order for security for costs in this case should be tailored in amount to reflect the nature and size of the risk against which it is designed to protect".
It is clear from the first sentence in paragraph [66] that the Court of Appeal was not carrying out the task of tailoring its order on the basis of evidence as to the cost of each element of the extra burden that it found to exist. Rather, the court was acting in accordance with the first sentence of paragraph [64]: "the courts may and should, however, take notice of obvious realities without formal evidence".
Funding arrangements
CPR Part 44.15 and the Costs Practice Direction para 19 contain provisions as to the disclosure by a party of a funding arrangement. There is a requirement to give a Notice of Funding in Form 251. But as the Practice Direction states at para 19.1(1):
... There is no requirement to specify the amount of the additional liability separately nor to state how it is calculated until it falls to be assessed."
It has not yet been decided whether or not the information in a conditional fee agreement is subject to legal professional privilege: White Book 2012 Vol II para 7A-68. But it is common ground that some information in a CFA might, if disclosed, be of assistance to the other party, because it might give rise to an inference as to the perceived strength of the funded party's case, or other information of a similar nature.
THE JUDGMENT OF THE MASTER
The reasons why the Master made the order for security that he did make on 28 February 2012 are before this court in the form of an approved note of the judgment as follows (the numbering is added):
"(1) This application by the Defendant dated 1 February 2012 is for an Order that the Claimant provide security for the Defendants' costs in the amounts and on the dates set court in the draft Order served with that Application. A previous Application for Security for Costs was heard by Deputy Master Rose and by an Order dated 22 June 2011 he ordered the Claimant to provide security up to the filing and service of the Defence in the sum of £90,000 by 31^st July 2011. I have not been provided with a transcript of the Deputy Master's judgment but I have been provided with an extract from it in the form of counsel's note, see page 213 of the bundle.

(2) This is a defamation action, and the Claimant is a man of substantial wealth and standing in Tanzania. On hearing the Application in June 2011 Deputy Master Rose, applied the principles in the case of Nasser v United Bank of Kuwait [2001] 1 WLR 1868 and found that a substantial obstacle and/or extra burden existed in relation to the enforcement of costs in Tanzania which merited an order for security. I am told the reduction which Deputy Master Rose made taking all facts into account was to 75% of the Defendant's recoverable costs.

(3) Both parties accept that a further order for security is appropriate. In these circumstances three points of principle have been argued in relation to the Defendant's new application for security.

(4) The first concerns the proportion of recoverable costs that the Court should allow. 75% was the figure arrived at by Deputy Master Rose, who heard the evidence. It is submitted on behalf of the Defendant that it is open to the court to take a different view in this instance and increase that figure to reflect difficulties attendant on the Claimant in enforcing a costs order. However, I find a fundamental difficulty with the submission that the Court may award a proportion greater than 75% in this instance, as I have not heard full argument about the potential obstacles and difficulties of enforcement, nor have I seen the evidence that was before Deputy Master Rose. In the absence of further evidence, it would be wrong to take a different approach to that adopted by Master Rose, especially with reference to the Nasser considerations. I therefore, conclude I should take the same approach as Deputy Master Rose. A 25% reduction from my estimate of the Defendant's recoverable costs is appropriate.

(5) The second point of principle concerns the starting point in the calculation, in that the Defendant has asked the Court to award an element of security in respect of the success fee. I have been told that the Defendant has the benefit of a CFA, which has not been produced to the court or to the Claimant. It is noted that at this stage of proceedings the rules require only that the Defendant give notice that the CFA exists and identify a funding arrangement. That being said, the Claimant submits that in the absence of the CFA, the Court is not in a position to come to a conclusion as to whether or not it is likely or possible that the Defendant will succeed in obtaining an uplift in her costs and further, in the absence of the agreement, the Claimant doesn't even know what uplift is applicable. It is further submitted that the case of Meridian International Services Limited [2008] EWCA Civ 490 precludes the making of an award with reference to uplift under the CFA involved. However, it appears to me, on one reading of his judgment, that he has taken some account of the CFA. However, that does not mean the Court should simply accept the success fee under the CFA is recoverable in this case. I am aware that it is not just a question of the percentage uplift. In the absence of the full CFA I find it difficult to form any sensible view of the likelihood of the Defendant being able to establish a right to recover the uplift let alone the likely percentage. On behalf of the Defendant it is submitted that in the real world, it is highly likely that a 100% uplift would apply if the Defendant were successful at trial. However the difficulty with this is that it involves speculation on the part of the Court, and this it not a straightforward type of claim in an area which the CFAs and the entitlement to uplifts under them. I am not therefore in the absence of the actual agreement persuaded I should allow for such an uplift in the order for security….

