Case No: A3/2012/0528
Neutral Citation Number: [2013] EWCA Civ 4
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMMERCIAL COURT
Eder J
2011 Folio 793
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 17/01/2013
Before:
LORD JUSTICE PILL
LORD JUSTICE TOULSON
and
LORD JUSTICE MUNBY
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Between:

	ANDRIS LINUZS
RAIVIS VECKAGANS
EDVINS BERZINS	Appellants	
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	LATMAR HOLDINGS CORPORATION	Respondent	

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(Transcript of the Handed Down Judgment of
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Mr Jawdat Khurshid (instructed by MFB Solicitors) for the Appellants
Mr Paul McGrath QC and Mr David Davies (instructed by Stephenson Harwood) for the Respondent

Hearing dates: 18 October 2012
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Judgment
Lord Justice Toulson: 
Introduction
1.	The claimant (Latmar) is a Liberian company and is a wholly owned subsidiary of the Latvian Shipping Company (LSC).  LSC’s controlling shareholder is Vitol, a well known oil and commodities trading group.  The appellants are the 9th, 10th and 11th defendants.  They are Latvian nationals and are domiciled in Latvia.  Until 17 December 2010 they held senior positions in LSC.  The 9th defendant, Mr Linuzs, and the 10th defendant, Mr Veckagans, were vice presidents of LSC.  The 11th defendant, Mr Berzins, was the head of LSC’s legal department.  They were dismissed following an extraordinary shareholders’ meeting which resulted in the replacement of LSC’s management board.
2.	The action was commenced by a claim form issued on 5 July 2011.  Under the heading “Conspiracy, Deceit, Fraudulent Misrepresentations” it stated:
“The Claimant (“Latmar”) claims against the Defendants damages for deceit and/or fraudulent misrepresentation and/or unlawful means conspiracy and/or lawful means conspiracy arising out of two agreements known as “the Media Focus Agreement” believed to have been signed on or about 16 December 2009 but backdated to 20 October 2009 and “the Arindal Agreement” believed to have been signed on or about 12 February 2010 but backdated to 20 October 2009…” 
There were additional claims against the 9th to 11th defendants for breach of fiduciary duty in procuring Latmar to enter into the Media Focus and Arindal agreements.  
3.	Media Focus Limited (“Media Focus”) is the first defendant.  Arindal Beteiligungsverwaltungs GMBH (“Arindal”) is the fourth defendant.  Media Focus is a company incorporated in England.  Arindal is incorporated in Austria.  Media Focus and Arindal did not respond to the proceedings and judgment in default was obtained against them.
4.	Judgment in default was initially also obtained against the 9th and 10th defendants, but on 3 October 2011 they applied to set aside the default judgments.  At the same time the three appellants applied to challenge the court’s jurisdiction to entertain the claim against themselves in so far as it relates to Arindal.  They accepted, and continue to accept, that the court has jurisdiction to entertain Latmar’s claim against them in so far as it relates to Media Focus.
5.	The applications came before Eder J who gave a written judgment on 10 February 2012 under the title and neutral citation number Latmar Holdings Corporation v Media Focus Ltd [2012] EWHC 262 (Comm).  With express reluctance, he set aside the default judgments.  He did so not on the basis that the 9th or 10th defendants had reached the threshold of showing a real prospect of successfully defending the claim, but under CPR 13.3(1)(b) for other good reasons. There is no appeal by Latmar in respect of that part of his judgment.
6.	The court’s jurisdiction issue is governed by Council Regulation (EC) No 44/2001, commonly known as the Brussels 1 Regulation.  Under article 2 a person domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State, subject to any special jurisdiction arising under any other article.  Eder J held that the court had jurisdiction in respect of the whole of the claim made against the appellants under article 6.1.  That provides that a person dominciled in Member State may also be sued:
“where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.”
7.	Eder J further held that there was at least a good arguable case that the court had jurisdiction under article 23, which provides:
“If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction.  Such jurisdiction shall be exclusive unless the parties have agreed otherwise.  Such an agreement conferring jurisdiction shall be either (a) in writing or evidenced in writing…”
8.	Jurisdiction under article 23 was dependant on the appellants being treated as parties to the Arindal and Media Focus agreements by the process commonly described as lifting or piercing the corporate veil.
