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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Reed & Ors v Oury & Ors [2002] EWHC 369 (Ch) (14th March, 2002) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2002/369.html Cite as: [2002] EWHC 369 (Ch)

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Reed & Ors v Oury & Ors [2002] EWHC 369 (Ch) (14th March, 2002)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		14 March 2002

Mr Justice Field :

1. This is an appeal by the First Defendant (“Mr. Oury”) from the order of Master Bowman made on 10^th October 2001 whereby on the authority of Re Johnson (1880) Ch.D. 548 he stayed Mr. Oury's Counterclaim until all sums due pursuant to the Judgement of 28^th July 1999 in favour of the Claimants have been paid. There is a cross-appeal by the Claimants contending that the Master should have struck out or stayed the Counterclaim on case management grounds and appealing the Master's costs order and also a Respondent’s Notice seeking to uphold the Master’s order on grounds other than those he relied upon.
2. Mr. Oury is an accountant. He, together with the Third, Fourth, Fifth and Sixth Claimants were appointed trustees of a trust (“the Trust”) created on 17^th December 1993 by a Dr. Marx, ("the deceased"). The principal beneficiaries under the Trust are the daughter and the nephew of the deceased, the First and Second Claimants respectively. Trust assets were transferred to two Panamanian companies whose shares were owned by the Trust, Grenestra S.A. (“Grenestra”), the Seventh Claimant, and Nicolandra S.A. (“Nicolandra”), the Eighth Claimant. The Claimants say that in effect, Grenestra and Nicolandra were the operating arms of the Trust and although this is denied by Mr. Oury in the Counterclaim, this appears to have been the reality of the situation. With the permission of the other trustees, Mr. Oury was permitted to administer the Trust by himself. He acted as a director and officer of Grenestra and Nicolandra and was permitted to conduct the affairs of both companies on his own.
3. In October 1996 and May 1997 Mr. Oury misappropriated £800,000 held in the name of Grenesta. He did this by causing Grenesta to make two payments of £350,000 and £450,000 respectively to his order. The Trust had to borrow money to fund these payments. The payment of £350,000 was made to an account in Mr. Oury’s name and thereafter wrongly appropriated by him. The second payment went via another account in Mr. Oury’s name to the Fifth Defendant, a Panamanian company then controlled by Mr. Oury.
4. In March 1994 Mr. Oury misappropriated further money, this time money held in the name of Nicolandra. The sum involved was SF 954205.32; it represented money retained for payment of Swiss capital gains tax. The money was dissipated by Mr. Oury for his own personal purposes and for the purposes of certain companies which he controlled.
5. On 1^st April 1998 a writ was issued against Mr. Oury by the first five Claimants seeking tracing declarations and orders for repayment, and on the same day worldwide Freezing Injunctions and an ancillary disclosure order were granted against Mr. Oury with a return date of 8^th April 1998. On 8^th April 1998 the injunctions were continued until 9^th June 1998 when there was to be a Motion by Order. On 9^th June 1998 Mr. Oury consented to the continuation of the injunctions until trial and it was ordered by consent that the costs of the Motion by Order and the costs which had been reserved on the earlier applications in April should be paid by Mr. Oury in any event.
6. On 6^th April 1998 Mr. Oury swore his First Affidavit pursuant to the disclosure order made on 1^st April 1998, but he sought to limit his disclosure on various grounds. He first maintained that he did not have to produce certain documents because of an alleged lien over them for fees and he further maintained that he could rely on the privilege against self-incrimination in respect of potential criminal proceedings in England. In the event neither of these grounds was pursued. He then applied on 28^th April 1998 to Neuberger J. to discharge parts of the order on the ground that there was a risk of self-incrimination in respect of potential criminal proceedings against him in Switzerland, but his application was dismissed with costs. In the meantime, on 20^th April 1998, the Claimants had moved to commit Mr. Oury for non- compliance with the disclosure order but the Motion was adjourned. On 26^th April 1998 Mr. Oury finally complied with the order. On the adjourned committal motion he was ordered by consent to pay the costs of the motion to be taxed and paid forthwith on an indemnity basis.
7. On 24^th July 1998 the Claimants applied for an order that they be permitted to use certain information and documents disclosed by Mr. Oury in other proceedings. This application was made necessary by Mr. Oury's refusal to consent to such a step. However, at a late stage Mr. Oury gave his consent and Jacob J. made a consent order permitting the proposed use of the information and documents and ordering Mr. Oury to pay the Claimants' costs of the application.
8. On 17^th December 1998 the Claimants opened an application before Mr. Nigel Davis Q.C. sitting as a Deputy High Court Judge for summary judgement. The run up to this hearing had been beset by applications by Mr. Oury for extensions of time for the service of his evidence. The first date set for his evidence was over eight weeks after he had been served with the summons and supporting affidavits. In the middle of that first date Mr. Oury sought an extension and on 20^th November 1998 he was made the subject of an unless order requiring the service of his evidence by 4pm on 25^th November 1998. In the event, although he had begun to fax through his evidence before the deadline, his evidence was not received in its entirety until some hours after the deadline and he had to make a further application to be allowed to rely on his evidence.
9. The Claimants opened their application for summary judgement but on the second day a compromise was reached. It was ordered by consent that Mr. Oury pay Grenesta and Nicolandra damages to be assessed in respect of their claims for breaches by Mr. Oury of his obligations owed to them as pleaded in the first sentence of paragraph 22 of the Statement of Claim. The first sentence of Paragraph 22 of the Statement of Claim reads:

“In acting as pleaded in paragraphs 17-21 hereof, Mr. Oury was in breach of his duties as a trustee of the Trust and/or as a director of Grenestra and/or Nicolandra pleaded in paragraphs 11, 12, 13 and 16 above.”