(6) In clarifying my reasons in relation to the CFA point and the Meridian case. I have not found as a general principle it is not appropriate to award security in relation to as success fee without disclosure of the CFA. I have decided that on the facts of this case the Court cannot engage meaningfully with the point in absence of the conditional fee agreement being disclosed. That is a matter which is in the hands of the Defendant and would be the price of such consideration. In other words if you want the extra security you must provide the CFA.

[after further short submissions]

(7) I will grant permission to appeal on this issue as an important point of principle would seem to be involved and the guidance given by the cases is not the clearest."
In order to understand why both parties accepted that a further order for security was appropriate it is necessary to look at the judgment of the Deputy Master. Unlike the Master, I do have the benefit of a full transcript of the judgment of the Deputy Master.
THE JUDGMENT OF THE DEPUTY MASTER
The Deputy Master set out the terms of the application and the relevant provisions of the CPR. He recorded that the application was supported by the witness statements from the solicitor for the Defendant and by witness statements for the Claimant, one of which was made by himself. The Deputy Master set out parts of the Claimant's witness statement in which he summarised his businesses, and he cited one of the meanings attributed by the Claimant to words he complained of, that being a meaning that the Claimant had participated in the corrupt seizure of the lease of the Silverdale and Mbono Farms. Although no defence had at that time been served, Mr Barnes for the Defendant informed the Deputy Master that there would be a plea of justification. Mr Barnes submitted that if the Defendant were to succeed in that plea she would by definition have shown that the claimant was corrupt and such a finding in itself would justify an order being made for security for costs on the ground that the Claimant would be likely to exert corrupt influence on the judiciary in Tanzania so as to thwart the enforcement of an order for costs made in favour of the Defendant in the English proceedings. The Deputy Master did not accept that submission. He did not think it right to proceed on the hypothetical basis of victory for the Defendant on a case which she had not yet pleaded.
Mr Barnes's alternative submission, to which the Deputy Master turned, was that, on the evidence before the court at that stage, there was a probability that the Defendant would find it impossible to enforce in Tanzania any order for costs made in England in her favour, alternatively, it was sufficient for the Defendant if she could establish that she would encounter significant obstacles in obtaining such enforcement. He relied on the judgment of Mance LJ in Nasser v United Bank of Kuwiat. Mr Eardley for the Claimant submitted that the effect of that judgment is that if significant obstacles to enforcement are found to exist, an order for security may be made, and the order for security may be tailored to reflect the nature and size of the risk against which the security is designed to protect the defendant.
There was before the Deputy Master extensive evidence on the state of affairs in Tanzania. He set it out in detail in ten pages of his judgment. He cited the United States' Department of State's 2009 Human Rights Report in relation to Tanzania at p124, 128; a Transparency International Report under the title "Overview of Corruption in Tanzania" and at p161 "Judicial Corruption" and pages 174-5 of his bundle; a Freedom House Report entitled "Countries at the Crossroads 2010"; a Legal and Human Rights Centre Tanzania Human Rights Report 2009 under the rubric "Corruption and other Malpractices in the Judiciary"; a statement by Mr Fauz Tawib, a former President of the Law Society of Tanzania; a report on commercial justice in Tanzania entitled "Commercial Justice in Tanzania: Enhancing the Capacity of the Commercial Court" including a statement by Mr Justice RV Makaramba, the Judge in Charge of the Commercial Division of the High Court of Tanzania dated 8 October 2009; the Report of the Prevention and Combating of Corruption Bureau of Tanzania dated 21 November 2009; and a statement of Mr Thomas Mihayo, a retired Justice of the High Court of Tanzania dated 13 May 2011.
The conclusions the Deputy Master drew from the evidence were before the Master in the form of a note, almost word for word, of para 27 below. They are as follows:
"11 … I have to say with considerable regret that I do find that the incidents of such corruption (within the judiciary of Tanzania) poses a substantial risk in the circumstances to successful enforcement proceedings. I accept the proposition of Mr Barnes that it is not necessary to show complete impossibility of enforcement; nor, to make it quite plain, do I in fact find that complete impossibility of enforcement is the probable case. What I do find is that there are substantial obstacles and extra burdens within the meaning of Mance LJ's judgement in the way of enforcement. …

