England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Stephen Hofmeyr QC
2010 Folio 445

		Royal Courts of Justice Strand, London, WC2A 2LL
		7 July 2016

Lord Justice Christopher Clarke :

1. Merchant International Company Limited ("MIC"), the respondent, applies for an order that a condition be imposed on the permission to appeal granted by Lewison LJ on 22 September 2015 to Natsionalna Aktsionerna Kompaniia Naftogaz ("Naftogaz"). The condition sought is that Naftogaz should provide security for (a) the full amount of the unpaid judgment debt plus interest down to the date fixed for the hearing of the appeal; (b) historic unpaid costs; and (c) estimated costs of the appeal, amounting in total to $ 28,500,000. Alternatively MIC seeks an order that Naftogaz provide security for MIC's costs of the appeal estimated at £ 210,000. It is not in dispute that the conditions under which an order for security for costs may be made are met.

History

2. This case has a long history. On 28 February 2011 judgment ("the 2011 judgment") was entered against Naftogaz in default of defence for $ 24,719,564.70. The claim was to enforce the judgment of a Ukrainian court against Naftogaz as the legal successor of Ukrgazprom, dated 29 June 2006 ("the 2006 judgment") based on a commercial debt that fell due on 1 August 1999. MIC was claiming as an assignee of a Russian company called Severstudstroy. It was not suggested that Naftogaz does not have enough money to pay the debt.
3. On 13 April 2010 MIC issued the present proceedings in the Commercial Court to enforce the 2006 judgment. On 13 April 2010 Burton J, ex parte, and in May 2010 Hamblen J (as he then was), on notice, made a freezing order in respect of Naftogaz's assets within the jurisdiction up to the amount of $ 25 million and in particular shares with a then value of £ 29,000,000 in an English company called JKX Oil & Gas plc., which was listed on the London Stock Exchange. So far as MIC was aware these were the only assets which Naftogaz had in this jurisdiction. The order was not opposed on the return date, at which time Naftogaz was represented, and it is still in force.
4. MIC has no realistic prospect of enforcing the 2006 judgment in Ukraine. MIC was prevented from doing so because Ukrainian Law 2711, enacted in 2005, suspended the enforcement of judgments against energy companies. The 2006 judgment was set aside by the Supreme Commercial Court of Ukraine ("SCCU") on 7 April 2011 on the grounds of "newly discovered circumstances" namely that MIC allegedly lacked the capacity to enter into the assignment. This setting aside took place in circumstances described by the English Court of Appeal as involving "a fundamental denial of legal certainty and fair process" and as being "flagrantly in breach of Article 6 of the Convention".
5. Following a retrial the Kiev Commercial Court on 11 November 2011 dismissed MIC's claim, not on the ground of want of capacity, but on the ground that the contract under which the assigned debt arose had not been signed by the person recorded as its signatory on behalf of Ukrgazprom so that the debt supposedly assigned was not a valid debt. On 27 April 2012 the Kiev Commercial Court of Appeal dismissed an appeal.
6. On 14 July 2011 David Steel J refused Naftogaz' application to set aside the 2011 judgment on the basis of the SCCU's order of 7 April 2011 and on 29 February 2012 the Court of Appeal dismissed Naftogaz's appeal from his order. On 26 July 2012 the Supreme Court refused Naftogaz permission to appeal.
7. In the end the JKX shares were sold pursuant to an order for sale made on 23 March 2013 for £ 5,128,393.07. This followed an earlier final charging order of 2 October 2012 (an interim one having been obtained on 28 February 2011).
8. Naftogaz has in the United Kingdom what MIC claims to be an asset in the form of $ 24,700,000 credited to an account at the London branch of Bank of New York Mellon ("BNYM"). The amount credited to the relevant account is $ 25,000,000 but BNYM is entitled to $ 300,000 in respect of costs. The sum from which the $ 25,000,000 was derived was paid to BNYM on or about 30 September 2013. Naftogaz disputes MIC's claim that the amount in the account is an asset it owns.
9. BNYM came to continue to hold the money in the relevant account as a result of MIC's eventually unsuccessful attempts to enforce its judgment by Third Party Debt Orders (TPDOs). The $ 25 million was part of a larger sum (about $ 75.7 million) that Naftogaz transferred to BNYM in September 2013 to pay semi-annual interest due under certain Loan Notes due on 30 September 2014 issued by Naftogaz and in relation to which BNYM was the Principal Paying Agent.
10. On 26 February 2014 Blair J declined to make final TPDOs and discharged three interim TPDOs obtained by MIC on the grounds that at the dates when they were made BNYM was under no obligation to repay Naftogaz. On 10 December 2014 MIC's appeal from that judgment was dismissed. The first application for a TPDO made by MIC had caused BNYM to refuse to make the coupon payments due under the Loan Notes. Failure to make such a payment by the due date would risk the whole amount of the Notes becoming due. Naftogaz had, therefore, to make payment to BNYM of a further $ 75 million in order to avoid default under the Notes. BNYM continued to hold the original $ 75 million sum in England because of the May 2010 freezing order.
11. After the Loan Notes had matured and had been repaid the Bank repaid to Naftogaz $ 50,000,000 of the $ 75,000,000 first coupon payment , that amount not being caught by the freezing order. The Bank considered that $ 25,000,000 was caught by the order, abut Naftogaz does not accept that this was in fact the case.
12. On 19 December 2014 MIC applied to the Commercial Court for an order appointing a receiver on two bases:

