Neutral Citation Number: [2011] EWCA Civ 544
Cases Nos: A3/2010/1075 (A), (D), (E), (F), (G), A3/2010/0075 (A), (D), (C); A3/2010/1230; A3/2010/0964

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE BEATSON 
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 11 May 2011
Before :

LORD JUSTICE STANLEY BURNTON
and
LORD JUSTICE GROSS
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BETWEEN :

	1.	MAHAN AIR
2.	BLUE SKY AVIATION CO FZE	Appellants/
Defendants	
	- and -		
	1.	BLUE SKY ONE LIMITED
2.	BLUE SKY TWO LIMITED
3.	BLUE SKY THREE LIMITED
4.	BALLI GROUP PLC
5.	CRYPTON LIMITED
6.	BLUE SKY SIX LIMITED
7.	BLUE SKY FOUR LIMITED
8.	BLUE SKY FIVE LIMITED	

Respondents	

AND BETWEEN

	1.	BLUE SKY ONE LIMITED
2.	BLUE SKY TWO LIMITED
3.	BLUE SKY THREE LIMITED	Claimants/
Respondents 	
	- and -		
	1.	BLUE AIRWAYS LLC
2.	MAHAN AIR
3.	BLUE SKY AVIATION CO. FZE	Defendants/
Appellants
	
	- and -		
	1.	BALLI GROUP PLC
2.	CRYPTON LIMITED
3.	BLUE SKY SIX LIMITED
4.	BLUE SKY FOUR LIMITED
5.	BLUE SKY FIVE LIMITED	Third Parties	

 AND BETWEEN

	PK AIRFINANCE US INC	Claimant/ Respondent	
	- and -		
	1.	BLUE SKY TWO LIMITED
2.	BLUE SKY THREE LIMITED
3.	BALLI GROUP PLC
and	Defendant/
Respondents	
	4.	MAHAN AIR
5.	BLUE SKY AVIATION CO. FZE	Defendant/ Appellants	

- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -

Hodge Malek QC and John Kimbell (instructed by Piper Smith Watton LLP) for Mahan Air, Blue Sky Aviation Co. FZE
Philip Shepherd QC and Bajul Shah (instructed by Norton Rose LLP) for Balli Group Plc, Blue Sky One Ltd, Blue Sky Two Ltd, Blue Sky Three Ltd, Blue Skey Four Ltd, Blue Sky Five Ltd, Blue Sky Six Ltd and Crypton Ltd
Stephen Moriarty QC and John Passmore (instructed by Clifford Chance LLP) for PK Air Finance US Inc.

Hearing date: 31 January 2011
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Approved Judgment

Lord Justice Stanley Burnton: 
Introduction
1.	In this judgment I refer to the parties as follows:
(1)	Balli Group Plc as “Balli”.
(2)	Blue Sky One Ltd, Blue Sky Two Ltd, Blue Sky Three Ltd as “the SPV companies”. 
(3)	Blue Sky Aviation Co. FZE as “FZE”.
(4)	Balli Group Plc, the SPV companies, Blue Sky Four Ltd, Blue Sky Five Ltd and Blue Sky Six Ltd  as “the Balli Parties”.
(5)	PK Airfinance US Inc as “PK”.
(6)	Mahan Air as “Mahan”.
(7)	Mahan and FZE, which is owned by Mahan, as “the Mahan Parties”.
2.	On 31 January 2011 we had before us a number of applications resulting from the orders made by Beatson J following two trials of the claims between the parties to these proceedings. The applications included renewed and original applications for permission to appeal, and interlocutory applications made in connection with pending appeals. Because the Mahan Parties had, in our view, insufficient time to respond to relatively late evidence, we gave directions for them to submit any further evidence and submissions in writing, and for responses to them, and reserved our judgment on applications by PK and the Balli Parties for security for costs of the appeals and for conditions to be imposed on the Mahan Parties’ appeals, pursuant to CPR 52.9(1).  The outstanding applications that are the subject of this judgment are concerned with the Mahan Parties’ means and their ability or willingness to satisfy the judgments against them.