27. My findings when I weigh the evidence for the defendant and the evidence for the Claimant on this application are as follows:

(1) There is widespread and serious corruption within the judiciary in Tanzania;

(2) The risk of such corruption is such that it cannot be said to stop short of affecting proceedings for the registration and the enforcement of an order for the defendant's costs, if such an order is made;

(3) Mr Barnes asks me to find by inference that the claimant could and would corruptly stand in the way of registration and enforcement of such an order. I do not consider that the evidence before me shows that such an inference should probably be drawn. There is insufficient evidence before me of the likelihood - and I emphasise likelihood - of the claimant acting in such a way. Mr. Barnes asked me to accept the logic of his client's position on the hypothesis that she had won her case and, in counsel's words, had thereby shown the claimant to be the sort of man that he really is. There is a danger in accepting that proposition in my judgment. Counsel on both sides accepted that the merits of the case are not yet clear. No defence has yet been pleaded. And Mr. Eardley submitted that if the defendant were to win, one cannot be clear of the basis on which she would win. In particular, it is arguable that she might win on the issue of qualified privilege alone.

(4) Having reached the above conclusions I nonetheless find that enforcement proceedings in Tanzania would face a substantial obstacle or extra burden meriting the protection of an order for security for costs. I apply the test put by Lord Justice Mance in the terms in the case of Nasser at page 1886, letter B."

(5) My reason for so finding is the combination of two essential factors: (i) the element of corruption within the judiciary of Tanzania as I have found; and (ii) the fact, as I so find, of the importance of the claimant in his own country. He is a man of great wealth and of great public power in his own country. It is likely – and I emphasise likely - in my judgment that the status of the claimant would be used by those responsible in the Courts of Tanzania for the registration and enforcement of an order for costs against him as a reason to hinder and delay such registration and enforcement.

(6) It is not necessary to find, and I do not find as a matter of probability on this application, that the defendant could not possibly succeed in enforcing an order for costs. It is sufficient to find, and I do so find, that she would encounter considerable delay, considerable obstruction, and considerable expense in terms of payment of her own solicitors' legal costs of enforcement in combating such delay and obstruction.

(7) I am satisfied, having regard to all the circumstances of the case that it is just to make an order for security for costs within the meaning of CPR 25.13 (1)(a).

(8) I have, as required by CPR 25.13(1), a discretion to exercise whether to make an order or not. Mr. Eardley draws my attention to the contents of paragraph 18 of the witness statement of his client, the claimant, at page 606 of the bundle. I have carefully considered the contents of that paragraph and note the assurance that the claimant gives in relation to costs. I doubt whether such assurance amounts to a formal undertaking to the court. But, even if it does, it is not an undertaking which could be enforced outside the jurisdiction of this court. I am not disposed to hold, in the circumstances, that the fact of such assurance is a reason against the exercise of the court's discretion to award security.