(i) that following and as a result of the maturity and payment of the Notes, Naftogaz had a legally enforceable claim against BNYM which was susceptible to equitable execution by way of a receivership in the ordinary way;

(ii) alternatively, even if Naftogaz had no enforceable claim against BNYM, it would be an appropriate incremental development of the court's jurisdiction to appoint a receiver to make such an appointment in the present case since it was likely that BNYM would pay the receiver, standing in the shoes of Naftogaz, even if it was not under a legal obligation to do so.

13. On 4 June 2015 Stephen Hofmeyr QC, sitting as a Deputy High Court Judge decided that as a result of the maturity of the Loan Notes BNYM was obliged to account to Naftogaz in respect of the money in the account with it and that a receiver should be appointed on the first basis. It was not, therefore, necessary for him to rule on the second basis but he expressed the obiter view that it would have been appropriate to make an incremental development in the law [30].
14. Accordingly by his order of 4 June 2015 he appointed a receiver of all of Naftogaz's rights in the $ 25,000,000 in the account at BNYM. That is the judgment now under appeal. Permission to appeal was given by Lewison LJ, who also granted a stay of the receivership order.

The rules

15. CPR 52.9 provides that:

"(1) The appeal court may

….

(c) impose or vary conditions upon which an appeal may be brought.

(2) The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so."

If the respondent has a money judgment in his favour the condition most often sought is that the judgment sum plus interest and costs (or some of those items) be paid into court or otherwise secured.

The authorities

16. There is a fair body of authority on the circumstances in which the Court will require payment into court or securing of the judgment sum as a condition of appeal.

Societé Eram

17. In Societé Eram Shipping Co Ltd v Compagnie International de Navigation & Others [2001] EWCA Civ 568 an appeal was pending against the discharge of a garnishee order made against a bank in favour of a judgment creditor. Tomlinson J, at first instance, gave permission to appeal. Rix LJ was concerned, inter alia, with an application by the bank for a stay of the appeal until the costs order made by the judge in its favour (the costs being summarily assessed by him) had been paid. The application was made under CPR 3.12 (f) or the inherent jurisdiction. Rix LJ addressed a submission made to him that there was no jurisdiction to make an order by reason of CPR 52.9. He was inclined to think that the latter rule only applied where the application for permission to appeal was being dealt with by the appeal court but accepted that the fact that a condition ought only be imposed by an appeal court when there was compelling reason to do so suggested "a very cautious approach to the question of a stay for non-payment". He was not satisfied that there was a compelling reason for making such an order. He thought that the likelihood was that the appellant could not pay and that inability to pay was not a proper ground on which to deprive an appellant who had permission to appeal from pursuing his appeal. He did however make an order for security for costs.

Hammond Suddard

18. The matter was considered at greater length in Hammond Suddard Solicitors v Agrichem International Holdings Ltd [2001] EWCA Civ 2065. The appellant sought a stay of the orders made by the judge for the payment of the judgment debt and costs and the respondents sought security for their costs of the appeal and an order that the appeal be struck out unless the appellant paid or secured the full amount of the judgment debt and the orders for costs made by the judge. Lord Justice Clarke, giving the judgment of the Court, of which the other member was Wall J (as he then was), set out the reasons why the court had reached the conclusion that there was a compelling reason for making the appellant pay the debt or secure it as a condition of permitting it to proceed with the appeal.
19. The reasons were as follows:

"(1) The appellant is an entity against whom it will be difficult to exercise the normal mechanisms of enforcement. It is registered in the British Virgin Islands and has no assets in the United Kingdom. There is, accordingly, a very real risk that if the appeal fails, the respondents will be unable to recover the judgment debts and costs as ordered by Silber J. Given the attitude of the appellant to date, including that demonstrated on these applications, it is fanciful to think that the appellant will co-operate in the enforcement process.

(2) The appellant plainly either has the resources or has access to resources which enable it both to instruct solicitors and leading and junior counsel to prosecute its appeal and make an application to the court for a stay of execution and to provide a substantial sum by way of security for costs.