The matters pleaded in paragraphs 11, 12, 13 and 16 above were the misappropriations I have referred to above.

10. The consent order gave Mr. Oury unconditional leave to defend the other claims made against him, i.e. the allegations that the above-mentioned misappropriations constituted breaches of the Trust in the alternative to being breaches of the fiduciary duties owed by Mr. Oury to Grenesta and Nicolandra. Mr. Oury’s defence to these claims for breach of trust was that the money had belonged beneficially to Grenesta and Nicolandra: the Trust simply owned the share capital in those companies. This grant of unconditional leave to defend the breach of trust claims amounted to very little: the Claimants could not recover twice for the same misappropriations and were therefore most unlikely to prosecute the breach of trust claims having obtained summary judgement on the breach of fiduciary claims.
11. The consent order also provided: (1) for the execution of a third legal charge over Mr. Oury’s house securing the sum of £200,000; (2) for the payment by Mr. Oury of £400,000 by way of interim payment; and (3) that Mr. Oury should pay the costs of the application in any event, such costs to be taxed and paid forthwith.
12. Mr. Oury, however, failed to pay any part of the interim payment and enforcement proceedings under the charge on his house had to be started. The day before a possession order in favour of Grenesta was due to be executed, £203,857.53 plus costs was received by the Claimants’ solicitors from Mr. Oury’s brother to whom the charge was transferred.
13. In the meantime steps were being taken to proceed with the assessment of damages. Mr. Oury sought to defend the assessment on the ground that his Counterclaim constituted a set-off or that there should be a stay to await the trial of the Counterclaim. Mr. Oury advanced this defence, notwithstanding that he had consented to summary judgement on the breach of fiduciary duty claims. On the day before the assessment was due to be heard he proposed terms which led to a consent order dated 28^th July 1999 under which he was ordered to pay £891, 855.98 to Grenesta and SF 1,366, 969.40 to Nicolandra. The consent order contained a provision for the avoidance of doubt that there should be no stay of execution of the orders for payment. It was also ordered by consent that Mr. Oury should pay the Claimants’ costs of the assessment assessed at £10,000, such payment to be made by 4pm on 11^th August 1999.
14. In fact Mr. Oury made no payments towards the judgement debt or the costs. It is his case that he was and is insolvent. Accordingly, enforcement proceedings had to be started, proceedings which Mr. Oury resisted. On 24^th August 1999 Charging Orders nisi were made in favour of Grenesta and Nicolandra charging Mr. Oury’s house with the payment of their respective judgement debts. On 19^th October 1999 there was a hearing before Master Bowman to have the orders made absolute. After 6.00 pm on the eve of the hearing the Claimants received for the first time an indication that the making of the Orders absolute would be opposed on the grounds that the witness statement served by the Claimants in support of the Orders nisi was deficient and that Mr. Oury was insolvent. At the hearing Mr. Oury opposed the making of such orders and sought to rely on a witness statement made by his solicitor which had been served a short time earlier that day. Master Bowman proceeded to reject both grounds of opposition, made the orders sought and awarded costs against Mr. Oury in the sum of £160 for each order to be added to the judgement debt.
15. Mr. Oury then appealed against that order but abandoned his appeal at a late stage and consented to a further order that he should pay costs in the sum of £2,000. Proceedings to enforce the Charging Orders absolute were started but Mr. Oury has sought to resist their execution on grounds which the Claimants regard as spurious. Those proceedings have not yet concluded.
16. Proceedings were also started to garnishee a debt of £110,390.97 owed to Mr. Oury by the Fourth Claimant. On 24^th July 2000 an Order nisi was made with a return date of 28^th August 2000, but approximately three hours before the hearing Mr. Oury served an affidavit which caused the hearing to be adjourned. The grounds of opposition raised in that affidavit were that the debt had been assigned to a company (which turned out to be controlled by Mr. Oury) and that Mr. Oury was insolvent. The adjourned hearing came on before Master Bowman on 1st December 2000 but again evidence was served by Mr. Oury at the last moment. The Master generously admitted the evidence but rejected Mr. Oury’s grounds of opposition holding, inter alia, that Mr. Oury’s contention that the assignment had been executed on the 20^th July 2000 was not credible; and that Mr. Oury’s alleged insolvency was not as serious as he sought to suggest. Costs were awarded yet again against Mr. Oury.
17. Mr. Oury applied for permission to appeal but his application was rejected by Jacob J. on 22^nd January 2001 who ordered Mr. Oury to pay costs in the assessed sum of £500.
18. Although the Counterclaim could no longer be used as a defence or a reason for a stay in respect of Mr. Oury's liability for the breaches of fiduciary duty, Mr. Oury’s solicitors gave notice in March 2000 that he intended to proceed with it. This notice came one and a half years after the Counterclaim had been served. In May 2000 the Claimants’s solicitors were informed that a Case Management Conference was being arranged. There followed some correspondence on the question of which side should put forward proposals for directions which ended in August 2000. Thereafter nothing happened for eight and a half months and then Mr. Oury's solicitors notified the Claimants' solicitors by letter dated 10^th May 2001 that a CMC had been set for 7^th June 2001. The delay was caused by Mr. Oury's solicitors requiring further information and evidence and also money on account. Mr. Oury says in his second witness statement that the information and evidence have not been provided because statements will in all probability have to be taken from parties in Switzerland, France, Germany, Australia, Japan and USA, and he cannot presently afford for this to be done.
19. By his Counterclaim, Mr. Oury makes four separate claims. First, he alleges that he is due £26,875 as remuneration for work carried out by him and his firm for the Trust. Second, he claims £542,767 (plus VAT “if applicable”) for services he alleges he carried out at the request of the Claimants for numerous individuals and corporations. Third, he claims that he is owed £300,000 under an alleged agreement made in February 1996 with the First Claimant that she would pay such a sum on the death of the deceased if he made himself available to provide services to the deceased, his family and their companies. Fourth, he claims specific performance against the Second Claimant of an alleged agreement under which he says he is entitled to have transferred to him one quarter of any shares held by the Second Claimant, Charlandra S.A. or the Trust in seven different companies.
20. At the CMC held on the 7^th June 2001, the Claimants indicated that they were minded to apply to strike out the Counterclaim on case management grounds and they issued a strike-out application on 1^st August 2001. As at that date there had been no cost orders made against the Claimants but there had been thirteen costs orders made against Mr. Oury. That remains the position today. The summarily assesssed costs amounted to somewhat in excess of £30,000 and the total amount of the unassessed costs was about £108,800 (an estimate made by the Claimants that has not been challenged in this appeal). Not a penny of these costs had been paid by 1^st August 2001; that too remains the position today. Moreover, the Claimants estimate that it will cost them £137,435 to defend the Counterclaim, a figure which is also not challenged in this appeal.
21. Also as at 1^st August 2001 only about £314,000 of the total judgement debt of about £1.6m had been received by the judgement creditors, leaving a balance due of approximately £1.3m. No further sums towards this balance have been paid to date.
22. The Claimants’ application to strike out the Counterclaim or for a stay was heard by Master Bowman on 25^th September 2001. The Claimants’ submissions proceeded under four broad headings: (1) “CPR Case Management”: the Counterclaim should be struck out or stayed on case management grounds pursuant to numerous provisions in the CPR; (2) “The Inherent Jurisdiction”: the Counterclaim should be struck out or stayed under the inherent jurisdiction of the court to protect its process from abuse; (3) “Security for Costs”: in the alternative, there should be an order for security of the costs of the Counterclaim under CPR 25.13 (2)(g); and (4) “Re Johnson”: the Counterclaim should be struck out pursuant to Sir George Jessell M.R.’s dictum in Re Johnson (1880) 15 Ch D 548 that a trustee who has improperly received trust monies cannot take any trust money by way of indemnity until he has made good his default.