The background
3.	Mahan is an Iranian airline. According to the witness statement of Reza Namakshenas dated 20 February 2011, the deputy managing director - finance of Mahan, 60 per cent of the shares in the company are held by Mahan Group Aviation Services Holding Company (“MAGASH”), on trust for Mow-lal-Movahhedin Charity Institute (“the Institute”), an Iranian entity; the remaining 40 per cent are held directly by the Institute. 
4.	The principals of Balli are Iranian expatriates. In 2006 Mahan and Balli entered into a connected and complex series of transactions (comprising 18 written agreements) the object of which was for Mahan to be able to have the use of 3 Boeing 747-400 aircraft that were to be acquired. For this purpose, they had to circumvent US sanctions. It is unnecessary in this judgment to describe the contracts in detail. In summary, Mahan borrowed the capital cost, and on-lent it to Balli, which was then able to and did cause each of the aircraft to be acquired by one of the SPV companies, which are ultimately controlled by Balli. The Balli Parties then leased the aircraft to an Armenian company, Blue Airways LLC (“BAW”), which chartered them to Mahan. Mahan was granted an option to acquire the shares of the SPV companies, subject to certain conditions, including a condition precluding its exercise if it would violate applicable laws or administrative proceedings. None of these aircraft was then registered in Iran, although all three in due course were, based there. These three aircraft, which were operated by BAW for Mahan from Iran, are referred to as “the Package 1 aircraft”. Two of those aircraft, referred to as aircraft 2 and 3, were mortgaged by the Balli Parties to PK, which was unaware of the transaction between Balli and Mahan, with the agreement of Mahan (as found by the judge) as security for a loan to be made to the Balli Parties of US$150 million to enable Balli to purchase 3 Package 2 aircraft. Mahan and FZE paid some US$57.8 million to the Balli Parties, which according to paragraph 291 of the Phase One judgment related to the purchase of those aircraft; but that purchase never took place.
5.	In September 2007, Hassan Alaghband, then a director of the claimant SPV companies, signed three blank bills of sale, one for each aircraft. The bills of sale were given to Mr Tahmaseb Mazaheri, at that time Governor of the Central Bank of Iran, for safekeeping pursuant to the terms of an agreement dated 31 August 2007 (the “SLA”). Subsequently Mr Mazaheri handed the bills of sale to Mahan which filled in the blanks and purported to transfer title in the aircraft to FZE. The aircraft, which had been registered in Armenia, were deregistered from the Armenian aviation registry and registered by Mahan on the Iranian register. 
6.	The network of contracts did not involve any illegality under English or UK law. However, it fell apart when the US Government discovered that its sanctions had been breached, and took action to enforce them. Hence the disputes between the parties and their rival claims. In essence, because under the network of contracts Mahan was not to acquire ownership (presumably because to do so would cause difficulties under US sanctions), as Beatson J ultimately held, it found itself with no legal right to possession of the Package 1 aircraft.
7.	The first trial, referred to as Phase 1, culminated in the judgment handed down by Beatson J on 21 December 2009. The principal issue before him was whether, as the Mahan Parties claimed, the leases to BAW were shams, intended to disguise their acquisition and beneficial ownership of the aircraft. The judge rejected this claim, and held that the various contracts were intended to be and were binding in accordance with their terms. 
8.	The judge held that Mr Mazaheri’s execution of the bills of sale had not been effective to transfer title to FZE. He held that the SPV companies owned the Package 1 aircraft beneficially, subject to the PK mortgages; that the option agreement had been discharged; and that Mahan and FZE, which remained in possession of the aircraft, had wrongfully interfered with them, for which the appropriate remedy was an order under section 3(2)(b) of the Torts (Interference with Goods) Act 1977 for delivery up of the aircraft, but with the Mahan Parties having the option of paying damages by reference to their value. He also ordered the Mahan Parties to deliver up the bills of sale to the SPV companies.
9.	The judge ordered the Mahan Parties to pay the costs of the Balli Parties, on some issues on an indemnity basis, with an interim payment of £750,000 to be made by 18 January 2010; and he ordered the Mahan Parties to pay the costs of PK.