(3) There is no convincing evidence that the appellant does not either have the resources or have access to resources which would enable it to pay the judgment debt and costs as ordered. It has failed to do so. It is, accordingly, in breach of the orders made by Silber J on 12 July 2001.

(4) The discovery which the appellant has provided of its financial affairs is inadequate and gives the court no confidence that it has been shown anything near the truth. Moreover, as stated earlier, it has produced evidence (when it wanted to) that it was a thriving and profitable institution. It has wealthy owners and there is no evidence that, if they were minded to do so, they could not pay the judgment debt including the outstanding orders for costs.

(5) For the reasons we have already given we are not persuaded that this appeal will be stifled if we make the order sought.

(6) In these circumstances, we find it unacceptable that absent any other orders of the court the appellant is intending to prosecute the appeal (and is willing to put up security for costs in order to do so) whilst at the same time continuing to disobey the orders of the court to pay the judgment debt and costs, as well as seeking to persuade us that it cannot do so."

20. He then said:

"42. In our judgment, these six factors add up to a compelling reason to make the orders sought by the respondents. We think there is a real risk that, unless the orders sought are made, the respondents, if the appeal is dismissed, will be deprived of the fruits of the judgment, and will only be able to recover whatever sum is secured by way of costs. In our judgment, on the facts of this case, it is not just to allow the appellant to proceed with an appeal which is designed not only to reverse the judge's decision that it is liable to the respondent but also to obtain judgment on its counterclaim for a very substantial amount, especially in circumstances in which it appears that it is willing and able to use resources from others, including perhaps its owners, while being unwilling to seek and obtain resources to discharge the judgment debt."

21. In his judgment Clarke LJ said that the position would be very different if the appellant was able to produce convincing evidence that the appeal would be stifled if it were required to takes these steps [45]. He referred to the judgment of Rix LJ in Societé Eram and said that "we do not disagree with Rix LJ's "cautious approach" to CPR 52.9 but:

"we do, however, take the view that the new regime of the CPR with its emphasis on the timely payment of costs and the use of costs as a sanction, warrants a robust approach to appellants who fail to obey orders for the payment of a judgment debt and costs when they can afford to pay them either themselves or through others".

Dumford Trading

22. The matter came up for further consideration in Dumford Trading Ag v OAO Atlantrybflot [2004] EWCA Civ 1265. One of the applications made by Dumford, the respondent, was that OAO Atlantrybflot, the appellant, should, as a condition of being allowed to proceed with the appeal, pay the whole of the judgment debt and/or the costs ordered to be paid on account into court as well as being ordered to provide security for costs. In giving judgment Clarke LJ expressed the view that it would be an "unusual, and perhaps rare, case" in which it would be appropriate to impose a condition requiring payment of the whole judgment sum into court. He referred to his observation in Hammond Suddard that it was appropriate to adopt a cautious approach to CPR 52.9 and that subsequent cases, notably the CIBC Mellon Trust case, "have perhaps emphasised the need for such caution".
23. CIBC Mellon Trust [2002] EWCA Civ 1688 was a case where the judge had ordered that, as a condition of the appellants being allowed to pursue applications to set aside default judgments entered against them, they should pay £ 1,600,000 into court, and had refused to vary a freezing order earlier made against them in favour of the claimants to enable the appellants to make the required payment out of frozen assets. Of the sum of £ 1,600,000, £ 1,500,000 was in respect of costs orders already made but unpaid and £ 100,000 was in respect of the costs of the application. The appeal was allowed on the footing that the judge had wrongly failed to take into account the fact that the effect of his order was to require a third party to pay the costs of the action in circumstances where he would not otherwise be likely to have been liable for them.
24. In Dumford Clarke LJ recorded the submissions of Counsel on behalf of Dumford which were to the effect that the factors identified in Hammond Suddard were all present in Dumford. There was also an additional submission that OAO was going to prosecute the appeal without paying the judgment sum and was "instead disposing of its assets or dealing with them in such a way as to make the judgment and any subsequent award of costs against it impossible to enforce". Clarke LJ said [10] that it was "an important, indeed crucial, aspect of the submission that it was said that there was strong evidence to suggest that OAO had already taken steps to denude itself of assets in anticipation of the judgment. At [13] he said that the "key question" on the facts of that case was whether OAO Atlantrybflot had sought to dissipate its assets in order to avoid paying the judgment. In the event he decided that there was no compelling reason to order payment of the whole debt into court as a condition of allowing the appeal to continue.

