In a recent judgment(1) the Court of Appeal found compelling reasons to require the defendant company – which had unsuccessfully defended a claim by the claimant bank relating to foreign exchange and equities trading – to pay the judgment sum and other amounts into court as a condition of its pursuit of an application for permission to appeal and, if successful, an appeal. The case serves as a reminder of the issues that the court will consider when determining whether to impose conditions on a party before considering an application for permission to appeal a first-instance decision.
Permission to appeal and the imposition of conditions on such permission
A party always needs permission to appeal the decision of a county court or High Court judge, (except in limited circumstances set out in Civil Procedure Rule 52.3(1)(a)).
Civil Procedure Rule 52.9(1) provides that the appeal court may:
- strike out the whole or part of an appeal notice;
- set aside permission to appeal in whole or in part; or
- impose or vary conditions on which an appeal may be brought.
Civil Procedure Rule 52.9(2) provides that the court will exercise its powers under Paragraph (1) only where there is a “compelling reason” to do so.
In respect of the imposition of conditions, the courts have imposed the following specific conditions (among others) on applications for permission to appeal:
- settlement of outstanding costs;
- security for the respondent’s costs; and
- payment of a judgment debt.
By way of example of the imposition of conditions on permission to appeal, in Cruz City 1 Mauritius Holdings v Unitech Limited(2) the Court of Appeal made prosecution of the appellants’ appeal conditional on the payment into court, within 28 days, of sums owing in respect of two arbitration awards. The appellants owed the respondent in excess of $300 million (together with interest and costs). They had sufficient funds to pay the awards, but had evidenced no intention of doing so and were making every effort to avoid enforcement of the judgment against their assets.
Similarly, in Day’s Medical Aids Limited v Pihsiang Machinery Manufacturing Co Limited,(3)notwithstanding that there was no stay of execution pending the defendant’s appeal, the defendant (a Taiwanese company) had failed to comply with the judgment. The Court of Appeal made it a condition of permission to appeal that the defendant pay to the claimant the judgment sum (together with interest and costs). The claimant relied on the facts that:
- the defendant was in deliberate breach of the order;
- the application for a stay of execution pending appeal had been refused; and
- the defendant’s failure to pay was not as a consequence of any impecuniosity.
Further, there was evidence of potential difficulties facing the claimant in enforcement of the judgment in Taiwan. In the circumstances, the court imposed conditions.
First-instance decision
Over the course of a 45-day trial, in an action commenced by Deutsche Bank to recover $243 million, Sebastian Holdings sought to argue in the High Court by way of counterclaim that Deutsche Bank had breached various oral agreements and implied terms relating to Sebastian Holdings’ foreign exchange and equities trading conducted through Deutsche Bank pursuant to a series of prime brokerage agreements. Sebastian Holdings alleged, among other matters, that wrongful margin calls made by Deutsche Bank at the time of the financial crisis in October 2008 had forced it to close out positions at significant losses and incur significant lost profits. Sebastian Holdings’ counterclaim was put at $8 billion. Its trading was conducted by Alexander Vik, its sole shareholder and director, and its agent, Klaus Said. The court found Vik to be “a man of considerable means (a multi-billionaire) with recognised business acumen and money-making skills”.
Notwithstanding Sebastian Holdings’ claims, the trial judge found that on and after October 13 2008, when Vik had a clear indication that Sebastian Holdings’ trading liabilities stood at many hundreds of millions of dollars, he had caused $896 million of funds and assets to be transferred from Sebastian Holdings to either himself or companies closely associated with him or his family. The judge found that Vik procured those transfers for no genuine commercial reason and that he did so with a view to depleting Sebastian Holdings’ assets and making it more difficult for Deutsche Bank to recover the amounts owed to it.
Accordingly, the court ruled in favour of Deutsche Bank and dismissed Sebastian Holdings’ counterclaim. Sebastian Holdings was ultimately ordered to pay $243 million to Deutsche Bank, together with indemnity costs amounting to 85% of the £60 million legal bill incurred by Deutsche Bank, in the course of the battle between the parties.
Court of Appeal approach to request for permission to appeal
The application before the Court of Appeal was Deutsche Bank’s application for an order imposing conditions on the ability of Sebastian Holdings to pursue its application for permission to appeal and, if successful, its appeal. Three conditions were sought:
- payment into court of the judgment sum of approximately $243 million, together with accrued interest;
- payment into court of the interim payment ordered on account of costs – approximately £34.5 million – together with accrued interest; and
- Payment into court of £1,887,000 as security for Deutsche Bank’s costs of Sebastian Holdings’ proposed appeal.