10.	Questions of quantum, including the issue as to the value of the aircraft, were left to the Phase 2 trial. The Mahan Parties were held to be entitled to recover the sum of US$57.8 million, subject to any set off available to the Balli Parties, such set off to be determined in the Phase 2 trial.
11.	Beatson J ordered the Mahan Parties to ground the Package 1 aircraft numbered 1 and 3 in Schiphol Airport, to protect the interests of the Balli Parties and PK, from 31 December 2009. On 30 December 2009, the Mahan Parties applied to discharge the grounding order. Hickinbottom J adjourned their application to be heard by Beatson J and in the meantime extended the Mahan Parties’ time for compliance to 18 January. On 12 January 2010 Beatson J heard the application. It was refused. At that time, Mahan’s position was that it would in due course pay the value of the aircraft as determined in the Phase 2 trial: see paragraph 7 of Beatson J’s judgment [2010] EWHC 33 (QB). 
12.	The Mahan Parties failed to fly the aircraft to Schiphol by 18 January 2010, and they failed to deliver up the bills of sale. In consequence, contempt proceedings were brought by the Balli Parties, supported by PK. The Mahan Parties’ evidence was that the aircraft had been in the air over Turkey en route to Schiphol on 20 January when they were ordered to return to Iran by the Iranian Civil Aviation Authority. Beatson J held that the Mahan Parties were in contempt of court, having failed to take proper and timely steps to comply with the court’s order. 
13.	The Phase 2 trial culminated in a judgment handed down on 25 March 2010. Beatson J made the following principal orders:
(1)	He declared that the mortgage of aircraft 2 to PK was valid.
(2)	He ordered the Mahan Parties to deliver up aircraft 1 to Blue Sky One by 22 April 2010; if they failed to do so (and they have not done so), they were ordered to pay to Blue Sky One about $35.5 million plus interest, plus user damages of US$795,000 per month from October 2008. 
(3)	He ordered the Mahan Parties to deliver up aircraft 2 to PK as mortgagee by 22 April 2010. If they failed to do so, they were to pay damages of some US$35 million, plus interest, plus user damages, apportioned between PK as mortgagee and Blue Sky Two as owner.
(4)	He declared that the mortgage of aircraft 3 to PK to be valid as between PK and the Balli Parties, but not as against the Mahan Parties.
(5)	He ordered the Mahan Parties to deliver up aircraft 3 to PK as mortgagee by 22 April 2010. If they failed to do so, they were to pay damages of some US$43.6 million, plus interest, plus user damages, apportioned between PK as mortgagee and Blue Sky Three as owner.
(6)	He dismissed the Blue Sky companies’ claims for consequential damages and the counterclaim of the Balli Parties (which for this purpose included claims by other Blue Sky SPVs).
(7)	He declared that Balli and Crypton were entitled to set off specified claims against the Mahan Parties’ counterclaim of some US$58 million, but he stayed their counterclaim on account of their contempt of court, and held that they could apply to lift that stay only if they delivered aircraft 1, 2 and 3 in accordance with his order and paid the sums ordered to be paid by them and explained why they had not complied with the grounding orders before the aircraft were grounded by the Iranian CAA and had not since been able to obtain their release.
(8)	He ordered the Mahan Parties to pay 90 per cent of the Balli Parties’ costs of the trial, with a payment on account of some £290,000, and 85 per cent of PK’s costs of the trial, with a payment on account of some £350,000, and the Balli Parties’ and PK’s costs of the contempt application on an indemnity basis.
14.	On 4 May 2010 Beatson J made further orders, in particular quantifying the set offs of Balli and Crypton referred to at paragraph 13(7) above at a total of some US$55 million.
The pending appeals
15.	The Mahan Parties have appealed against:
(1)	Beatson J’s finding that the Balli Parties owe them only US$57.8 million.
(2)	His assessment of damages for conversion of the aircraft.
(3)	His finding that Crypton was entitled to any set off against their counterclaim.