9.	Eder J accordingly rejected the appellants’ challenge to the jurisdiction.  By their notice of appeal the appellants seek an order stating:
“The Court has no jurisdiction and/or declines to exercise any jurisdiction over the claims made against the 9th , 10th  and 11th  defendants in so far as they relate to the alleged Arindal Fraud…and to this extent the Claim Form and service of the Claim Form upon the 9th , 10th  and 11th  defendants is to be set aside and/or the proceedings stayed.”
Nature of the alleged fraud
10.	Latmar’s case is that the appellants conspired between themselves and with others to siphon funds from Latmar under the cover of sham consultancy agreements.
11.	The evidence before the judge setting out the basis of Latmar’s claim consisted principally of a lengthy and detailed affidavit by Mr Paolo Ghirardani, a partner in the firm of solicitors who act for Latmar.  The affidavit was made prior to the issue of the proceedings in support of an application for a worldwide freezing injunction, which was granted by David Steele J.
12.	The story which emerges from that affidavit, and the appellants’ response to it, was set out and considered by the judge with admirable clarity at [5] to [13] and [52] to [74] of his judgment.  What follows is an abbreviated version of the matters set out in the judgment and Mr Ghirardani’s affidavit.  It is unnecessary for present purposes to go into as much detail as the judge, not least because a number of his conclusions are not challenged for present purposes.
13.	By way of background, in 2007 Latmar entered into shipbuilding contracts with a Korean shipyard, Hyundai Mipo, for the construction of four medium range product tankers.  Following the financial crisis in the autumn of 2008, Latmar sought to amend the contracts.  In December 2008 a delegation from LSC visited Korea, but no further agreement was reached at that stage.  After further visits by LSC delegations in 2009, amendment agreements to two of the original shipbuilding contracts were signed on 4 December 2009.  Those shipbuilding contracts and amendment agreements were genuine.  According to Mr Ghirardani’s affidavit, the negotiations were conducted directly between LSC employees and Hyundai, without any third party intermediary (although LSC was assisted by its Korean ship broker and by an external financial adviser).
14.	On 22 or 23 December 2008 Latmar entered into five written agreements with Arindal, by which Arindal purportedly agreed to provide services to Latmar in relation to “potential investments and/or the availability of shipyards for the purpose of making a strategic investment and/or placing order for ship newbuilding”.
15.	The contracts were signed by Mr Linuzs on behalf of Latmar and by the fifth defendant, Mr Efim Schabad, on behalf of Arindal.  Mr Schabad had been appointed sole director of Arindal five days earlier.  The agreements contained a Latvian governing law and exclusive jurisdiction clause.
16.	On 23 December 2008 five payments of US$960,000 each, totalling US$4.8 million, were made by Latmar to Arindal.
17.	Subsequently Latmar and Arindal entered into a further agreement, entitled an advisory services agreement, by which Latmar purportedly engaged Arindal to provide advice and assistance to Latmar in negotiations with Hyundai with regard to the shipbuilding contracts between Latmar and Hyundai.  In return Latmar was to pay to Arindal an advance lump sum fee of US$4.8 million, as payment for the services rendered and to be rendered by Arindal, and any fees already paid by Latmar to Arindal under the contracts between them dated 22 December 2008 were to be counted towards payment of the fees under the advisory services agreement.  In other words, it provided a contractual basis for Arindal to retain the sums which had already been paid to it.  This agreement contained an exclusive English governing law and jurisdiction clause.  The signatories were the same as for the previous contracts.
18.	The advisory services agreement was expressed to be entered into on 20 October 2009, but Mr Ghirardani’s affidavit catalogued a series of communications indicating that it was drafted at the instigation of Mr Berzins in January 2010 and that the final draft was executed in February 2010.  The communications referred to by Mr Ghirardani suggested that Latmar was under pressure at the time from its auditors to explain Arindal’s receipt and retention of the US$4.8 million which had been paid to it.