(9) In the exercise of my discretion I propose to make a substantial Order for security. Mr Eardley submits that the sum sought by the defendant of £198,420.39 is grossly excessive. I indicated in the course of argument that, subject to my decision in principle, I would hear counsel on the amount. I shall now do that. I shall also consider any questions concerning the mode of security, the time for provision thereof, and what order should e made pending the provision of such security".
Having delivered that judgment the Deputy Master adjourned for the parties to consider their positions and to prepare submissions on the figures for the security which the Deputy Master was proposing to order. I have the benefit of a transcript of those submissions and the ruling which the Deputy Master made. The Master did not have this transcript.
At that stage there was before the Deputy Master a Schedule of Defendant's costs covering three pages, but this was not in the form of a budget or Precedent HA. The Schedule was in two parts. Part 1 was in respect of costs incurred to date totalling £76,940.39. Part 2 was the estimate of costs to be incurred up to and including service of the defence and the application for security for costs. Part 2 totalled £121,480. But £29,000 or thereabouts of that figure was in respect of the application for security for costs which the Deputy Master was then considering. The balance of Part 2 was therefore about £92,000. The grand total was £198,420.39. This schedule refers in a number of places to a success fee at 100%, but the solicitors for the Defendant had made clear in correspondence that they were not, by including those words in the Schedule, representing that that was in fact the uplift under the CFA of which they had given notice. They were simply indicating the maximum permissible success fee.
The way that the Deputy Master arrived at the figure that he did is important, because, as appears from paragraph 4 in the judgment of the Master, he thought,
"it would be wrong to take a different approach to that adopted by Master Rose… I therefore conclude, I should take the same approach… a 25% reduction from my estimate of the Defendant's recoverable costs is appropriate".
So, in order for me properly to address the 75% point, it is necessary to understand how the Deputy Master came to make the order which he ultimately did make, and to refer to some of the submissions that were made to him. Mr Barnes submitted that at that stage the application was in respect only of the period up to service of the Defence and the matter would later be the subject of the cost budgeting exercise now applicable to defamation proceedings. He submitted that in those circumstances the Defendant would not have to show a change of circumstances, but the parties should review the matter once the cost budgets had been approved. He referred to the exercise they were then engaged on as a "holding exercise".
When he called upon Mr Eardley, the Deputy Master made clear that what he was minded to do was to order "substantial security", by which he meant a substantial proportion of the reasonable costs of and incurred prior to and up to the filing of the Defence, subject of course, to the submissions of Mr Eardley.
Mr Eardley noted that the Deputy Master in his judgment had expressly disavowed any finding that enforcement would be impossible, and so, submitted Mr Eardley, the exercise which the Deputy Master should now engage in is an exercise first identifying the risk and second tailoring the order to protect the Defendant against the risk. He proposed a once and for all payment of about £75,000. As a fall back, he submitted that the most that the Deputy Master could order was a proportion of the Defendant's likely recoverable costs down to service of the defence. He suggested 50% of those costs. As to the success fee, Mr Eardley did not submit that the Deputy Master should disregard it altogether. He produced the judgment in Peacock v MGN Ltd [2010] EWHC 90174 (Costs), and submitted that the success fee allowed on assessment of costs would be 50%.
When the Deputy Master reached his decision, he explained it as follows. First he excluded from the calculation of what was to be paid by way of security the costs of the application for security. He decided that those costs should be awarded to the Defendant. He stated that he was going to make a "substantial order" for security, saying:
"That is to say an order much beyond that which Mr Eardley had on instructions argued for, namely something really in the form of a nominal order not exceeding much more than four figures."
He then said this:
"Doing the best I can, it seems to me that if I take the Part 1 figure of £76,000 away from the £198,000, you are left with approximately £120,000. Of that £120,000 I do not think I ought to regard more than half as being fairly referable to the costs of preparation, service and filing of the defence. Going back to Part 1, Mr Eardley submitted £35,000. He, Mr Eardley, referred me to the possibility of the contingency fee looming too large in the matter at this early stage. There is something in Mr Eardley's submissions, but £35,000 is too little, I think, to represent a fair and right figure for the Part 1 costs. Again doing the best I can, it seems to me that £60,000 in Part 1, and one half of the balance of £120,000, comes to £120,000. Now, I have a discretion to exercise. What proportion of that £120,000 should I order as security for costs? In my judgment it should be 75% of that £120,000, and that yields a figure of £90,000. That is the order that I am proposing to make for security…."
Put in the form of a table, I understand that the Deputy Master's calculation can be summarised as follows (the Schedule contained much more detail than this table, but the totals in the table are taken from the Schedule):