Wittman

25. In Wittman (UK) Ltd v Willdav Engineering SA [2007] EWCA Civ 521 Lord Justice Moore-Bick had before him an application to make payment of the judgment debt and a sum on account of costs a condition of pursuing the appeal. He referred to the list of factors in Hammond Suddard and considered the extent to which they were applicable in the case before him. Part of the submissions made to him was that one of the witnesses at trial was found to have told a lie and that that was itself said to be a compelling reason for making the order sought.
26. As to that he said:

"16 Not surprisingly, Mr Sugar's submissions are founded to a large measure on the proposition that the way in which the appellant conducted itself at the trial is a strong indication that it will not cooperate in any future enforcement procedure, I can understand that may be the case but it is not in my view a question with which the court should be concerned. What matters for this purpose is whether there are grounds for thinking that if the order is not made the appellant may not merely refuse to cooperate but may seek to put its assets beyond reach of the normal enforcement process. In my view there is little evidence to support that conclusion."

In the event he refused the application, observing that the case was very different to Hammond Suddard because in that case there had been an unexplained failure to discharge the judgment debt and there were positive grounds to think that if the appellant lost its appeal it would seek to avoid meeting the judgment debt by whatever means might be necessary.

Cruz City

27. In Cruz City 1 Mauritius Holdings v Unitech Ltd [2013] EWCA Civ 1512 the respondent, an Indian corporation, sought an order that the permission to appeal granted be made subject to the condition that the appellant pay the whole, or a substantial proportion, of the $ 400 million due under certain arbitration awards into court or secure such payment by a bank guarantee. Gloster LJ made such an order. The appeal arose as follows. Cooke J had made orders permitting Cruz City to enforce two awards as judgments or orders of the court and had permitted service of the order on Skadden Arps, Meagher & Folm (UK) LLP ("Skadden Arps") the solicitors who had acted for the appellants in the arbitration. Cruz City had then applied for disclosure of the appellants' assets wherever located and for permission to serve the claim form seeking such relief on Skaddens Arps. Field J had ordered disclosure and had also dismissed the appellants' application to set aside the orders permitting service on Skadden Arps.
28. Gloster LJ was satisfied that the appellants would take all such steps as might be available to them to avoid any payment [18]. In her judgment she said:

"24. It is clear that, in similar situations to the present (i.e. in cases where a liability judgment has been given that is no longer subject to appeal, and the relevant appeal relates to subsequent enforcement orders or orders in aid of execution) courts at all levels have been prepared, in appropriate circumstances, to require an appellant to pay into court the amount of the judgment debt as a condition of the grant of permission to appeal."

She then referred to the Masri cases^[1] where the court had indicated that it was prepared to make such an order or referred to the fact that the House of Lords had already done so and said:

"29. The Masri cases demonstrate that, in circumstances where a judgment debtor (in respect of a debt that is no longer subject to appeal), who has participated in liability proceedings in this jurisdiction, is able to pay a judgment debt, but has no intention of doing so, and is taking all possible steps to avoid enforcement of the judgment against its assets, whether in this jurisdiction or elsewhere, the courts may well consider that it is appropriate to attach a condition of payment in full of the judgment debt, to the grant of any permission to appeal against a post-judgment enforcement order.

29. The cases to which she referred were Hammond Suddard; Bell Electric Ltd v Aweco Appliance Systems GmbH & Co [2002] EWCA Civ 1501 and Day's Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd [2004] EWCA Civ 993.

Bell Electric

30. In Bell Electric Potter LJ, with whom Carnwath LJ agreed, said:

"The question posed in this case, to which the judgment in the Hammond Suddard case provides no answer, is whether, where there is no reason to suppose that vigorously pursued steps by way of enforcement will ultimately prove fruitless if the appeal fails, there may none the less be a 'compelling reason' meanwhile to make an order staying the appeal if the interim order is not complied with, or a payment into court made or other security provided in respect of the judgment sum. Depending upon the overall circumstances, I see no reason in principle why that should not be so in a case where (i) the appellant is in deliberate breach of the order to pay the judgment sum; (ii) he has applied for and been refused a stay; (iii) his failure or delay in payment is due not to any financial difficulty but is cynically based upon the practical difficulties for the respondent in seeing enforcement in a foreign jurisdiction."

31. In a later paragraph he said:

"10. I would only add the following by way of footnote. It is implicit in the decision I have reached that I reject the argument that, if the "normal" processes of enforcement are available to a successful party in respect of a sum ordered to be paid following trial, that is fatal per se to a successful application under CPR 52.9 for payment for security in respect of the judgment sum. I think it clear that, in the ordinary case of an appeal by an individual or company resident in the UK or possessed of assets here, the court would be most unlikely to regard the failure of an unsuccessful defendant to pay the judgment sum following refusal of a stay of execution as constituting a compelling reason to deploy its powers under CPR 52.9. In such a case, in the absence of very exceptional circumstances, it seems plain that the remedy of execution and/or bankruptcy or winding-up proceedings should be deployed as the appropriate and effective route to enforcement. Nonetheless where, as here, a litigant of means, whether a UK resident or a resident in a Member State of the Community subject to the Regulation, demonstrates its intention to ignore the orders of the court and to rely upon the expense or other practical difficulties which may confront the respondent in seeking enforcement of its judgment abroad, it may well be appropriate for the Court to exercise its powers under CPR 52.9. In my view this is such a case."

