[1968] Vol. 2 Lloyd's Rep.
153
COURT OF APPEAL
July 9 and 10, 1968
____________________
BANQUE DU RHONE S.A. v. FUERST DAY LAWSON,
LTD. PROMAT S.A. (THIRD PARTIES)
Before Lord DENNING, M.R. Lord Justice DAVIES and Lord
Justice WINN
Practice-Security for costs-Foreign plaintiff suing on bill of
exchange-Allegations by defendant acceptors that acceptance of bill
was affected with fraud-Whether security for costs should be
ordered-R.S.C., Order 23, r. 1.
On July 20, 1966, P. S.A. (a Swiss company) drew bill of exchange on
defendants, payable on Aug. 22, 1966, to order of P. S.A. On July 27,
1966, defendants accepted bill. Bill was indorsed by P. S.A. to
plaintiff bank (also a Swiss company). Bill was dishonoured on
presentation. Plaintiffs commenced proceedings claiming against
defendants under bill. Defendants contended that acceptance of bill
was affected with fraud, and joined P. S.A. as third parties. Defendants
asked for security for costs. Donaldson, J., declined to order security
on grounds that defendants were the substantial plaintiffs in the action.
Defendants appealed.
-Held, by C.A. (Lord DENNING, M.R., DAVIES and WINN, L.JJ.), (1)
that there was no rule of practice that, in the case of a bill of exchange,
if plaintiff was outside jurisdiction he should not be ordered to give
security; (2) that, in this case, bill itself was challenged; and
acceptance was said to be vitiated by fraud; and that, therefore, it was
a proper case for security; and that Judge was in error when he
considered that defendants were in position of plaintiff. Appeal
allowed.
The following case was referred to:
Crozat v. Brogden, [1894] 2 Q.B. 30.
____________________
This was an interlocutory appeal by the defendants, Fuerst
Day Lawson, Ltd., of London, E.C., from a decision of Mr.
Justice Donaldson in Chambers dismissing their application that
the plaintiffs, Banque du Rhone S.A., of Geneva, Switzerland,
should give security for defendants' costs in an action being
brought by the plaintiffs against the defendants on a bill of
exchange.
The further facts and arguments are stated in the judgment of
Lord Denning, M.R.
Mr. A. E. J. Diamond (instructed by Messrs. Holman, Fenwick
& Willan) appeared for the appellant defendants; Mr. J. M.
Holden (instructed by Messrs. Brecher & Co.) represented the
respondent plaintiffs.
JUDGMENT
Lord DENNING, M.R.: This is an application for security for
costs in a case where the plaintiffs are out of the jurisdiction.
They are a foreign bank suing on a bill of exchange.
On July 20, 1966, a Swiss company called Promat S.A., at
Geneva, drew a bill of exchange for the sum of 54,332.20 Swiss
francs. They drew it upon an English company, Fuerst Day
Lawson, Ltd., of 1 Leadenhall Street. It was payable on Aug.
22, 1966, to the order of Promat S.A. On July 27, 1966, the
English company accepted the bill payable at the Westminster
Bank, Ltd., 1 Mincing Lane. The drawers, Promat S.A.,
indorsed the bill to the Banque du Rhone S.A., which is a Swiss
company, also at Geneva. They indorsed it: "Pay to the order of
the Banque du
[1968] Vol. 2 Lloyd's Rep.
C.A. Banque du Rhone S.A. v. Fuerst Day Lawson, Ltd.
Rhone". The bill was presented for payment on its due date,
Aug. 22. It was dishonoured and duly protested. Now the
Banque du Rhone S.A. sues the English company, Fuerst Day
Lawson, Ltd., for the amount of the bill and interest, converted
into sterling a total sum of £4595 11s. 7d..
The Banque du Rhone S.A. took out a summons for judgment
under Order 14 and put in the formal affidavit in support. The
English company put in an affidavit alleging fraud. Thereupon
the Banque du Rhone S.A. agreed there was a triable issue.
They did not proceed with the summons under Order 14.
Instead the action was transferred to the Commercial List. The
defendants put in a defence. They said that the bill was accepted
in respect of a sale of goods. It was given for 53 drums of
Chinese citronella oil, said to be lying in bonded warehouse in
Marseilles: but in fact there were no such goods in warehouse in
Marseilles at all. It was all a complete fraud. If the defendants
prove that the acceptance of the bill was affected with fraud, the
burden of proof is shifted to the Banque du Rhone S.A. to show
that, subsequent to the alleged fraud, value has in good faith
been given for the bill: Sect. 30 (2) of the Bills of Exchange
Act, 1882. After putting in that defence, the English company
brought in the Swiss company, Promat S.A., as third parties,
and claimed indemnity from them.