CPR Case Management

23. The Claimants submitted that the Master should strike out the Counterclaim under CPR 3.4(2)(b) or 3.4(2)(c); or should stay it under CPR 3.1(2)(f) or 3.1(2)(m) with or without conditions imposed under CPR 3.1(3); or should order Mr. Oury to pay a sum into court under CPR 3.1(5). They contended that a strike-out or stay was appropriate having regard to: (a) the serious misappropriations of which Mr. Oury is guilty; (b) the manner in which he had conducted the litigation to date which stood to be characterised as oppressive and vexatious; (b) Mr. Oury’s failure to comply with orders as to costs; (c) Mr. Oury’s failure to satisfy the judgement against him to the extent of £1.3 million; (d) the flimsy, unparticularised nature of the Counterclaim; and (e) the disparity between the quantum of the counterclaims and the sum outstanding under the judgement in favour of the Claimants.

The Inherent Jurisdiction

24. The Claimants contended that the matters relied on under the heading “CPR Case Management” also amounted to an abuse of the court’s process and that the Counterclaim should be struck out or stayed under the court’s inherent jurisdiction. By way of a subsidiary submission under this heading, relying on Graham v Sutton, Garden & Co [1897] 2 Ch.D. 367, they argued that the Counterclaim should be stayed under the inherent jurisdiction of the court until the outstanding costs orders had been paid.
25. In Graham v Sutton, Garden & Co [1897] 1 Ch. D. 761 the Plaintiff had sued for commission and had applied for and obtained discovery in respect of an account that the Defendants had produced under an order of the court. Following receipt of the discovery affidavit, the Plaintiff obtained an order in standard form which obliged the Defendants to produce not only their ledgers but also thirty-two journals, five commission account-books, forty-six order books, and twelve banker’s pass-books. The Defendants had liberty to seal up irrelevant entries but it was impossible to do so without bringing their business to a standstill. They needed their ledgers on a day to day basis. They therefore applied for and obtained an order allowing them to unseal ledgers already sealed up and to cover up rather than to seal those parts containing irrelevant entries. The Plaintiff appealed this order, insisting on his right to have the books sealed up according to the terms of the original order and objecting to the books being covered or closed in any other way. In the Court of Appeal (see [1897] 1Ch.D.761) all three judges were highly critical of the conduct of the Plaintiff. Typical of the critical remarks made were the following of Rigby L.J.:

“As regards the plaintiff, he has been wrong from first to last. He was wrong in asking for such an extravagant order, and wrong in insisting upon having his pound of flesh......solicitors do not do their strict duty to their clients by insisting upon the strict letter of their rights. That is the sort of thing which, if permitted, brings the administration of justice into odium. It is our duty to prevent such consequences if we can.”

The Court of Appeal awarded the costs of the appeal against the Plaintiff and when he failed to pay these costs, the Defendants sought a stay of all proceedings until they were paid. This was refused by North J. and the Defendants appealed a second time to the Court of Appeal which held that whilst mere non-payment of costs did not justify a stay, the position was different where a party had acted vexatiously or oppressively, as the Plaintiff had done over the production of the Defendants’ books and records. The Court of Appeal accordingly granted a stay until the costs had been paid, even though the Plaintiff was a man of no means.

Security for Costs.

26. The Claimants submitted that the condition specified in CPR 25.13(2)(g) was satisfied and thus Mr. Oury should give security for the costs of the Counterclaim. CPR 25.13(2)(g) reads:

“the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him.”

The Claimants contended that it was not necessary to have to show that the claimant had taken steps with his assets with a view to avoiding a liability in costs. It was sufficient if he had dissipated his assets so that there was nothing that would enable a costs order to be enforced.

Re Johnson

27. The Claimants submitted that: (a) the principle established in Re Johnson was that a trustee who had had money out of the trust to which he was not entitled had to repay that money before he could exercise what would otherwise be an entitlement to receive remuneration from the trust; (b) that principle should be applied by analogy to a case where a fiduciary (as distinct from a trustee) had misappropriated money belonging beneficially to parties against whom he was seeking to claim remuneration for services rendered pursuant to the basic retainer which was the source of his obligations as a fiduciary; and (c) since Mr. Oury had not repaid the sums he had misappropriated, he had no entitlement to bring his Counterclaim which accordingly should be struck out.
28. It was submitted on behalf of Mr. Oury that the fact that he had acted in breach of fiduciary duty was no reason why he should be debarred from bringing his counterclaim: see Re Swaptronics (NLC 2980712908) where Laddie J opined that the court should not refuse those in contempt access to the courts simply on the ground that they are in contempt. It was further submitted that at all stages of the litigation Mr. Oury had acted in good faith; he could not therefore be said to have acted vexatiously, oppressively or abusively but instead was in no different category to other unsuccessful parties in litigation. Nor was the failure of Mr. Oury to satisfy the judgement debt or the adverse orders for costs a reason for striking out his Counterclaim, since this failure was not due to wilful disobedience but was due to his impecuniosity. It was argued that security for costs should not be ordered because the Claimants could not show that any of the conditions specified in CPR 25.13 had been satisfied: in particular, mere dissipation of assets so that a costs order could not be enforced did not fall within CPR.13(2)(g). Finally, it was submitted that Re Johnson only applied where a trustee had received an unauthorised receipt from the trust and was seeking an indemnity out of trust property; further, it did not prevent the bringing of a claim for remuneration: it simply prevented recovery on any judgement for such a claim.
29. Master Bowman refused to strike out or stay the Counterclaim on case management grounds, whether under the CPR or the court’s inherent jurisdiction; he also declined to order security for costs, but he held that Re Johnson applied and on that ground stayed the Counterclaim until all sums due under the Judgement of 28^th July 1999 have been paid.
30. Master Bowman gave two main reasons for his refusal to strike out or stay on case management grounds. First, since Mr. Oury had not been cross examined, a course the Master would not in any event have permitted, he declined to make findings in relation to Mr. Oury’s conduct of his defence of the proceedings, in particular the last minute nature of his submission ultimately to orders. The learned Master therefore declined to find that Mr. Oury had acted oppressively, vexatiously or abusively.
31. Second, he held that Mr. Oury’s failures to comply with the court’s orders did not justify a strike-out because, on the authorities, the court will only strike out a claim for breach of an order where the possibility of a fair trial has become impossible as a result of the breaches of the order, and that was not the case here. The authorities the Master relied on were Re Swaptronics; the judgement of Evans-Lombe J. in Arrow Nominees Inc and another v Blackledge and others [2000] 1 B.C.L.C. 709, at 717; and Arrow Nominees in the Court of Appeal [2000] 2 BCLC 167.
32. The learned Master also refused to grant a stay on Graham v Sutton & Co grounds holding that such an order ought only to be made where the conduct of the proceedings as a whole has been vexatious and he could not conclude in the absence of cross examination that Mr. Oury had been vexatious.
33. Mr. Cohen for the Claimants submitted on the appeal that in adopting the approach he did, the Master erred. With respect to Master Bowman, I agree. The overriding objective of the CPR is that cases should be dealt with justly. By CPR 1.1(2), dealing with a case justly includes, so far as practicable-

a) ensuring that the parties are on an equal footing;

b) saving expense;

c) dealing with the case in ways which are proportionate-

i) to the amount of money involved;

ii) to the importance of the case;

iii) to the complexity of the issues; and

iv) to the financial position of each party;

d) ensuring that it is dealt with expeditiously and fairly; and

e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases.