19.	The ostensible date of the Arindal advisory services agreement, 20 October 2009, was also the ostensible date of an advisory services agreement purportedly made between Latmar and Media Focus.  Under that agreement Media Focus was purportedly engaged similarly to advise Latmar and assist it in negotiations with Hyundai in respect of the shipbuilding contracts between Latmar and Hyundai.  In return Media Focus was to be paid the sum of €420,000 for the services rendered and to be rendered by it.  The agreement also contained an English governing law and exclusive jurisdiction clause.  It was signed on behalf of Latmar by a Mr Sarmulis, the chairman of LSC’s management board, and on behalf of Media Focus by a Lana Zamba.  According to Media Focus’ corporate records at Companies House, Lana Zamba was not appointed as an officer of Media Focus until 29 November 2009, more than a month after the purported date of the Media Focus advisory services agreement.
20.	Payment of €420,000 was made by Latmar to Media Focus on 9 December 2009.  It was not until some days later, on 16 December 2009, that Mr Berzins received a draft version of the contract from an employee in his department.  Other documentation identified by Mr Ghirardani indicated that the final contract was not executed until on or after 6 January 2010.
21.	Accordingly, on the evidence produced by Mr Ghirardani, both the Arindal advisory services agreement and the Media Focus advisory services agreement post-dated the amendment agreements made between Latmar and Hyundai, but were backdated to give the appearance of having pre-dated the amendment agreements.
22.	Arindal was an off the shelf company incorporated in January 2008 by an Austrian law firm.  Media Focus’s annual accounts filled at Companies House for 2009 and 2010 showed that the company had assets of £2 and issued share capital of two ordinary shares of £1 each.  Mr Ghirardani was unable to find any evidence of any trading activity by either company.  The judge concluded that both were shell companies with nominee shareholders and directors.  That finding has not been challenged on the appeal.  According to Latmar’s evidence, neither company was in any way involved in providing services to Latmar in connection with the Hyundai shipbuilding contracts or at all.
Issues on the appeal
23.	It was common ground before the judge that the burden was on Latmar to demonstrate a “good arguable case” that the English court had jurisdiction under the Brussels 1 Regulation, meaning that its argument on the material available was much better than the argument against it: Bols Distilleries BV v Superior Yacht Service Limited [2006] UKPC 45, [2007] 1 WLR 12, at [28] (Lord Rodger).
24.	On behalf of the appellants Mr Khurshid made it clear that all allegations of wrongdoing were denied, but he accepted for present purposes only that Latmar had established a good arguable case that the Arindal and Media Focus agreements were fraudulent schemes and that the appellants were in each case parties to the fraud.  He also accepted in argument that there was a good arguable case that the appellants were parties to a fraudulent conspiracy between themselves which embraced both the Arindal and Media Focus schemes.  However, he submitted that Latmar had not shown a good arguable case that Media Focus was a party to any conspiracy which went beyond the Media Focus scheme.
25.	Conceptually it is possible to have an umbrella conspiracy to defraud between A, B and C, pursuant to which they enter into specific dishonest schemes with D and E respectively but without D or E becoming parties to the wider conspiracy.  (For this general principle see the well known case of R v Griffiths [1966] 1 QB 589, recently cited in R v Mehta [2012] EWCA Crim 2824).  Mr Khurshid submitted that on the material before the court this is such a case, and that there is no good arguable case for concluding that Media Focus and Arindal were co-conspirators.  He emphasised that Media Focus did not come on the scene until long after the date of the original Arindal agreements and the payment to Arindal of US$4.8 million.
26.	It followed, in Mr Khurshid’s submission, that in so far as the claims against the appellants related to Arindal, they were not so closely connected with the claim against Media Focus that it was expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.  They were neither closely connected, nor was there a risk of irreconcilable judgments.  Further and in any event, there was no such risk since judgment had been taken in default against Media Focus and therefore the court would not be hearing the claim originally made against it.
27.	Accordingly, the central questions in relation to article 6 are these:
1.	Is it material that Latmar has obtained judgment in default against Media Focus?
2.		Does Latmar have a good arguable case that Media Focus was party to the wider conspiracy alleged against the appellants (i.e. a conspiracy involving both the Arindal and the Media Focus schemes)?