Seeing that the plaintiffs are resident abroad in Switzerland,
the defendants asked for security for costs. Mr. Justice
Donaldson declined to order security. He said that the English
company, although defendants, were "the substantial plaintiffs"
in the action, and that the Court's discretion ought to be
exercised against ordering security. The Judge clearly had in
mind Order 23, r. 1 (3), which says that security may be ordered
against a person who is in the position of a plaintiff. The
defendants appeal to this Court.
The history of the Rules is as follows: In 1882 the Rule was
quite general as to security for costs:
In any cause or matter in which security for costs is required,
the security shall be of such amount, and be given at such
times, and in such manner or form, as the Court or a Judge
shall direct.
154
Lord Denning, M.R.
Under that Rule in 1894 in the case of Crozat v. Brogden,
[1894] 2 Q.B. 30, the Court held that security would be ordered
even when a foreign plaintiff brought an action on a foreign
judgment. Lord Justice Lopes said (ibid., at pp. 34 to 35):
. . . where a person is instituting legal proceedings in this
country, being resident abroad, so that no adverse order could
be effectually made against him if unsuccessful, he is, by the
rules of the Court, compelled to give security for costs. . . . I
certainly have always understood that to be . . . the inflexible
rule of the Court; and I have always understood that no
difference existed between an action on a foreign judgment
and other actions.
No doubt the same rule would apply to an action by a foreign
plaintiff on a bill of exchange. It was thus an inflexible rule that
security should be ordered against a foreign plaintiff, even
when he was suing on a judgment or on a bill of exchange.
That inflexible rule was not regarded as satisfactory. So in
1920 a Rule was passed giving the Courts a discretion. It said:
In actions brought by persons resident out of the jurisdiction,
when the plaintiff's claim is founded on a judgment or order or
on a bill of exchange or other negotiable instrument, the power
to require the plaintiff to give security for costs shall be in the
discretion of the Court or Judge.
(Order 65, r. 6B). So that from 1920 onwards, it was a matter
for the discretion of the Judge.
In 1962 the present Rule was passed. It is Order 23, r. 1. It
gives the Court a general discretion in all actions where the
plaintiff is ordinarily resident out of the jurisdiction:
then if, having regard to all the circumstances of the case, the
Court thinks it just to do so, it may order the plaintiff to give
such security for the defendant's costs . . . as it thinks just.
Then there is the sub-rule which says that reference to a
plaintiff shall be considered as reference to a person "who is in
the position of plaintiff". That is the Rule as it stands today. It is
a matter of discretion in all cases, including the case of a
foreign judgment or a bill of exchange.
It was suggested that there was a rule of practice that, in the
case of a bill of exchange, if the plaintiff was outside the
[1968] Vol. 2 Lloyd's Rep.
C.A. Banque du Rhone S.A. v. Fuerst Day Lawson, Ltd.
jurisdiction he should not be ordered to give security for costs.
Mr. Justice Donaldson, who is very experienced in these
matters, said he knew nothing of any such practice. I agree with
him. There is not any practice one way or the other. It depends
on the particular case.
How does it stand? In the ordinary way, when a plaintiff
brings an action on a bill of exchange we treat the bill of
exchange as cash. If it is an action by a foreign seller against an
English buyer on a bill given for the goods, and then the buyer
does not challenge the bill itself, but says that the goods are not
up to contract, or something of that kind, we would not dream
of ordering security to be given by the foreign plaintiff. The
dispute as to the quality of the goods can be thrashed out in a
counterclaim or cross-action. But this is not such a case. In this
case the bill itself is challenged. The acceptance is said to be
vitiated by fraud. So much so that it is, I think, a proper case for
security. Mr. Diamond gave a useful illustration. Suppose a
man outside the jurisdiction brings an action against a bailee
here for loss of his goods. The bailee in his defence says that
the goods were lost without his fault. The burden of proof is on
the defendant. Yet he can get security for costs. I think the
Judge was in error when he regarded the English company as
being "in the position of plaintiff". The defendants are not
seeking any relief themselves. They are resisting a claim against
them. They are defendants who, in order to make good their
defence, have to go into a great deal of expense. Counsel has
taken the responsibility of putting a charge of fraud upon the
pleadings (not against these immediate plaintiffs, of course, but
against those who drew the bill), and I presume he did this
advisedly after seeing there was evidence to support it. So this
is a case of a defendant who is called upon to fight proceedings
in this country at the instance of a plaintiff abroad. If the
defendants win and get an order for costs, they should be
protected. They should have security instead of having to
enforce an order for costs in another country.
It was said on behalf of the Banque du Rhone S.A. that they
should not have to put up money as security when they could
use that money much more profitably in some other way. But
that objection was well answered by the solicitors for the
English company. They wrote saying:
155
Davies, L.J.