(4)	His finding that the Option Agreement had ceased to exist.
(5)	The order referred to at paragraph 14 above.
16.	PK has appealed against the decisions of the judge as to the law applicable to the purported transfer of aircraft 2. It takes issue with the judge’s decision that the applicable law was Iranian law as the lex situs, contending that the applicable law is the law of the place of registration of the aircraft, and they also take issue with his conclusion that, if that was the applicable law, when looking to the law of the situs, English law applies only the domestic law of that country, regardless of its private international law rules, because the principle of renvoi does not apply,.
The present applications
17.	The Mahan Parties have not satisfied the financial orders made by Beatson J (other than as to payment on account of costs) and have returned neither any of the aircraft nor the bills of sale. They seek a stay of the financial judgment orders against them pending appeal. A stay was granted by Etherton LJ until the hearing before us. We did not continue it, but have now to decide whether there should be a stay until the determination of their appeals.
18.	The Balli Parties seek an order, pursuant to CPR 52.9(1)(c), that unless the Mahan Parties pay the sum of US$31,242,912 into Court, the grounds of appeal on which the Mahan Parties have been given permission as against them be struck out.
19.	PK seeks an order, pursuant to CPR 52.9(1)(c), that unless the Mahan Parties pay the sum of US$34,947,551 plus interest into Court, the grounds of appeal on which the Mahan Parties have been given permission as against PK be struck out.
20.	Both the Balli Parties and PK apply for orders that the Mahan Parties provide security for their costs of the Mahan Parties’ appeals.
21.	These applications by the Balli Parties and PK were issued and served only shortly before the hearing before us. We considered that the Mahan Parties may well not have been able fairly to respond to those applications. For these reasons, we directed the parties to serve evidence and submissions in writing, which the Court could consider and take into account when deciding on the orders to be made on the Balli Parties’ and PK’s applications. We have duly considered that evidence and those submissions. 
The contentions of the parties 
22.	The Mahan Parties submit that they have an arguable appeal that the damages payable by them for the conversion of the Package 1 aircraft are less than the substantial damages ordered to be paid by Beatson J. According to their skeleton argument dated 24 January 2011, if they succeed on this issue, they would wish to pay those damages and thereby to acquire title to the aircraft and to operate them. The Mahan Parties point out that they have paid all of the interim orders for the payment of costs, totalling over £1.3 million.
23.	Furthermore, the Mahan Parties say they have been and are prevented from complying with the order for the return of the aircraft by an Iranian Court Order dated 18 January 2010 arising from a criminal complaint made by the Export Development Bank of Iran (“EDBI”), which alleged that they had advanced moneys on the security of the bills of sale which have been held to have been wrongfully and ineffectively executed by Mahan.
24.	The Mahan Parties say:
(1)	They lack the means to comply with any substantial condition imposed pursuant to CPR 52.9(1)(c), or to provide more than (unquantified) “limited funds” as security for costs. Any substantial order made on the Balli Parties’ and PK’s applications would stifle their appeals, for which permission has been granted, would be wrong as a matter of domestic law and would infringe their rights under Article 6. 
(2)	The amounts of security for costs sought are excessive and disproportionate. In addition, they relate in part to costs already incurred.
(3)	The orders sought under CPR 52.9(1)(c) may be made only if there is “a compelling reason to do so”. That there is no such reason. Furthermore, the applications were not made promptly, and are no more than tactical manoeuvres designed to prevent the appeals being heard. As such, they are an abuse of the process.
25.	The Balli Parties:
(1)	Dispute Mahan’s evidence of its financial straits. They say that it is inconsistent with Mahan’s acquisition of 7 additional aircraft after the Phase 2 trial, with the assistance of external funding, and with its claim, made in a press announcement in January 2011, that it had added new domestic and international routes to its network, and that its turnover and passenger numbers had increased. 
(2)	Assert that the Mahan Parties have failed to make full and frank disclosure of their financial position.
(3)	Assert that Mahan’s reliance on its dispute with EDBI causing its inability to deliver up the aircraft apparently grounded in Teheran is difficult to reconcile with the fact that there is no evidence that EDBI has commenced proceedings in Iran for the repayment of the moneys due to it. 