Defendant's Schedule
Security Order
Security Order
Security Order
Security Order
Part 1 Costs incurred to date
Base costs solicitors
34257
Success fee 100%
34257
Base costs counsel
3700
Success fee 100%
3700
Disbursements
1026
76940
60000
Part 2 Costs to Defence
Base costs solcitors
21100
Success fee 100%
21100
Base costs counsel
25000
Success fee 100%
25000
92200
60000
Application for security for costs
29280
0
121480
120000
75%
198420
90000
It is not clear why, having arrived at the two figures of £60,000 which total £120,000, he then takes 75% of that as the figure to be paid by way of security for costs. Neither Mr Eardley in his submissions, nor the Deputy Master in his judgment, attempted to relate that percentage to any of the findings of fact that the Deputy Master had made. There was no appeal from the order of the Deputy Master.
THE CFA POINT
Submissions
It is the Defendant's ground of appeal, and Mr Barnes submits, that the Master misdirected himself in that he could and should have concluded that it was appropriate to include in his order for security for costs an element of the success fee calculated to be a further 100% of the Defendant's agreed costs estimate to trial. The Master's order will accordingly be likely to result in an injustice to the Defendant in the event that she becomes entitled to recover costs against the Claimant.
Mr Barnes submits that, although the Master disclaimed having made a decision as a matter of principle, the effect of his decision is one of principle, and that is why he gave permission to appeal, as he himself explained. It is in effect a decision of principle because a defendant who is funded by a CFA will in practice be reluctant to disclose the contents of the CFA, and, as stated above, is under no obligation to do so.
Mr Barnes submits that the reason given by the Master, namely that without disclosure of the CFA the court is being asked to speculate, is erroneous. He accepts that there is a range of percentage uplifts, up to a maximum of 100%, for which such an agreement may provide, and that there may be a number of other provisions of such agreements the terms or effect of which the court cannot know if they are not disclosed. But he submits that none of this would justify a court in declining to order any security for costs in respect of the uplift. All orders for security for costs require the court to make assumptions about the enforceability and the recoverable amount of any costs claimed. In the case of defamation actions subject to the scheme in Practice Direction 51D (Defamation Proceedings Costs Management Scheme) the court has the benefit of an agreed budget which the court is required, by para 5.2 of the Practice Direction, to take into account. The court considering an application for security for costs does not have to form a view of the likelihood of a defendant being able to establish a right to recover any costs at all (that is to say, winning the action). So considering a right to recover the uplift claimed involves no speculation that is different in principle.
Mr Barnes accepts that there are other schemes under which CFAs are considered (including for road traffic accidents). Mr Barnes submits that the court can have regard to the fact that in cases which reach the stage of assessment of costs, when the CFAs are disclosed, the uplift agreed is commonly seen to be the 100% maximum. He cited as an example Peacock, where the Costs Judge allowed a 100% success fee. By taking no account of the CFA in the order for security for costs the Master was in error.
Mr Barnes submits that in the present case the Claimant has adduced no evidence to the effect that an order to provide security even for the whole of the Defendant's budgeted costs plus a 100% uplift would cause him any difficulty. If such an order is made, and if the Defendant wins, but the amount paid into court by way of security turns out to be higher than was necessary to secure the order for costs that is ultimately made, then the Claimant will be sure to receive repayment of the money.
On other hand, if the Defendant wins and the security is found to be insufficient, the findings of fact of the Deputy Master make it impossible to foresee whether and if so when she will ultimately enforce the shortfall by proceedings in Tanzania.
Mr Barnes submitted that the Defendant's right to freedom of expression at common law and under Art 10 of the Convention is engaged in this case. So too is her right to access to the court at common law and under Art 6.
Mr Eardley submits that the decision reached by the Master was an exercise of his discretion, and was entirely reasonable. Mr Eardley set out reasons why an uplift might not be agreed at 100%, and a detailed list of factors which might result in an uplift not being allowed on assessment of costs at 100% (assuming that that is what the agreed uplift is in the present case). There is no need to set these out, since there is no dispute that such factors exist: some can be illustrated from Peacock. In Motto v Trafigura Ltd [2012] 1 WLR 657, [2011] EWCA Civ 1150 the Court of Appeal allowed an uplift of 58%. Further, the present case is unusual in that the CFA is entered into by the Defendant, whereas usually such agreements are with claimants. There are no standard terms in such a case as this.
Discussion
CPR r.25.13 provides that in the present case the court may make an order for security for costs if it is satisfied, having regard to all the circumstances that it is just to do so. CPR r.1, the overriding objective, provides that dealing with a case justly includes, so far as is practicable ensuring that the parties are on an equal footing. Dealing with the case justly also requires the court to have regard to the rights of the parties to access to the court, and to the rights of the parties respectively to his reputation and her freedom of expression.