3.		If not, is the wider claim which Latmar makes against the appellants sufficiently connected with the claim against Media Focus to give jurisdiction to the English court to hear it pursuant to article 6?
28.	In relation to article 23, the issue is whether the judge was right to conclude that Latmar has a good arguable case for treating Arindal as a mere front for the appellants so as to justify regarding the appellants as parties to the exclusive jurisdiction clause in the Arindal agreements.
29.	The appellants have a separate argument in relation to costs if their appeal is unsuccessful, to which I will refer later.
Is it material that Latmar has obtained judgment in default against Media Focus?
30.	If the appellants’ argument is sound, logic suggests that it should apply to the entirety of Latmar’s claim against them and not merely to the claim in so far as it relates to the Arindal fraud.  In any event, however, European and domestic case law has established that the relevant time for determining whether the court has jurisdiction under article 6 is the time at which the jurisdiction was invoked, i.e. the date of issue of the claim form.  Among the key objects of the Regulation, paragraph 11 of the preamble states:
“The rules for jurisdiction must be highly predictable and founded on the principle that jurisdiction is generally based on the defendant’s domicile and jurisdiction must always be available on this ground save in a few well-defined situations in which the subject-matter of the litigation or the autonomy of the parties warrants a different linking factor.  The domicile of a legal person must be defined autonomously so as to make the common rules more transparent and avoid conflicts of jurisdiction.”
31.	It is axiomatic that a party may change their domicile.  If it were open to a party sued in the country of their domicile to defeat the court’s jurisdiction by changing their domicile, the predictability and practical efficiency of the scheme would be seriously weakened.  Similar arguments apply to the other linking factors which may give rise to special jurisdiction, including article 6.
32.	In Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547, 564, 566,  Waller LJ referred to the importance of a claimant being able to identify easily the court before which he may bring his action, before incurring the expense of launching it, and he continued:
“The relevant date must be the same for article 6 as for article 2.  A plaintiff faced with wishing to sue defendants in proceedings connected in the sense required for article 6 purposes has to take the same decisions as a plaintiff seeking to sue one defendant in the courts of his domicile under article 2.  What in fact article 6 allows him to do is to comply with article 2 so far as one or more defendants are concerned, and to join others who are domiciled in other contracting states.  It is article 6 that provides the power to issue the process in the court of the domicile of one defendant, and that court then allows service on the defendants so joined.  It must once again be as at the date when the writ is issued that the relevant domicile must be tested for all the reasons given in relation to article 2.”
33.	In Freeport PLC v Arnoldsson (Case C-98/06) [2007] ECR I-839, [2008] QB 634, the Court of Justice of the EU held at [54] that article 6(1) applies “where claims brought against different defendants are connected when the proceedings are instituted, that is to say, where it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings”.
34.	Accordingly, the fact that Media Focus did not respond to the proceedings and Latmar obtained a judgment against it in default is immaterial for present purposes.  It is just that it should be so, for it would have been absurd if the proper construction of the Regulation had required Latmar to withhold from obtaining judgment against Media Focus solely in order for the court to retain its jurisdiction in relation to other defendants.
Is there a good arguable case that Media Focus was party to a conspiracy of the scope alleged against the appellants?
35.	On the evidence before the judge, there was a clear prima facie case that the appellants orchestrated the execution of the Arindal and Media Focus advisory services agreements, using shell companies with nominee directors as vehicles for defrauding Latmar.  There is strong evidence that the appellants were conducting effectively a twin operation, which proceeded simultaneously through two agreements bearing a close resemblance to one another. There is also evidence in the form of a draft tripartite agreement between Latmar, Arindal and Media Focus, that in the period preceding the execution of the advisory services agreements it was contemplated that Media Focus would be engaged by Arindal as a subcontractor for the purpose of supposedly delivering services to Latmar.  The draft agreement recited that the contractor, i.e. Arindal, wished to introduce the sub-contractor, i.e. Media Focus, as the party able to assist with fulfilling the tasks and services contemplated by the agreement between Latmar and Arindal.  There is no evidence that the tripartite agreement was executed, but the creation of the document is evidence of Media Focus’s potential willingness to involve itself in relations between Latmar and Arindal, which would presuppose some knowledge of such relations.