(4)	Point out that there is no evidence of any attempt by the Mahan Parties to raise any moneys from its shareholders or the joint board members referred to in its accounts. 
(5)	Contend that their estimates of their costs of responding to the Mahan Parties’ appeals are reasonable, and submit that security for costs may and should be ordered in respect of costs already incurred as well as those to be incurred.
26.	PK criticises the Mahan Parties’ financial evidence. Some of its criticisms are reflected below. It says that the Mahan Parties are indebted to it in an amount of some US$70 million that is unaffected by their appeal. 
Discussion
27.	The controversies before the Court extend to the nature of the Institute; and there is, it seems to me, some doubt as to the Mahan Parties’ evidence as to their shareholders. Note 37 to Mahan’s 2010 accounts is headed “Post Balance Sheet Events”. It lists a number of entities, and sets out their relationship with Mahan and summarises their transactions with it. In addition to the Institute, Botiya Mahan Co. and Kerman Province Development Investment Company are described as shareholders. This is inconsistent with Mr Namakshenas’ description of the shareholdings in Mahan, although consistent with the evidence of Mr Arabnejad in cross-examination before Beatson J, when he said that the charity owned 96 per cent of Mahan’s shares, with the remaining 4 per cent held by other companies. MAGASH, Botiya Mahan Co. and other companies, such as Saman Air Services Company and Fajr Ashiyan Company, are described as joint board members. The same companies and the same descriptions were set out under note 35 to Mahan’s 2009 accounts.
28.	The Institute is said by the Balli Parties not to be a charity as that term would be understood in this country, but a credit institution, a kind of bank. It does appear from the 2009 accounts of Mahan that the Institute was a substantial debtor of Mahan, as also is MAGASH, and the 2010 accounts do not suggest that this has changed. These accounts suggest that there were trading transactions between them. An article in the magazine Airways by Ken Donoghue, the information for which must have largely come from Mahan itself, stated that Mahan was owned by “Mol-Al Movahedin Credit Cooperative (96%)”. Beatson J, in paragraph 1 of his Phase 1 judgment, said, “Mahan, Iran’s first private airline, is owned by the Mol-Al-Movahedin Credit Union”, in terms that suggest that this was uncontroversial. If his statement had been the result of an unfounded assumption, I would have expected Mahan to have sought to correct it before the judgment, which would have been distributed in draft, was handed down. Mahan Air’s entry in Wikipedia, which it must have seen and could have corrected, states that its parent company is Mov-Al-Movhedin Credit Union. However, in a letter dated 2 March 2011, Mr Insley states that the Balli Parties have confused the charity that is the shareholder of Mahan with a different entity, the Mol-al-Movahedin Finance & Credit Institution. If that is so, it follows that Beatson J and Mr Donoghue and the authors of the Wikipedia entry have all made the same mistake, uncorrected by Mahan. I find this surprising, but I cannot resolve this issue on the material before me. But whatever the shareholder is, there is no sensible evidence as to its financial position or means. I find it curious that a charity the function of which is “primarily educational and to help the poor” should have as its main asset (according to Mr Namakshenas) a 96 per cent shareholding in a private airline. According to Mr Arabnejad’s evidence to Beatson J, it provided security to Bank Melli for a loan of US$140 million made to Mahan, as referred to at paragraph 71 of the Phase 1 judgment. It is difficult to reconcile this with the evidence that its main asset is its shareholding in Mahan.
29.	In his seventh witness statement, dated 30 December 2009, Mr Insley, the solicitor for the Mahan Parties, said, at paragraph 42:
“… it was suggested in the course of oral submissions that Mahan does not have sufficient means to pay the sum which is likely to be assessed in Phase II. …. Putting aside … Mahan/FZE’s submission in Phase II will be that the assessed sum should be nominal, Mahan does in fact have the means to pay.”