There is information before the court as to the extensive business interests of the Claimant. There is no other information before the court on the means of either party. But it is not suggested that the Claimant would be hindered or obstructed in his pursuit of his claim if he were ordered to give security in the full amount of the Defendant agreed budget plus 100% uplift. I take note of the Claimant's own budget which shows that he spent £298,245 on pre-action costs, and he envisages spending a total of £1,240,183. I understand that one of the obvious realities of which I am assumed to take note in this case is that the Defendant would have difficulty in obtaining the legal representation and advice she needs to defend this claim without the benefit of the CFA which she has made with her solicitors. I take it that this is part of the reason why both parties agreed, as recorded by the Master in para (3) his judgment, that a further order for security is appropriate in this case.
I accept Mr Barnes's submission that for the court to take into account that, if she succeeds in her defence to the extent that she obtains an order for costs in her favour such costs will involve an uplift for the CFA, does not involve any illegitimate speculation on the part of the court. To the extent that it involves an assumption adverse to the Claimant, it is not different in kind from the assumption that she might obtain an order for costs at all. And in so far as the Master's order for security is an order that the Claimant pay money into court (and not to the Defendant), the risk that the Claimant might be ordered to pay into a court a sum greater than the liability for costs that he might ultimately be ordered to meet does not put him at risk of losing the money that he ought not to lose.
The CPR provides that there is no requirement upon the Defendant to specify the amount of the additional liability separately, nor to state how it is calculated, until it falls to be assessed. In my judgment no inference adverse to her can be drawn from her exercising that right. And she should not be put under indirect pressure to waive that right in order that she may exercise the right to apply for security for costs.
Moreover, the trial is now fixed to take place next term, so the period during which the Claimant will be without the use of the funds in question may be expected to be the period needed for the trial to be completed.
It is not suggest that the CFA point raises any issue on which it could be said that an order for security would unfairly discriminate against the Claimant on the grounds of his being resident outside the jurisdiction of this court or of any court in a jurisdiction subject to the Brussels or Lugano Conventions.
In my judgment the Master fell into error, and the appeal must be allowed on this point.
This court must therefore reconsider the issue afresh. For reasons discussed above, the factors to be weighed in the scales of justice in this case appear to me to weigh in favour of the Defendant receiving the benefit of an order for security up to the full amount permitted for a CFA, namely an uplift of 100%.
THE 75% POINT
Submissions
Mr Barnes submits that the Master fell into error in deciding that it would be wrong for him to take a different approach to that adopted by the Deputy Master in deciding, in accordance with Nasser, upon the proportion of recoverable costs for which the court should order that security be given. Further, Mr Barnes submits that it is not in any event apparent what the reasons were that led the Deputy Master to arrive at the figure of 75%. One reason why the Deputy Master could have arrived at that figure is no longer applicable: before the Deputy Master there was no agreed costs budget, whereas before the Master there was an agreed budget. The Master had before him the findings of the Deputy Master, and he could and should have arrived at the figure for security for costs that is appropriate in the light of those findings, which neither party was then disputing.
Further, even if the Master was inclined to follow the course adopted by the Deputy Master, it was wrong for him to do so. This is not an appeal against the order of the Deputy Master, but against the order of the Master. If the Master erred in following the Deputy Master, the fact that there is no appeal against the order of the Deputy Master is immaterial. The approach of the Master was flawed. He did not tailor his order to the risks and obstacles that he had found existed. He did not limit the amount of security ordered by reference to the potential burden the Deputy Master had found to exist.
Mr Barnes submits that on the facts of the present case, as found by the Deputy Master, and on the basis of which each side agreed that further security was appropriate, the just order is an order for 100% of the Defendant's budget. The present case is not comparable to the delays and extras costs which the court could assess in the USA in Nasser.
Mr Eardley submits that the Master made no error in exercising his discretion as he did. It was for the Defendant to adduce evidence as to the obstacles or difficulties of enforcement for which she applied for security in the light of the findings of fact of the Deputy Master.
Mr Eardley accepts that there is a difference between the situation as it was before the Deputy Master and as it was before the Master, in that the Deputy Master had no agreed budget before him whereas the Master did have one. But Mr Eardley submits that that is not a material difference, because the figures in the Schedule before him had no bearing on the Deputy Master's decision to assess the proportion of the costs for which he ordered security at 75%.