32. In Cruz Gloster LJ held that there was a compelling reason to make the order sought because the appellant was clearly in a position to pay the awards but had deliberately taken the decision not to do so; it was perfectly clear that it had thwarted and would continue to thwart any attempt at enforcement; there was a real risk that prior to the hearing of the appeal the appellant might seek to transfer assets to jurisdictions such as India where enforcement might prove more difficult; and many of the factors characterised as compelling in other cases applied. It was the policy of the English Court that arbitration awards should be satisfied and executed and if there was no challenge subsisting to the award and the judgment debtor wished to challenge enforcement orders adverse to its interests it could not lightly "cock a snook" at other English court orders requiring it to pay the award or judgment debt. That itself provided a compelling reason why the appellants in that case should be required to pay the debt into court.
33. She also said this:

"36 (vi) …..Any monies paid in will be held to the order of the Court of Appeal, and it will be a matter for the exercise of its discretion as to whether, upon determination of the appeal, the funds are returned to the Appellants, an order is made for their payment out to the Respondent, the latter is relieved from its undertaking not to attach the funds, or some other order is made. The fact that the Appellants may not wish to take the risk as to what the Court of Appeal may ultimately order in relation to any funds paid into court to satisfy the conditions, does not seem to me to amount to a "stifling" of the appeal. For these reasons I do not accept Mr Hirst's submission that, if the conditions were complied with, any appeal would be otiose and effectively "stifled".

Sebastian Holdings

34. In Sebastian Holdings Inc v Deutsche Bank AG [2014] EWCA Civ 1100 the court again had to consider an application to impose conditions upon the pursuit of an appeal requiring payment into court of the judgment sum of about $ 243 million plus interest and a sum awarded on account of costs together with a further sum by way of security for the costs of appeal. Tomlinson LJ, with whom Longmore LJ agreed, referred to the principles stated in Hammond Suddard and held that on the face of it every one of the considerations save one was present in the case before him. He referred to Dumford Trading and Wittman (UK). He then said this:

"Mr Railton drew to our attention, by means of a very helpful note, a good many more judgments either of single Lord or Lady Justices or of courts comprised of two Lord/Lady Justices in which the principles are discussed. I unhesitatingly accept that all these cases indicate that it is inappropriate to use the power to impose conditions on an appeal simply as a means of securing enforcement of the judgment debt. That plainly is not the touchstone of the jurisdiction. The touchstone is rather the taking of steps out of the ordinary course of business with a view to frustrating the normal enforcement process."

In that case the court ordered that the applicant pay into court the judgment sum and interest as a condition of further pursuit of the application for permission to appeal and, if permission was granted, the appeal. This was a case in which the would-be appellant had caused very substantial assets to be transferred without any bona fide commercial reasons but with a view to depleting its assets and making recovery more difficult. Neither Cruz nor Bell Electric is referred to in the judgment.

Gold Harp

35. In Gold Harp Properties Ltd v John McLeod and others [2014] EWCA Civ 532 an order was sought that payment of £ 30,000 costs, which the appellants had been ordered to pay, should be a condition of permission to appeal. Rimer LJ, with whom McFarlane LJ agreed, was not satisfied that there was any compelling reason for imposing the condition. In the course of his judgment he said this:

"This case falls within what I might call the ordinary run of appeals. The appellant is liable to an unsatisfied judgment debt, yet is seeking to appeal in circumstances in which there is no stay of execution of that judgment. As I have said, it might well be thought that, if there are no grounds for a stay of execution, it ought to be a matter of course for a defendant to have to comply with the judgment of the court below as a condition of pursuing an appeal. As I have also said, I do not, however, understand that to be the law."

Goldtrail Travel

36. In Goldtrail Travel Ltd v Aydin & Ors [2015] EWCA Civ 926 Floyd LJ ordered the payment into court of the judgment debt as a condition of continuance of the appeal in circumstances where the defendant airline had ceased to make flights to the UK after the judgment. He did not regard it as an essential component of the exercise of the jurisdiction that the appellant should be taking active steps to remove assets or part with ownership of them. He held that the cessation of flights to the UK had a significant impact on the respondent's ability to enforce the judgment by normal means. The appeal was later dismissed for failure to comply with the condition. Goldtrail Travel Ltd v Aydin [2016] EWCA Civ 20. Sebastian Holdings does not appear to have been cited.
37. In the light of those authorities it seems to me that certain matters are clear:

(a) The essential question is whether or not there is a compelling reason to make payment in of the judgment sum, plus costs and interest (or some part thereof) a condition for further pursuit of the appeal– hereafter "a security payment order";