36.	The shadow world of front companies utilised to give an illusion of independence in linked operations orchestrated by conspirators for fraudulent purposes is a different world from that of legitimate commerce.  There is in my view a strongly arguable case on the present evidence for attributing the knowledge of the appellants concerning their overall scheme to the front companies which they were using to accomplish it and for regarding Media Focus as a party complicit in the advancement of the scheme.  The fact that Media Focus was brought in by the appellants long after the original Arindal agreements, and long after the payment of US$4.8 million to Arindal, is no objection to Media Focus being held to have entered into the appellants’ conspiracy at a later date.  Under the law of conspiracy not all conspirators need to join at the same moment.
37.	Accordingly, I would uphold the judge’s conclusion that Latmar has a good arguable case to support its claim that Media Focus and Arindal were parties to a fraudulent conspiracy with the appellants, and not merely to two distinct conspiracies.
If not, is the claim which the appellants make against the appellants sufficiently connected with the claim against Media Focus for the court to have jurisdiction under article 6?
38.	This question arises only if I am wrong in my conclusion on the previous issue, i.e. if Latmar has failed to establish a good arguable case that Media Focus was party to a conspiracy which went beyond the Media Focus agreement.
39.	Mr Khurshid’s argument involved separate examination of the component parts of article 6.  He submitted, first, that there was “no sufficiently close connection” between the arguable claim against Media Focus and the wider arguable claim against the appellants (i.e. the Arindal part of the claim) and, secondly, that there was “no sufficient risk of irreconcilable judgments”.  I do not criticise that approach, so long as one remembers that the court is ultimately applying a single composite test.
40.	On the hypothesis that Latmar has failed to establish a good arguable case that Media Focus was party to a conspiracy which went beyond the Media Focus agreement, the connecting factors between the Arindal advisory services agreement and the Media Focus advisory services agreement are nevertheless strong.  The connections are manifest and multiple.  The transactions proceeded simultaneously.  Both agreements purportedly related to negotiations between Latmar and Hyundai regarding the same shipbuilding contracts.  There is cogent evidence that the services purportedly to be given were never given and, indeed, were irrelevant at the time when the agreements were executed, since Latmar and Hyundai had by then entered into the amendment agreements.  There is cogent evidence that both advisory services agreements were backdated to the same date in order to give the appearance of having pre-dated the amendment agreements between Latmar and Hyundai.  There is the additional connecting factor of the draft tripartite agreement, which referred to Arindal wishing to introduce Media Focus for the purpose of carrying out the advisory services required by Latmar.
41.	The essential question is whether these connecting factors are such as to make it expedient for the claims to be heard together to avoid the risk of irreconcilable judgments.
42.	Mr Khurshid relied strongly on the decision of the ECJ in Roche Nederland BV v Primus (Case C-539/03) [2006] ECR I-6535, cited in Freeport PLC v Arnoldsson.  In Roche Nederland the question was whether article 6 was wide enough to enable the holder of a European patent to bring a single action against a number of associated companies established in different Contracting States, in respect of acts committed in any of those States by any of the companies in the group, where the actions were similar and conducted in accordance with a common group policy.  The court held that it was not so far reaching.  In his opinion the Advocate General observed that the word “irreconcilable” in article 6 meant something narrower than merely divergent.  He recognised that different patent actions against different members of the same group in different countries on different sets of facts might give rise to divergent outcomes without the decisions themselves being irreconcilable.  He said at paragraph 113 of his Opinion:
“I have difficulty imagining that a judgment could be considered to conflict with another solely because there was a simple divergence in the solution of the dispute, that is to say in the outcome of the proceedings.  For there to be a conflict between decisions, I believe that such a divergence must arise in the context of the same situation of law and fact.  It is only in that case that one can imagine there to be a conflict between decisions, since courts have reached diverging or even diametrically opposed judgments on the basis of the same situation of law and fact.”