34. CPR 3.1 gives the court very wide case management powers, the exercise of which may well depend in significant part on how a party has conducted the proceedings to date; see particularly CPR 3.1(2)(f) and (m). Further, CPR 3.4 (2)(b) and (c) in terms respectively empower the court to strike out a statement of case if it is an abuse of the process or there has been a failure to comply with a rule, practice direction or court order. In my judgement, it is plain from these Rules and the overall scheme of the CPR that the conduct of a party relevant to the exercise of the powers conferred by CPR 3.1(2)(f) and (m) and CPR 3.4(2)(b) and (c) is not restricted to conduct involving bad faith. Instead, the conduct in question must be looked at in the round and, even if it cannot be shown that there has been bad faith, if in respect of a particular incident or having regard to a course of conduct overall, a party has acted oppressively or very unreasonably, it may still be appropriate to stay his claim conditionally or unconditionally or strike it out or order a payment into court.
35. Mr. Oury states in his second witness statement that he has acted throughout the litigation in good faith. By this I take him to mean that he honestly believed that he was within his rights to take the steps he took. Like Master Bowman, in the absence of cross examination I accept what Mr. Oury says. Nonetheless, in my judgement, looking at the manner in which he has conducted his side of the litigation overall, he has behaved oppressively and very unreasonably. I say this having particularly in mind: (a) his refusal until the last minute to consent to the Claimants being allowed to use information obtained on discovery in other proceedings; (b) his attempt to defend the Claimants’ summary judgement application only to submit to judgement on the second day of the hearing; (c) his attempt (following his submission to summary judgement) to defend the assessment of damages on the ground that the Counterclaim gave rise to a set-off or was reason for a stay pending its determination; (d) his resistance in October 1999 to making absolute the Charging Order nisi and his attempt until a late stage to appeal that order; and (e) his opposition to the making absolute of the Garnishee Order nisi. In my judgement, looking at this conduct overall, the clear picture that emerges is of a party intent on working the system to try and avoid the inevitable for as long as possible, heedless of his liabilities and of the expense and vexation he is causing to the opposite parties. In short, Mr. Oury’s conduct was of the very type the that CPR was intended to discourage, if not prevent.
36. In my opinion, a decision in this case on case management grounds whether to strike out the Counterclaim or stay it until the whole of the judgement debt has been paid requires a consideration not only of Mr. Oury’s conduct in the litigation, but also of the cogency of the claims made in the Counterclaim and the benefit there would be for Mr. Oury if it were to be tried out. However, regardless of these further considerations, I have no doubt that Mr. Oury’s conduct of the litigation justifies at least a stay until he has paid to the Claimants the assessed costs awarded against him since he consented to summary judgement on 18^th December 1998 and has paid into court a substantial part of the unassessed costs awarded against him since that date. The jurisdiction to make such an order existed before the CPR (see eg Graham v Sutton, Garden & Co; and Thames Investment & Securities PLC v Benjamin [1984] 1 W.L.R.1381 ) and in my opinion it exists post CPR either by virtue of CPR 3.1(2)(f), together with 3.1(3), or by CPR 3.1(2)(m).
37. In Societe Eram Shipping Company Limited v Compagnie Internationale de Navigation and others [2001] EWCA Civ 568 a judgement creditor (Societe Eram) was given leave to appeal from an order discharging a Garnishee Order nisi. The judge below had awarded costs against Societe Eram assessed in the sum of £14,000 and payable within 14 days. When Societe Eram failed to comply with the costs order, the respondent applied to the Court of Appeal, inter alia, for a stay until the costs had been paid. Rix L.J. assumed that there was jurisdiction to grant such a stay where proceedings had been conducted vexatiously, but having inferred that Societe Eram had failed to pay because it was unable to do so, not because it would not do so, he held that in the circumstances it would not be right to grant the stay sought.
38. The conduct of Mr. Oury which I think justifies a stay until the outstanding cost orders have been paid does not include his failure to pay the costs awarded against him. Societe Eram Shipping Company Limited v Compagnie Internationale de Navigation and others, therefore does not prevent the grant of the stay which I think is justified.
39. As I have said, it is my view that a decision could only be taken on case management grounds to strike out the Counterclaim or stay it until the judgement debt has been paid after a consideration not only of Mr. Oury’s conduct in the litigation, but also of the cogency of Mr. Oury’s claims and the benefit he would obtain from having them tried out. Master Bowman did not consider the Counterclaim in this way, and in failing to do so, in my respectful opinion he erred.
40. I therefore turn to evaluate the Counterclaim along these lines and to consider afresh whether the Counterclaim should be struck out or stayed on case management grounds, and if stayed, on what terms. Before doing so I should say that I think that the cogency of the claims (ie their strengths and weaknesses) stands to be considered in this way, notwithstanding that the Claimants do not contend that the claims have no prospect of success. Such was the approach of the Court of Appeal in Cohort Construction (UK) Ltd v M Julius Melchior (A Firm) and another (CA) 20 October 2000 where there was a strike-out application for default in compliance of an order for security for costs and such in my view is the right approach in this case.
41. The claim made in the Counterclaim for £542, 767 is pleaded in these terms:

“56. Further, Mr Oury and his firm have carried out services at the request of the Plaintiffs for Grenestra, the First and Second Plaintiffs and their respective families, Nicolandra, Charlandra S.A. Deer Investments S.A. ANV Holdings Pty Limited, ANV Mount Luigi Pty Limited, Australian National Vintners Pty Limited, Australian National Vintners (UK) Limited and Liberty Wines (UK) Limited.

57. It was an implied term of the agreement pursuant to which services were provided to the Plaintiffs and their companies that Mr. Oury would be paid a reasonable sum for the work carried out. Mr. Oury contends that a reasonable charge out rate is £215 per hour for Mr. Oury and £65 per hour for his assistant, Andrew Paul FCA.

58. Mr. Oury has spent 2,243.75 hours in providing the said services and Mr. Paul has spent some 512.25 hours. A breakdown of the time spent on each matter appears in the schedule served herewith.

59. In the premises, the Plaintiffs are liable to pay Mr. Oury the sum of £542,767 (plus VAT, if applicable). Mr. Oury will give credit for the sum of £350,000 referred to in paragraph 20(1) of the Statement of Claim if (in accordance with his primary contention) he received such sum on account of his fees. In that event, Grenestra is indebted to Mr. Oury in the sum of £192,767 (plus any applicable VAT on the sum of £542,767)”.

42. It is noticeable that apart from an alleged request that work be done, no express terms are pleaded in paragraphs 56 and 57; nor is it pleaded whether the agreement was oral or in writing. Further, it is alleged that all of the Plaintiffs requested all of the work done, yet having regard to the identity of the Plaintiffs and the break down in the schedule annexed to the Counterclaim of the work allegedly done, this seems very unlikely. Further, the amount claimed is £342,000 more than the £200,000 Mr. Oury estimated was due to him for work done in paragraph 17 of his second affidavit sworn on 7^th April 1998 in support of his contention that he had a lien over trust documents to secure the payment of outstanding fees. For these reasons I conclude that this claim is shadowy.
43. VAT on the £542,767 claimed will only be applicable where the work related to UK matters. Mr. Oury does not specify which of the many hours of work for which he claims relate to UK matters. In the schedule he has included VAT for every item of work which cannot possibly be right. In valuing this claim I think therefore very little, if any, value should be given to the VAT element, and in this connection I record that Counsel for Mr. Oury on the appeal did not submit that VAT should be taken into account when comparing the value of the Counterclaim to the sums due to the Claimants.
44. The claim for £300,000 is pleaded as follows:

“60. Further, by an agreement made between Mrs. Reed and Mr. Oury on or about 1996 it was agreed that in consideration for Mr. Oury continuing to make himself available to provide his services to the Deceased, his family and their companies, Mrs Reed [the First Claimant] would pay Mr. Oury the sum of £300,000 on the death of the Deceased.

61. In breach of the said agreement, Mrs. Reed has failed to pay Mr. Oury the sum of £300,000”.

45. The face value of this claim is £300,000 but it too is shadowy. Thus, it is not alleged that Mr. Oury did any work in consideration of the promise sued on, simply that he made himself available. Further, in his second affidavit Mr. Oury does not say that there was a concluded agreement under which he was to be paid £300,000. Instead, in paragraph 11 he says:

“In addition, the First Plaintiff told me that as her Father had not left a specific legacy to me, she had not left a specific legacy to me, she had discussed with the Second Plaintiff a proposal to make a sum available to me from the estate. She further advised me that she would assist me in any way financially should it be necessary in connection with matters relating to my divorce where she was aware that very heavy costs had been incurred by my former wife which were payable by me as the Court had found that my offer of settlement was insufficient.”

46. The claim for specific performance is pleaded as follows:

“62. By a yet further agreements (sic) made in June 1996 with the deceased and Mr. Hess [the Second Claimant] and later reaffirmed in March 1997 by Mr. Hess when the decision to promote Liberty Wines UK Limited was taken, Mr. Oury agreed to act as chairman of ANV Holdings Pty limited and other companies involved in the wine trade (hereinafter the “Wine Companies”) and to manage the businesses of the Wine Companies in consideration of Mr. Hess agreeing to procure that there was transferred to Mr. Oury one quarter of any shares held by Mr. Hess, Charlandra S.A., or the trust in the following companies:

ANV Holdings Pty Limited

ANV Mount Langi Pty Limited

Australian National Vintners Pty Limited

Australian National Vintners UK Limited

Liberty Wines UK Limited.

Four Sisters Pty Limited

Four Sisters Limited

63. In breach of the agreement referred to in paragraph 62 above, Mr. Hess has failed to procure the transfer of any shares to Mr. Oury.”