(b) Whether there is a compelling reason is a value judgment to be made on the particular facts of the case under consideration;

(c) The fact that a judgment has been entered against the appellant and no stay has been sought or granted does not mean that, as a matter of course, compliance with the judgment should be made a condition of appeal nor does it, alone, afford a compelling reason for a payment order;

(d) On the contrary the power in CPR 52.9 was not designed to be no more than an alternative means of securing enforcement and is only to be exercised with caution;

(e) Whilst every case depends on its particular facts the court is likely to find there to be a compelling reason to make a security payment order which has that effect if the judgment debtor has in the past (Dumford Trading) or is likely in the future (Wittman) to take steps to denude itself of assets or to put its assets beyond the reach of normal enforcement processes.

38. There is a type of case which lies somewhere between one in the "ordinary run of appeals" category, of which Rimer LJ spoke, and one in which the judgment debtor has disposed, or is likely to dispose, of assets so as to avoid them being seized in execution. A defendant may have sizeable assets in one or more foreign jurisdictions and, without disposing of his assets otherwise than in the ordinary course of business, take every point and adopt every stratagem in the jurisdictions where his money is to make it difficult and, hopefully from his point of view, impossible to enforce the judgment. It seems to me, particularly in the light of Hammond Suddard, Bell Electric and Goldtrail Travel and, despite Tomlinson LJ's reference to the touchstone of the jurisdiction that, in such circumstances there may be compelling reason to make a security payment order. Of course, the fact that a defendant takes such steps or adopts such stratagems may itself be something from which the court can infer that he is likely (if need be) to put assets out of reach for the sole purpose of avoiding having to satisfy the judgment.
39. In Hammond Suddard itself the court appears to have found compelling reason for making a security payment order in circumstances where there would be difficulty of enforcement and lack of cooperation. The court does not appear to have proceeded, at any rate in terms, on the basis that there was a likelihood of dissipation of assets. In Bell Electric the court rejected the proposition that the availability of the "normal" processes of enforcement was fatal to a successful application under CPR 52.9 and envisaged that the expense and practical difficulty of enforcement might, depending on the facts, amount to a compelling reason, even if there was no reason to suppose that vigorous enforcement steps would ultimately prove fruitless. In Goldtrail Floyd LJ proceeded on the basis that there was a commercial explanation for the change in circumstances and made (perhaps generously) a security order nonetheless.
40. I would accordingly add to the list in [36] above:

(f) There may be a compelling reason to make a security order even if it is not established that the appellant has acted as in (e) above. This may be the case if there are considerable practical difficulties in effecting execution.

Liability and Execution appeals

41. It is necessary to consider whether some different approach is appropriate in execution as opposed to liability appeals. By "liability appeal" I mean an appeal against an order that holds the appellant liable to the respondent and, typically, gives him a money judgment. By "execution appeal" I mean an appeal which is not against a money judgement in favour of the respondent but against some order which has been made as part of the process of execution e.g. the order for disclosure in Cruz and the order for the appointment of a receiver in the present case. The potential distinction arises in this way. If a security payment order is made in a liability appeal and the appeal succeeds the money paid into court will go back to the appellant. In an execution appeal, if the appeal succeeds, the court will have to decide what is to happen to the monies paid in. The unsuccessful respondent will seek to have the money paid to him and the court may well so order, unless it can be persuaded that, since the appeal against execution has succeeded, the appellant should be put back into the position in which it was before the monies were paid into court.