You need not put up the money in cash. We would be quite
satisfied with an undertaking from some responsible person
here to answer for the costs if an order was made.
A bank of standing ought to have no difficulty in giving such an
undertaking. But the suggestion was declined.
In all these circumstances it seems to me that this is a case
where it is within the discretion of the Court to order security.
The suggestion has been made of £350. That sum would not in
the least be unreasonable, at any rate at this stage. I would allow
the appeal and order security of £350.
Lord Justice DAVIES: I agree. The learned Judge, in the
short note taken by Counsel of the reasons for his judgment,
twice emphasized that there is a question of principle involved
in this case. I can see no question of principle in it at all. It is
entirely a question whether the Court, in the exercise of its
discretion in the particular circumstances of this case, ought to
order security.
The learned Judge's ground, as my Lord has said, for refusing
security was that the defendants are the substantial plaintiffs in
the action, and that therefore the Court's discretion ought to be
exercised against ordering security. I entirely agree with my
Lord that it is wrong to say that the defendants are the
substantial plaintiffs. They have raised a defence which is open
to them under the Bills of Exchange Act, 1882, and on that
defence the plaintiffs may lose. In those circumstances, the
matter, owing to the Judge's approach to it, being open to
review in this Court, I entirely agree that an order for security
should be made and I do not desire to add any more to what has
fallen from my Lord.
Lord Justice WINN: For my part I feel a great deal more
doubt than my Lords have done about this matter, but I do not
feel so much doubt as would have decided me to dissent from
the order which they have proposed.
I, of course, accept as correct the note of learned Counsel of
what the learned Judge was understood to have said in his
judgment; it may have been a matter of understanding rather
than of his exact language. If he did indeed say that the
defendants were "substantial plaintiffs"- and one must, I
suppose, take it that he did-then I too think that that was
[1968] Vol. 2 Lloyd's Rep.
C.A. Banque du Rhone S.A. v. Fuerst Day Lawson, Ltd.
entirely erroneous. What I think the learned Judge would more
naturally have said-and respecting, as one does, his reasoning
powers one thinks that this is what he meant to convey-was that
on the one substantial issue in this action the defendants were
the asserting party; they had to prove the affirmative on that
issue. I do not mean, of course, only the issue as to fraud in the
initiation of the acceptance of the bill but more particularly the
fact that the plaintiffs were cognisant of the fraud or otherwise
affected by knowledge or suspicion when they became
indorsees and holders of the bill.
I put entirely out of my mind references which were
made-unsupported, so far as this Court is concerned, by a shred
of evidence-to suggest, by way of innuendo, that this Bank,
about whose status and strength and constitution this Court
knows nothing, were in some way associated so intimately by
personality or business connections with the allegedly
fraudulent parties as to be incapable of being holders for value
in good faith of this bill of exchange. I think, however, that the
learned Judge's reasons as reported are erroneous in both the
respects to which my Lords have drawn attention. It is a matter
to be decided properly upon the circumstances of the particular
case whether or not security should be ordered. For my own
part I go along with Mr. Holden's submission that
notwithstanding the initial approach that normally non-resident
plaintiffs should give security so that the defendants whom they
attack in this jurisdiction may, if they, the defendants, are
successful, be able to recover the costs of litigation, the Court
must nevertheless look and see whether there is a high degree of
probability that the plaintiffs will succeed.
In this particular case I do not think, on the whole, that a
sufficiently high degree of probability for that criterion to
operate has been established, although I do desire, quite
deliberately, to say that I feel considerable doubt about the
reality of this commercial transaction. It seems to me to be very
closely akin, on the face of the documents, to a mere gamble in
differences related only ostensibly to commodity purchases; I
think that the real issue will turn more upon the defendants'
necessary assertion of reliance on representations than upon any
other issue or step in the litigation or transaction.
156
Winn, L.J.
I agree, with such hesitation as I thought it my duty to
indicate, that the order should be reversed and security should
be ordered in this case.
Lord DENNING, M.R.: The question of amount, Mr. Diamond?
Mr. DIAMOND: The position is that before the Judge I briefly
indicated that I was asking for security in the sum of £350, on
the basis that a sum in the region of about £200, or slightly
more, by way of costs had already been incurred to date, and
that there was still discovery to come, which might take another
£100 or a little more. So I intimated I was asking for £350 until
the end of discovery; and I was asking for liberty to apply
further. Since then there has been this appeal which, of course,
your Lordships would wish to take into account. My instructing
solicitors have told me that their estimate of the defendants'
costs of the appeal is about £100.