Discussion
In my judgment it is impossible to say upon what basis the Deputy Master arrived at the proportion of 75%. It is not possible to say that that decision was not related to the uncertainty as to the recoverability of the figures in the Schedule before him. But even if I assume that that was not the reason, it remains impossible to say what the reason was. Mr Eardley's submissions to the Deputy Master did not give a reason of the kind contemplated in Nasser, so it would not be fair to criticise the Deputy Master for not giving such a reason.
In my judgment the guidance of the court in Nasser (that the amount of security should be arrived at by reference to the potential cost to the Defendant of overcoming or meeting the burden in question) need not result in the Defendant being less than fully secured where the burden in question is the consequence of corruption of the judiciary, such as the found by that Deputy Master.
The rationale of the guidance in Nasser is that the discretion must not be exercised so as to put residents outside the Brussels/Lugano sphere at a disadvantage compared with residents within. But there is no risk of that in the case of countries where the judiciary is affected by corruption. The English judiciary is not tainted by corruption, and in Nasser the court was not contemplating that any judiciary within the Brussels/Lugano sphere might be so tainted either. There can be no unfairness in discriminating between residents from jurisdictions where the judiciary is untainted by corruption and residents from jurisdictions where it is so tainted. And to ask this court to attempt to tailor an order for security to meet the probable consequences of corruption amongst a judiciary is to ask it to perform a task which is not only impractical, but also one that is objectionable in principle. So far as the English court can ensure it, a defendant in an English court should not have to take the risk that enforcement of an order of the court will be obstructed by a corrupt judiciary.
It follows in my judgment that security should be ordered for the full amount of the Claimant's budget, plus (for reasons given above) the 100% uplift permitted for a CFA.
Accordingly I will grant permission to the Defendant to appeal on the 75% point and allow the appeal.
LIBEL TOURISM
The phrase libel tourism is used in different senses. In this case the Claimant is resident in Tanzania, which is the jurisdiction in which most of the events relevant to this dispute occurred, and the alleged damage mainly suffered. The Defendant is resident in England. A defendant is normally considered as enjoying a benefit by being sued in her place of residence, rather than being required to defend herself abroad. Unsurprisingly, the Defendant in this case has not expressed any wish or preference to be sued in Tanzania.
There is in any event nothing exceptional in a claimant having a right to sue for defamation in England where the case arises out of events that have occurred, and damage that has been suffered, in foreign jurisdictions. That is nothing to do with the English law of defamation, but is part of the EU law, as well as English law, on jurisdictions and judgments, as explained in Shevill v Presse Alliance [1996] AC 959. That is a common situation in tort claims generally, as is illustrated by well known cases of personal injuries suffered in foreign jurisdictions. The Trafigura case concerned pollution in West Africa. It attracted much media publicity, but Chief Motto and the other West African victims who entered into CFAs with English solicitors were not referred to as tourists.
There is no information before the court in this case to explain why the Claimant has chosen to sue in England. General reasons why claimants may choose to sue in England for foreign torts, including defamation, may have nothing to do with any perceived advantage in the substantive law of tort. There is no suggestion in this case that English libel law is any more favourable to claimants than the law of Tanzania, or for that matter the law of any other jurisdiction. Rather, the choice to sue here may be related to the perceived benefits of English procedural law. English procedural law includes compulsory disclosure of documents, and a trial on oral evidence, where witnesses are subject to cross-examination by specialist lawyers in courts that are free of corruption. In defamation actions this can be seen as a benefit by claimants and defendants alike. English procedure gives rise to the worryingly high costs which are illustrated by the budgets in the present case. But incurring those costs can be perceived by litigants as better than any available alternative.
All cases brought by claimants from abroad engage the rights of the parties to access to the court. But where, as here, the right of freedom of expression is also engaged, it is all the more important that the parties should be on an equal footing in their ability to fund proper representation, so far as the court is able to achieve that.
CONCLUSION
For the reasons given above, the appeal on the CFA point is allowed. I give permission to appeal on the 75% point, and the appeal on that point is also allowed. It follows that further security for costs should be ordered, substantially as sought be the Defendant. The exact figure which should be paid by way of further security, and other terms of the order, will be settled after further submissions, if not agreed.

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THE SILVERDALE CASE

Judegment Day At The High Court London

Thursday 13 September 2012

Mengi v Hermitage–Appeal-Security for Costs

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