Naftogaz's submissions

42. Mr David Head QC for Naftogaz submits that this is not a case in which a security payment order should be made for a number of reasons. First, despite the convoluted history, this is within the ordinary run of appeals, in many of which there is a failure to cooperate with enforcement. MIC is not entitled to have the court's power to impose conditions used simply as a means of enforcement of the judgment. Naftogaz is perfectly entitled to challenge the making of the receivership order and has permission to do so. It should not, then, as a condition of being allowed to continue its appeal, be required to afford MIC an alternative means of enforcement by being compelled to establish a second fund of which, in effect, the Court is the receiver and which is subject to a different set of rules to those that apply to a receivership or any other recognised method of enforcement in that, if the appeal fails, whether execution takes place will depend on the way in which the court exercises its discretion.
43. Second, there is no basis for inferring that there is a risk of dissipation of assets. Whilst it is true that there remains in existence a freezing order against Naftogaz made in 2010, the evidence which led to that order is not before me and it was made a long time ago. It is no sound basis for saying that there is any risk of dissipation now. If MIC wanted to establish a present risk of dissipation it would need to have produced evidence directed to that end.
44. Third, the effect of making a security payment order is likely to render the appeal futile since there is a very real risk that, even if it succeeds, the court will order payment of the sum paid into court to be made to MIC, on the footing that there is no good reason refuse to do so given that the amount is due pursuant to a judgment of the court. If so the order for payment in will have become nothing more than a means of securing enforcement.
45. Fourth, the court should not disturb the status quo, which is that the receivership has been stayed and there is no other fund in place. If the appeal fails MIC will be in a position to execute. If it succeeds the Receivership will be set aside and there is no good reason why MIC should have been provided meanwhile with an additional fund on account of a challenge to the receivership which is ultimately successful.
46. Fifth, Naftogaz has produced evidence from Mr Denys Lysenko, an established Ukrainian lawyer, that as a matter of Ukrainian law it would be unlawful for it to comply with any security payment order because any payment under it would contravene Ukrainian exchange control laws. MIC has countered that evidence with statements from Mr Oleh Beketov, another established Ukrainian lawyer. I cannot, on an interlocutory application, resolve the question as to which of them is right as to Ukrainian law, although for reasons set out in the appendix to this judgment I regard the evidence of Mr Beketov is more convincing. But the question of which of them is right as academic for the following reasons.
47. Naftogaz, a substantial energy company wholly owned by the Ukrainian State, cannot escape providing security, if it is otherwise appropriate for it to be ordered so to do, by doing no more than pointing to exchange control regulations in its country of origin. It needs to be able to show, with evidence that is both full and frank, that it has explored all avenues of making the money, or security for it, available and that there is no realistic option by which it could do so. The evidence would need to address the question as to whether (a) the monies could be made available by it or by a third party on its behalf, including but not limited to another emanation of the Ukrainian State or another lender (e.g. a bank), from funds either within Ukraine or outside it; (b) whether it or a third party could provide a guarantee or other security on its behalf; and (c) as to whether it could obtain a waiver or the equivalent of any applicable exchange control provisions. It would also need to deal with the apparent implausibility of a situation under which Naftogaz, a State owned entity, is apparently precluded by some other emanation of the Ukrainian State from making a payment pursuant to the order of a foreign court whose jurisdiction Naftogaz seeks to invoke. The recently produced one page statement of Mr Roman Chumak, the Head of Treasury Operations in Naftogaz, is wholly inadequate for these purposes.
48. Mr Head QC told me on instructions that the amount of money that Naftogaz had outside the Ukraine was less than $ 1,000. Whilst I have no doubt that those were his instructions, such a statement is not evidence; is devoid of any detail; and does not to address the full range of matters that would need to be addressed if Naftogaz was to persuade the court that compliance with any security payment order was impossible. It has also to be borne in mind that there is $ 24,700,000 at BNYM. MIC would be happy for that to form the major source of the amount it seeks to have provided.

Conclusion

49. In my judgment there is a compelling reason for requiring Naftogaz, as a condition of pursuing its appeal, to make payment into court of the amounts requested.
50. The factors that add up to a compelling reason are as follows:

(a) The factors identified in Hammond Suddard apply. Naftogaz is an entity against which it will be very difficult to exercise the normal mechanisms of enforcement. (If, of course the appeal fails, the receivership will take effect but Naftogaz claims that it should succeed and the focus of attention should be on the situation in that event). It has the resources both to mount the appeal and to pay the judgment debt. In those circumstances the fourth factor is not relevant.

(b) If the order is made Naftogaz will run the risk that, if its appeal fails, the Court of Appeal may order the money in court to be paid to MIC. Like Gloster LJ I do not regard that factor as a stifling of the appeal. As Mr Lazarus put it, if Naftogaz seeks to avail itself of the appellate process it will have to trust the court to which it appeals to make a fair judgment as to what is to happen to the security if the appeal succeeds;

(c) It is unacceptable that Naftogaz should seek to invoke the appellate jurisdiction of the court whilst at the same time failing to comply with the judgment pronounced against it in 2011, which the courts, at first instance and on appeal have declined to set aside;

(d) This is not a run of the mill, ordinary, or normal case where the respondent should be left to pursue the usual means of securing payment of the judgment and not allowed to invoke CPR 52.9 simply as another means of enforcement. Naftogaz plainly has no intention of honouring the 2011 judgment unless forced to do so and will take all possible steps (of which the appeal is one) to avoid having to do so. It has been assisted in that respect by the actions of the Ukrainian State and a flagrant abuse of MIC's rights under Article 6.

(e) That Naftogaz will take such steps is apparent from the history of the case to which I have referred and from what has been said by other judges who have been involved in it. Thus in his judgment of 30 November 2012 on MIC's application for a TPDO Andrew Smith J said: "I do observe every sign that the defendant is using devices to delay meeting its dues". In the judgment under appeal Mr Hofmeyr QC said "It is clear from the material before the court that Naftogaz will do whatever it can to avoid having to satisfy the judgment and interest".