47. This claim is also shadowy. The allegations made in paragraph 62 stand to be contrasted with what Mr. Oury had to say in paragraphs 12 and 13 of his second affidavit:

“12. The Second Plaintiff had also spoken to me about these matters and when he asked me to be Chairman of the ANV Group of Companies (which were owned by Charlandra SA) including Mount Langi Ghiran he told me that he wished me to have a stake in the businesses. My suggestion was that the stake should be 25% of his equity stake and that in the same way as the other partner, Trevor Mast, had contributed in his expertise rather than capital, I should do the same.

13. Because this proposal came at a time when I was in the middle of my divorce proceedings I felt unable to accept this proposal at the time and it was agreed that it would be revisited when I was finally free of the divorce matters.”

48. It would also be surprising if the Second Plaintiff were obliged to have Mr. Oury manage the businesses and transfer to Mr. Oury 25% of his holding in the identified companies after it had become apparent that between October 1995 and May 1997 Mr. Oury had misappropriated large sums of money held in the names of Grenestra and Nicolandra, companies in which the Second Plaintiff had a close interest as a beneficiary under the Trust.
49. There is no evidence of the value of the shares the transfer of which Mr.Oury seeks by specific performance. Given the grounds set out in the Claimants’ Application Notice one might have expected Mr. Oury to have provided some evidence of the value of the shares in question, but he did not do so, even though this could have been done at relatively modest cost. In my opinion, in the light of this and given the claim’s shadowy nature, the claim for specific performance can be given but little value when considering the benefit to Mr. Oury of having it tried out.
50. In my view, it is plain that if the Counterclaim were tried out, it is highly likely that the value of any recovery achieved by Mr. Oury would be substantially less than the £1.3 million he owes under the judgement dated 28^th July 1999, plus costs. Although the judgement creditors are the Seventh and Eighth Claimants (Grenestra and Nicolandra), and although some of the costs orders are in favour of these Claimants alone, in substance all of the Claimants are beneficiaries of the debts owed by Mr. Oury since the share capital of Grenestra and Nicolandra is owned by the Trust.
51. Mr. Oury says that he is insolvent and cannot pay any of the £1.6 million he owes. One therefore asks why he should be permitted to put the Claimants to the expense and inconvenience of defending claims from which he will very likely achieve no net return and which will involve the expenditure by him of a large sum of money which would otherwise be available to go towards the judgement debt and costs orders?
52. I put this question to Mr. Oury’s counsel, Mr. Arkush. In reply he submitted that the Counterclaim should proceed in the normal way for the following reasons:

i) To establish Mr. Oury’s rights on his claims against the Claimants.

ii) To reach finality on the state of account between him and the Claimants.

iii) Depending on what the state of that account is, to raise the necessary sums to meet the balance owing, if any, so that Mr. Oury can look to his financial future.

53. In my judgement, these reasons signally fail to recognise the injustice to the Claimants of having to spend about £137,000 in defending shadowy claims the very likely outcome of which will be that Mr. Oury remains heavily in debt to the Claimants (in form to Grenestra and Nicolandra but in substance to all of the Claimants). A party with an arguable claim does not have an absolute right to have that claim tried. Pursuant to the overriding objective, if the trial of a claim would be unjust, the court should make appropriate, albeit proportionate, orders to ensure justice to both parties and to others who have need of the court’s resources.
54. Mr. Arkush also submitted: (a) that if the Claimants wished to avoid having to defend the Counterclaim, their remedy was to petition for Mr. Oury’s bankruptcy not to strike out the claim or have it stayed; (b) it would be contrary to the overriding objective to deal with cases justly to impose a condition on Mr. Oury (viz payment of outstanding sums due) which he could not comply with because of his impecuniosity; and (c) the Counterclaim should not be struck out or stayed if it could still be fairly tried.
55. In my view there is nothing in these points. As to (a), the fact that the Claimants might be able to have Mr. Oury declared bankrupt is irrelevant. As to (b) and (c), if, having regard to the interests of both sides and the interests of other potential users of the court’s resources, justice requires that the Counterclaim be struck out or stayed until sums due are paid to the Claimants, then that is what the court must do, notwithstanding Mr. Oury’s impecuniosity.
56. In my judgement, having regard to: the manner in which Mr. Oury has conducted the litigation; the shadowy nature of his claims; the cost of having those claims determined; and the fact that it is very likely that even after the determination of the claims Mr. Oury will continue to owe to a very large sum to the Claimants, it would be unjust and therefore contrary to the overriding objective to allow Mr. Oury to have his Counterclaim tried in the ordinary way. In my opinion, the proportionate way of securing the overriding objective is not to strike out the Counterclaim but to stay it until Mr. Oury has paid: (1) the assessed costs awarded against him; (2) the sum of £60,000 into court in respect of his liability for unassessed costs; and (3) to Grenestra and Nicolandra the difference between the sum due under the judgement dated 28^th July 1998 (£1.3 million) and the total of Mr. Oury’s money claims, excluding VAT (£869,642), namely £430,358. It should be a condition of the stay that the Claimants do not seek judgement on any of the claims in the Statement of Claim on which they did not obtain summary judgement.
57. I accordingly uphold the decision that there be a stay but I do so on different grounds from those of the Master and on different terms. This means that it is unnecessary to determine that part of the cross appeal concerned with the Master’s refusal to order security for costs. Had it been necessary to decide the point, I would have upheld this part of the Master’s judgement. In my view, the mere dissipation of assets so that there are none against which an order for costs could be enforced is not caught by condition (g) in CPR 25.13 (2). Instead, for (g) to be satisfied, it must be shown that the claimant has dealt with his assets on the basis that they are to remain available to him or his order but that as a result of such dealings it is difficult to enforce a costs order against the assets.
58. I turn now to Mr. Oury’s appeal against the stay granted by the Master on Re Johnson grounds. In Re Johnson the defendant, pursuant to a power in the will of which he was executor, had carried on one of the testator’s businesses. At the suit of a residuary legatee, a judgement was obtained for the administration of the estate and it was found that the defendant owed the estate £764 16s 1d in respect of profits from the business and £1668 3s 1d in respect of the personal estate of the testator. The defendant was insolvent and summonses were taken out by creditors to bring in claims for debts incurred by the defendant in the course of carrying on the business and asking that these debts be paid out of the assets of the estate used to carry on the business. Sir George Jessel M.R., in dismissing the summonses but allowing the creditors to present a petition, said that nonetheless he did not see that the creditors were entitled to anything. This was because, although trust assets used to carry on a business authorised under the trust could be looked to by a creditor who had done business with the trustee, the creditor’s rights in respect of such assets were no larger than the right of the trustee to an indemnity out of trust assets in respect of such debts; and here the trustee (the executor) had no such right because he had had money out of the estate for his own purposes. The pertinent passages in Sir George Jessel’s judgement are at pp.555 and 556:

“If the right of the creditors is, as is stated by Lord Justice Turner, the right to put themselves, so to speak, in the place of a trustee, who is entitled to an indemnity, of course, if the trustee is not entitled, except on terms to make good a loss to the trust estate, the creditors cannot have a better right.” (p.555).

“He [the defendant] carried on the business, and in carrying it on he received £764 16s 1d more profits than he accounted for, and this amount he owes the estate. Besides that he was carrying on the London business belonging to the estate. From that and other sources he has received £1668 3s 1d more than he has accounted for; so that he is a very large defaulter. It is manifest that he could not take one penny out of this estate by way of indemnity until he made good his default.” (p.556).

59. It is clear that the principle enunciated by Sir George Jessel M.R. applies where : (a) a trustee has improperly received trust monies; and (b) the trustee is seeking to exercise a right to be indemnified out of trust monies. As to (a), Master Bowman treated Mr. Oury as a defaulting trustee; and as to (b), he held that: “The counterclaim is one, essentially, for payments due to Mr. Oury as a consequence of this retainer as a trustee” and having cited part of Sir George Jessel M.R.’s judgement at page 556 concluded:

“The appropriate position must be that Mr. Oury, as a defaulting trustee, should not receive the benefit or make any progress towards receiving the benefit of his indemnity until he has repaid his defalcation. Accordingly, the counterclaim should be stayed until the sums outstanding on the judgment are paid.”

60. In the instant case the misappropriations for which judgement has been obtained involve breaches of fiduciary owed by Mr. Oury to Grenestra and Nicolandra as a director of those companies and not a breach of the Trust, but I agree with Master Bowman that these misappropriations stand to be regarded as breaches of the Trust. As I have said, the share capital of Grenestra and Nicolandra was owned by the Trust and Trust assets were transferred to those two companies. It follows in my view that in substance Mr. Oury was misappropriating Trust monies.
61. However, I respectfully dissent from Master Bowman’s conclusion that Mr. Oury’s claims amount to a claim for an indemnity for the purposes of the Re Johnson principle. Even if the claims in the Counterclaim are for payments due to Mr. Oury as a consequence of his retainer as a trustee, the relevant claims save (for the £26,875 claim) are claims against some or all of the Claimants personally and not are not claims to be paid an indemnity out of Trust monies. This is true in respect of all three relevant claims, but it is particularly true in respect of the claim for £300,000, which is a claim made only against the First Claimant, and in respect of the specific performance claim, which is made only against the Second Claimant.
62. The instant case therefore does not fall within the Re Johnson principle and I can see no warrant for extending the principle to a situation like the present case. After all, if a trustee who has misappropriated trust monies sues the beneficiaries personally for services rendered, it is highly unlikely that his claim will constitute a set-off against beneficiaries’ claim for repayment of the misappropriated trust money; it is equally unlikely that the defaulting trustee would obtain a stay of the beneficiaries’ claim pending the determination of his disputed counterclaim. Thus, whilst the beneficiaries could not stop the trial of the trustee’s claim on Re Johnson grounds, they are very likely to be able to recover the misappropriated trust money before having to satisfy the trustee’s claim should it be established.
63. Mr. Oury’s appeal therefore succeeds, but for the reasons given above the Claimants are entitled to a stay of the Counterclaim on case management grounds on the terms set out in paragraph 56 above. Finally, since Mr. Oury’s appeal has succeeded, the cross-appeal on costs falls away and does not stand to be determined.