30.	In the letter of 11 January 2010 from Mr Arabnejad, the managing director of Mahan Air addressed to Beatson J, it was stated that “settling the remaining amount of the loan [from EDBI] … is not possible easily”. Mr Arabnejad did not say that it was impossible. In his 7th witness statement dated 28 April 2010, Mr Moattar referred to the negotiations which, according to the Mahan Parties, they were conducting with EDBI to secure the release of the 3 Package 1 aircraft. He said:
“… EDBI have declared that they are willing to drop the complaint against Mahan, if the outstanding sums were settled or alternative security offered. … Mahan is willing in principle to meet EDBI’s demands for alternative security for the loan, and thereby create the possibility of an application by EDBI to set aside the Court Order in the near future to releasing (sic) the Aircraft. All that is needed is some more time (I estimate 28 days from today) to finalise the details and then some time for EDBI to apply to the Court to have the recall Order removed. …. The CAO has declared that it is happy to comply with whatever is agreed and will allow the Aircraft to leave once the current Order is set aside.”
31.	Similarly, in his 13th witness statement dated 7 May 2010, Mr Insley, the solicitor for the Mahan Parties, stated:
“There is good evidence to suggest that the talks between the Mahan Parties and the EDBI are close to resolution and the Iranian Court Order can be lifted.”
Despite these assurances, it appears that the Iranian Court Order has not been lifted. There is a lack of documentary evidence of the negotiations between Mahan and EDBI. None of the aircraft has been released; none has been flown to Schiphol as ordered by the judge; none has been delivered up to PK (or to the Balli Parties).
32.	In his 4th witness statement of 7 February 2010, Mr Moattar on behalf of the Mahan Parties said that Mahan did not have the (sc any) funds to pay into an escrow account and was unable to put up any other form of security. Yet in his 13th witness statement dated 7 May 2010, Mr Insley stated:
“The payment of approximately US$140,000,000 by way of damages would place a severe strain on Mahan Air finances, particularly as they are not able to use the Aircraft to generate revenue in the meantime.”
This is very different from Mahan being unable to make that payment. Similarly, although as I understand it the Mahan Parties’ present position is that they wish to pay damages for conversion of the aircraft if they are substantially less than their value (see their skeleton argument dated 24 January 2011 at paragraphs 109 and 110), in their solicitors’ letter dated 20 April 2010 it was stated that they had “decided to return them (subject to any question of appeal against the Phase 1 and 2 judgments)”. 
33.	In his judgment of 28 April 2010, Beatson J, when refusing to grant an extension of time for the redelivery of the aircraft, said:
“8. From 21st December 2009 when the Phase 1 judgment was handed down, the Mahan parties have consistently stated they would elect to keep the aircraft and pay damages in lieu of delivery up. The Phase 2 judgment made findings as to the value of the aircraft, by reference to which the Mahan defendants would have to pay damages if they did not return the aircraft. And when handing down the judgment, I gave the Mahan parties an extra seven days inter alia because leading counsel said that due to the Iranian new year the Mahan parties needed the extra time. Given their stance, I surmised that this was in order to get the money. There was a reference at the hearing as to whether banks were open or not.”
34.	Most recently, the evidence of Mahan is that it cannot repay the EDBI loans to obtain possession of the aircraft, and cannot pay the damages ordered to be paid by the judge or offer security. It points out that the loans to the Balli Parties have not been repaid, that they, Mahan, remain unable to operate the aircraft. In his 8th witness statement dated 17 January 2011, Mr Moattar said:
22. It is impossible for Mahan at present to offer alternative cash security or pay the damages ordered by the Court to be paid (subject to appeal). The loans to the Balli owned companies involved have also not been repaid despite the services of loan termination notices in September 2010. It would appear that the Balli companies are seeking to retain an award of damages amounting to the full market value of the Aircraft but without repaying the loans.
23. Given the situation with the non-operation of the Aircraft and the non-payment of the loans made to the Balli companies, it is not possible at this time for Mahan to pay back the EDBI loans.
…
25.   ….