In Hammond Suddards v Agrichem(4) the Court of Appeal listed a number of features of that case, which it considered justified making an order that a condition be imposed on the application for permission to appeal. These factors were as follows:
- Is the appellant an entity against which it will be difficult to exercise the normal mechanisms of enforcement?
- Does the appellant plainly have either the resources or access to resources which enable it to instruct solicitors and counsel to prosecute its appeal, apply to the court for a stay of execution or provide a substantial sum by way of security for costs?
- Is there any convincing evidence that the appellant has neither the resources nor access to resources which would enable it to pay the judgment debt and costs as ordered and it has failed to do so?
- Is the appellant’s disclosure of its financial affairs inadequate and does this give the court no confidence that it has been shown the truth?
- Will the appeal be stifled if conditions are imposed?
- At the time of intending to prosecute the appeal, is the appellant continuing to disobey court orders to pay the judgment debt and costs?
While this list is not exhaustive, and each category need not be satisfied before an order will be made, it gave the Court of Appeal in Sebastian Holdings an indication of the kind of matters which it should take into account in such cases. The Court of Appeal noted that if the criteria were met, it would still need to consider whether it should exercise its discretion to make the order.
In submissions made to the court on behalf of Sebastian Holdings, it was suggested that there were two material differences between the present case and Hammond Suddards. First, it was submitted that there was no evidence to suggest that the position of Deutsche Bank would materially deteriorate between the Court of Appeal’s consideration of this application and the hearing of the application for permission to appeal and, if appropriate, the appeal. The emphasis should be on what Sebastian Holdings might do in the interim to frustrate enforcement. Second, it was submitted that the court could be satisfied by Vik’s evidence that, if a condition were imposed, the application for permission to appeal and, if appropriate, the appeal would be stifled because Sebastian Holdings had no funds and it was clear that Vik would not provide funds to satisfy any condition imposed by the court.
Sebastian Holdings drew to the court’s attention the fact that all of the case law on the subject indicated that it was inappropriate to use the power to impose conditions on an appeal simply as a means of securing enforcement of the judgment debt.
Further, Sebastian Holdings pointed out that Vik gave no guarantee for the liabilities of Sebastian Holdings to Deutsche Bank. However, the Court of Appeal was shown no evidence to suggest that Vik was not still the sole owner and director of Sebastian Holdings, as he was in 2008. Given the trial judge’s findings as to the manner in which Vik treated Sebastian Holdings and its assets as his own, the court found it difficult to think that there could be a more appropriate case in which to take into account that Vik could, if minded to do so, pay the judgment debt himself. However, the court did not consider it necessary to apply that reasoning, as it had already reached the conclusion that Sebastian Holdings could itself pay the judgment debt into court if Vik chose to procure it to do so.
Sebastian Holdings submitted that on an application such as this, the emphasis should be on what may happen in the future, rather than on what happened in the past. However, the court rejected this as unsupported by authority.
The court also rejected Sebastian Holdings’ submission that the evidence demonstrated that the imposition of a condition would stifle the appeal. That argument was found to be “totally without merit”. Sebastian Holdings was held to have rendered itself judgment-proof by transferring its assets into hands and places where enforcement may be difficult or even impossible. Therefore, It could not rely on its own conduct as stifling the appeal. Further, the court took the view that the owner of Sebastian Holdings had a choice: if it were in the interests of Sebastian Holdings for the application for permission to appeal and, if appropriate, the appeal, to continue, he had to procure the payment into court of the judgment debt. If he did, the application (and, if appropriate, the appeal) would proceed. If he did not, the application for permission to appeal would be struck out.
Accordingly, having considered the issues set out in Hammond Suddard and the submissions made on behalf of Sebastian Holdings as to why the present case differed materially from Hammond Suddard, the court ruled that conditions should be imposed on the application for permission to appeal. Sebastian Holdings was therefore ordered to pay into court, within 28 days, the judgment sum of $243 million and interest, failing which the application for permission to appeal would be struck out.
In addition, the court found that this was in principle a case in which it was appropriate to require Sebastian Holdings to give security for Deutsche Bank’s costs of the application and appeal. Accordingly, Sebastian Holdings was ordered to pay £1.7 million as security for costs.
Comment
The case demonstrates that parties which are not prepared to comply with court orders, unwilling to be transparent about the movement of their assets and intent on putting obstacles in the path of enforcement are likely to find conditions being imposed if they wish to proceed through the appeals process.
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(1) Sebastian Holdings Inc v Deutsche Bank AG [2014] EWCA Civ 1100.
(2) [2013] EWCA Civ 1512.
(3) [2004] EWCA Civ 993.
(4) [2001] EWCA Civ 2065.
Original reporting by The International Law Office 12/8/14