43.	The court approved that approach at paragraph 26 of its judgment.
44.	In Freeport PLC v Arnoldsson, at paragraphs 40 - 41, the court cited Roche Nederland  but went on to observe that it is for the national court to assess whether there is a connection between the different claims involving a risk of irreconcilable judgments if the claims were determined separately and, in that regard, it is for the court to take account of “all the necessary factors in the case file”, which may, but need not necessarily, involve taking into consideration the legal bases of the actions.  This suggests that there is no single formula for determining whether the connection is such as to give rise to a risk of irreconcilable judgments if the claims were determined separately.  Whatever the precise legal bases of the claims, it is necessary for the court to examine their essence in the relevant factual context and assess whether their nature and interrelationship are such that, if tried separately, there would be a risk of essentially incompatible judgments, so as to make it expedient in the interests of justice for them to be heard together.  Whether the overlap between the claims is such as to have that effect is inevitably a fact specific question.
45.	In this case, viewed at the date of the issue of the claim form, the trial of the issues relating to the Media Focus advisory services agreement was bound to involve close examination of the Arindal advisory services agreement (which in turn involved the original Arindal agreements) because the simultaneous preparation of the advisory services agreements provided an important part of the context in which each was produced.  For the judge to try the case relating to Media Focus with the evidence about Arindal excluded would be to try it with one eye shut.  It would be unrealistic and potentially unjust.  Inevitably the judge would have to make findings about the honesty of the appellants in relation both to Media Focus and to Arindal in considering questions of the liability of themselves and other relevant parties, including Media Focus, arising from the Media Focus advisory services agreement.  If the claim in relation to Arindal had to proceed in Latvia, there would be an inherent risk of another court reaching a diametrically opposite conclusion about the appellants’ honesty in relation to Arindal.  It seems to me, therefore, that there would be a clear risk of contradictory findings if the two parts of Latmar’s claim had to be severed, such that it is expedient in the interests of justice that they should be heard together.
46.	For those reasons I agree with the judge’s conclusion that Latmar’s claim against the appellants falls within the court’s jurisdiction under article 6.
Article 23
47.	My conclusion on article 6 makes the issue about article 23 irrelevant.  It would arise for consideration only if I am wrong about article 6.  On that hypothesis, I would see difficulty in Latmar’s case that the connection between the appellants and Arindal was nevertheless such as to entitle the court to treat Arindal as their corporate personification, but it is unnecessary to discuss the matter further.
Costs
48.	The judge assessed Latmar’s costs of the appellants’ applications at £110,000, of which he ordered that £100,000 should be paid by 9 March 2012.  He ordered that the remaining £10,000 should be the claimant’s costs in the case.  
49.	There are two grounds of appeal against that order.  The first relates only to the 11th defendant, Mr Berzins.  The second relates to all three appellants.
50.	In relation to the first ground of appeal, the parties agree that the judge’s order must be substituted with a new and different order.  There were two applications before the judge.  The first was the unsuccessful jurisdictional challenge, to which all the appellants were parties.  The second was the application to set aside the judgments in default and this application was brought by Mr Linuzs and Mr Veckagans only (no judgment in default having been obtained against Mr Berzins).  The judge decided that, although the application to set aside the judgments in default had been successful, Mr Linuzs and Mr Veckagans should nonetheless pay the respondent’s costs of dealing with that application (and there is no appeal against that decision).  However, the order as drafted held Mr Berzins liable not only for the respondent’s costs of the jurisdictional challenge but also for the costs of the application to set aside the judgments in default. Although the appellants did not raise this point at the time of the hearing before the judge, it is now agreed between the parties that the a new order should be substituted holding Mr Berzins jointly and severally liable only for the costs of the jurisdictional challenge and the parties have agreed an appropriate wording to this effect.
51.	The second ground of appeal is that the sum which the appellants were ordered to pay by 9 March 2012 was manifestly excessive in view of evidence before the court about their limited means.  They were represented before the judge by leading and junior counsel.  The Commercial Court is well used to parties who claim to have very limited means but are able to afford high quality legal representation.  The judge acted properly within his discretion in making the order which he did.
52.	Subject to what I have said in paragraph 50, I would dismiss the appeal.
Lord Justice Munby:
53.	I agree.
Lord Justice Pill:
54.	I also agree.