Therefore I would ask your Lordships to add £100 on to the
amount I previously asked for, and to order that security by way
of undertaking-which, of course, was previously intimated to
the plaintiffs' solicitors would be acceptable-in the sum of £450
should be given at this stage, with liberty to apply later after
discovery has been completed.
Lord DENNING, M.R.: What do you say about the amount?
MR. HOLMAN: I am instructed to submit to your Lordship that
£350 would be a fair figure.
Lord DENNING, M.R.: I see. Are you ready to bring the money
into Court, or would you prefer to do it by way of undertaking?
That could be by arrangement. We ought to order a sum; then,
if you prefer to do it by an undertaking satisfactory to the other
side, you can do so.
Mr. HOLMAN: If your Lordship pleases. I would have thought
that was a convenient way of doing it.
Lord DENNING, M.R.: We will order security in the sum of
£350, to be given within a fortnight?
Mr. HOLMAN: Could we have 28 days?
Lord DENNING, M.R.: Any objection to that?
Mr. DIAMOND: No objection.
[1968] Vol. 2 Lloyd's Rep.
C.A. Banque du Rhone S.A. v. Fuerst Day Lawson, Ltd.
Lord DENNING, M.R.: To be given within 28 days; but if an
undertaking satisfactory to the defendants' solicitors is given,
that will be in lieu of the actual deposit of the money.
Mr. DIAMOND: Yes, that would be acceptable.
Lord DENNING, M.R.: We are not saying anything as to
whether the Judge would grant more on another occasion. That
may depend on what may appear on discovery. Mr. Holman is
urging that he has a very good chance of winning altogether. I
think we will leave any question of extension of security
entirely to the Judge.
Mr. DIAMOND: Yes. Would your Lordship indicate I have
liberty to apply to the Judge at a later stage in the action?
Lord Justice DAVIES: You always have.
Mr. DIAMOND: Would your Lordship say liberty to apply?
Lord DENNING, M.R.: Yes. To stay the action?
Mr. DIAMOND: To increase the security.
Lord DENNING, M.R.: Yes, certainly, you have liberty to
apply.
Mr. DIAMOND: Would your Lordship make the order that the
action be stayed pending giving of the security?
Lord DENNING, M.R.: Yes, pending giving of the security.
Mr. DIAMOND: There is only one other matter I can address
your Lordships on, and that is the question of costs. My
solicitors asked by letter, before any application was made to
this Court at all, for security, and such security was refused.
They then applied again, after the Judge's judgment, by letter in
the letter to which you have referred. In the circumstances I
respectfully submit that the usual order would be that the costs
of the hearing before the learned Judge and the costs of this
appeal be the defendants' in any event.
Lord DENNING, M.R.: Have you anything to say about that,
Mr. Holden?
Mr. HOLDEN: In my respectful submission this is a very
unusual case, and the fairer order would be costs in the cause.
Lord Justice DAVIES: Would not the best one be defendants'
costs in the cause.
Lord DENNING, M.R.: That is what I was thinking.
157
Mr. HOLDEN: Yes, I respectfully agree.
Lord Justice WINN: I agree.
Lord DENNING, M.R.: Defendants' costs in the cause.
Mr. DIAMOND: Would your Lordship hear me on that?
Lord DENNING, M.R.: Certainly.
Mr. DIAMOND: In my respectful submission this is a very
unusual plea, that because this case is unusual a party who takes
the matter to this Court on what is said by the Judge to be a
point of principle should not, if successful in this Court, have
the costs of the argument in any event in the action.
Lord Justice DAVIES: Mr. Diamond, the suggested order
means that if you win you get the costs; and if this charge of
fraud fails or is defeated then you do not get them. Is not that
fair?
Mr. DIAMOND: The only point I have to make-if your
Lordships are against me on this I cannot elaborate it-is this,
that this application is something separate from the trial. It is a
question on which quite different arguments have been raised,
such as on whom is the incidence of the burden of proof, who is
the substantial plaintiff in the action; and these points which
were taken below and in this Court are quite substantially
independent from the trial of the action. My friend took his
stand on the question of law, and in my submission as he has
failed this should be treated as a separate issue. In my
submission my clients should have the costs of arguing those
points in any event.
(Their Lordships conferred.)
Lord DENNING, M.R.: Defendants' costs in the cause here and
below.
Mr. DIAMOND: If your Lordship pleases.
Mr. HOLMAN: I am instructed to ask for leave to appeal on
three grounds: first of all that this is a matter of considerable
importance, whether or not it be a matter of principle; secondly,
on the ground that your Lordships are differing from the learned
Judge below; and thirdly on the ground that one of your
Lordships has felt more doubt than the other two members of
the Court.
Lord DENNING, M.R.: In interlocutory matters like this we
very rarely give leave to appeal, and we do not in this case.