(6) Due to the matters set out above Mahan is unable to pay the substantial damages under appeal. Any costs orders which have been assessed and interim payment orders on account of costs have been paid. In particular the Mahan parties have paid £1,039,426.20 on account of the Balli parties’ costs and £349,421.67 on account of PK’s costs.
35.	The accounts of Mahan Air to March 2009 exhibited to Mr Moattar’s 4th witness statement are heavily qualified by the notes to those financial statements. They show considerable transactions with related parties. According to the accounts Mahan Group Company hold 60 per cent of the shares. These accounts were the subject of the cross-examination of Mr Moattar before the judge. Mr Moattar insisted that the financial position of Mahan was very different from the poor situation shown in the accounts. 
36.	The most recent evidence of the financial position of the Mahan Parties is the witness statement of Reza Namakshenas, dated 20 February 2011, to which Mr Insley refers in his 17th witness statement. Mr Namakshenas exhibits audited accounts of Mahan for the year ended 20 March 2010, which purport to show a deteriorating financial position. Some of the figures in those accounts have been redacted in the exhibited copy. It is suggested by the Mahan Parties that the Court could see the unredacted accounts. The circumstances in which the Court should take into account evidence adduced by one party to litigation such as the present that has not been seen by the other parties, without the consent of the other parties, must be highly exceptional, if indeed they could exist. I think it would be highly inappropriate for the Court to consider entries in those accounts that have not been made available to the Balli Parties and PK. The auditors’ report on the 2010 accounts states, at paragraph 8:
“Contrary to the accounting standards, some of the transactions during the year between the Company and the related parties have not been properly disclosed in the financial statements.”
Clearly, this qualifies the reliability of those statements.
37.	We have no good evidence from Mahan as to its financial position since March 2010, apart from the unsupported figures in paragraph 13 of Mr Namakshenas’ witness statement.
38.	It is a truism that, in principle, the power to require security for the costs of an appeal, and even more the power to impose financial conditions on an appeal, should not be used to stifle a meritorious appeal. However, an appellant who urges the Court to conclude that its appeal will be stifled if any such conditions are imposed must put before the Court full and frank evidence as to its means. I reject the Mahan Parties’ submission that the requirement for such evidence is incompatible with their Article 6 rights. A party seeking to establish its impecuniosity is in the best position to prove its financial position. To require a party to litigation to prove that an opposing party has financial means would be to impose an unreasonable and unfair burden on the first party. 
39.	I am not satisfied that the Mahan Parties have provided the Court and the Balli Parties and PK with the frank and full evidence required to demonstrate that it will suffer any injustice if their pursuit of their appeals is made subject to conditions. To the contrary, their evidence as to their financial position seems to vary with their forensic tactics. They have managed to pay substantial sums by way of costs to date, the source of which is unclear. I am not satisfied that their appeal would be stifled if a substantial order is made for security for costs, in the amounts  which, as will appear below, I consider to be appropriate, or if they were to be required to give security as a condition for the pursuit of their appeals.
40.	The Mahan Parties have been found guilty of contempt of Court, and remain in contempt. They have been debarred from pursuing their Counterclaim until they have purged their contempt, and they have not sought to appeal against the contempt orders made against them. Furthermore, I do not think it realistic to believe that any judgment of the Court can be enforced against them in Iran, for the reasons given by PK and the Balli Parties. There is no evidence of any UK judgment having been enforced in Iran, and there is no evidence that the Mahan Parties have any assets in any other jurisdiction. I bear in mind that the Mahan Parties have paid the quantified costs orders against them. However, they have paid nothing on account of the substantive financial orders made by the Judge, even though in relation to the sum ordered to be paid to PK some $70 million is not the subject of any appeal or application for permission to appeal.
41.	I would reject the Mahan Parties’ contention that the Balli Parties’ and PK’s applications for security and the imposition of a condition pursuant to CPR 52.9(1) are an abuse of the process. Their applications, whether or not well-founded, are measures a party is entitled to take under the CPR in order to better its forensic position.
42.	In these circumstances, I do think that orders for security for the costs of the Mahan Parties’ appeals are appropriate. 
43.	So far as quantum is concerned, I would reject the Mahan Parties’ contention that security cannot be ordered for costs incurred before the date of the application. Security is regularly ordered in respect of such costs. PK estimates its costs of responding to the Mahan Parties’ appeal on the nominal versus substantial damages issue at £100,000, i.e., one third of their estimated costs of the appeals. In my judgment, this is a reasonable estimate.
44.	The Balli Parties estimate that the issues on which they are respondents to the Mahan Parties’ appeal will take 3 days to hear, and on that basis they estimate their costs of responding to those issues at £337,000. The Mahan Parties contend that £100,000 is a more proportionate, and sufficient, sum. I consider that £100,000 is an inadequate estimate; the Balli Parties’ costs are likely to be closer to £300,000.
45.	I would make the following orders for security:
(1)	The Mahan Parties’ appeal against the orders made by the judge in favour of PK will be stayed unless within 21 days they pay into Court (or into an account in solicitors’ names on terms agreed in writing between their solicitors) the sum of £100,000 a security for PK’s costs.
(2)	The Mahan Parties’ appeals against the orders made by the judge in favour of the Balli Parties will be stayed unless within 21 days they pay into Court (or into an account in solicitors’ names on terms agreed in writing between their solicitors) the sum of £250,000 as security for the Balli Parties’ costs.
46.	PK was unaware of the arrangements made between the Mahan Parties and the Balli Parties in order to circumvent US sanctions, and therefore of the risks they involved. About US$70 million of its judgment against them is not the subject of their appeal. In the circumstances to which I have referred, including the Mahan Parties’ continuing failure to comply with the orders for the delivery up of the aircraft and bills of sale, I do think that there is a compelling reason to impose a condition that must be complied with if they are to pursue their appeal. That condition is that they pay into Court (or into an account in solicitors’ names on terms agreed in writing between their solicitors) the sum of US$45 million, this being the capital sum of US$34,947,551 being the user damages payable under the order of Beatson J of 25 March 2010 together with sum on account of further user damages and interest on that sum.
47.	The Mahan Parties accept that there is no risk of dissipation of any sum paid under Beatson J’s orders to PK in the event that their appeals are successful. If an order for repayment is made following a successful appeal, they assert that PK would not make payment without the approval of the US Government. I do not think that there is a real risk of PK not complying with an order of this Court, in the event of its recovering  the sums due to be paid under the judge’s orders. I would therefore refuse to grant the Mahan Parties a stay of execution in relation to the sums payable to PK, provided PK undertakes to pay any moneys recovered by it into a bank account in this country and to retain them in that account pending the determination of the appeals. This undertaking will be limited to moneys to which PK’s entitlement is in issue in the Mahan Parties’ appeal, and is not to apply to sums to which PK’s right is not in issue.
48.	In circumstances in which the Mahan Parties remain in contempt, and the evidence of their efforts to purge their contempt is unsatisfactory, there is also a compelling reason to impose such a condition in relation to the Mahan Parties’ appeal against the orders made against them in favour of the Balli Parties. In this case, however, I would impose a lesser condition, requiring the Mahan Parties to pay into Court or into a joint bank account the sum of US$10 million. The Balli Parties include SPVs of doubtful credit. In addition, PK has appointed receivers over Blue Sky Two and Blue Sky Three. In these circumstances, I would grant a stay of execution of those orders made by the judge requiring sums by way of damages to be paid to the Balli Parties by the Mahan Parties or any of them. I would reconsider the stay if the Balli Parties were to offer suitable security for repayment in the event of the Mahan Parties succeeding in their appeal.
49.	As should be evident, the evidence before the Court does not satisfy me that there is a real risk of the Mahan Parties’ appeals being stifled if the orders I consider appropriate are made.
In conclusion
50.	I would expect those acting for the parties to be able to draft an order of the Court. Any sums to be paid pursuant to that order should be payable within 28 days.
51.	PK has made submissions on the costs orders to be made by us. The Balli Parties and the Mahan Parties have not done so. I would direct the parties to exchange written submissions on those costs orders within 14 days.
Lord Justice Gross:
52.	I agree.