(f) In the light of these matters there seems to me a real risk that, if necessary, Naftogaz will dispose of assets otherwise than in the ordinary course of business in order that they should not be or become available for execution. I would, however, reach the same decision in the absence of a risk of that character.

(g) The fact that this is an execution appeal does not justify taking a different stance. If this was a liability appeal there would be compelling reason to make the order; and in an execution appeal, where liability is a given, that is so a fortiori. Naftogaz is perfectly entitled to appeal on an execution point but its so doing cannot disguise or alter the fact that it owes the judgment sum now and will continue to do so whatever the upshot of the appeal. The court is entitled to deal robustly with appellants such as these who fall into the category identified in (a) and (c) above and, thus, depending on your choice of metaphor, may be said to be seeking to have their cake and eat it, to cock a snook, to play a game of cat and mouse or one of "heads we win, tails you lose".

(h) $ 24,700,000 is likely to be available from BNYM if Naftogaz and MIC ask for it. If so there would be no question of two funds to which resort might be had being in place.

(i) I do not regard the status quo before the application as having any material bearing on whether there is a compelling reason or not. Nor did the stay granted by Lewison LJ carry with it any implied decision as to whether the conditions now sought were appropriate.

Discretion

51. Blair J had indicated that, if he had concluded that he had jurisdiction to make a final TPDO in respect of MIC's second and third applications (the first was not pursued because no funds had arrived at BNYM when the interim TPDO was served on it), he would have declined to make any TPDO as a matter of discretion because MIC had sought the first TPDO when no money was due. Mr Head invited me to decline to exercise my discretion to impose a condition on a similar basis, since the $ 24,700,000 only became potentially available on account of that error.
52. I do not propose to do so. The circumstances in which the $ 24,700,000 came to be available in London are now past history. The judgment of Davis LJ (with whom Arden and Sales LJJ agreed) of 10 December 2014 recorded that it was not to be said that MIC or its solicitors had behaved improperly in making the application for the first TPDO. In any event none of this dispute would have been necessary if Naftogaz had complied with its obligations under the 2011 judgment.
53. Accordingly I propose to order that the appeal should be conditional on Naftogaz paying into court by way of security $ 28,500,000 within 14 days of the date of the order, such sum, if paid, to be held to the order of the Court of Appeal. That order will be made on MIC undertaking not to seek to attach any amount paid into court without the permission of the Court of Appeal and, if so requested, to cooperate with Naftogaz with a view to procuring the payment by BNYM of $ 24,700,000 into court in partial satisfaction of the order.
APPENDIX

The evidence of Mr Lysenko was that it would be illegal under Ukrainian law for the defendant to provide any of the security requested. Reliance is placed on

(i) Decree 15-93 of the Cabinet of Ministers of Ukraine of 19.2.93 which requires an individual licence for the transfer outside Ukraine of funds, including for court orders and expenses of the claimant and for the payment of judgment debts;

(ii) Resolution 266 of the National Bank of Ukraine of 17 June 2004, which allows for exceptions but there is said to be no exception relevant;

(iii) Resolution 863 of 4 December 2015, which, by paragraph 20, prohibits the purchase and transfer of foreign currency under individual licenses of the National Bank of Ukraine subject to exceptions none of which apply. This resolution expired on 4 March 2016 but was replaced by Resolution 142 (until 8 June 2016) and then by Resolution 343 (in force until 14 September 2016).

Mr Beketov refers to paragraph 1.5 of Resolution 266 which provides:

"1.5 No licence shall be required for transactions involving foreign currency transfer to beneficiaries outside Ukraine by resident business entities (as long as said transactions are appropriately documented) made for purpose of:

…

paying costs/charges of judicial arbitration, notarial and other authorised agencies in foreign countries (including payment of taxes, charges, stamp duties , and other mandatory payments as required by laws of foreign countries)..".

There is an issue as to whether "costs" or "charges" is the better English translation.

In Mr Beketov's view, if paying security in accordance with a court order is mandatory under English law, there is no bar to Naftogaz providing security. Further, Resolution 863 does not apply because that prevents the purchase and transfer of foreign currency under licence whereas the effect of Resolution 266 is that no licence is required.

Mr Beketov points out that Decree 15-93 and Resolution 266 have been in force since 1993 and 2004. If Mr Lysenko is correct, two payments for costs previously made by Naftogaz - of £ 4,500 in 2011 and £ 105,000 in 2012 - were unlawful, absent a licence of which no evidence has been produced. Alternatively ways must have been found round the restriction, if it existed, or payment made from outside Ukraine. Mr Chumak's evidence was that there was "no information about the mechanism for payment of [this] cash security in pounds sterling".

In relation to paragraph 1.5 Mr Lysenko says that "mandatory payments as required by laws of foreign countries" means mandatory payments similar to taxes and levies whose mandatory nature is expressly provided for in legislation and does not include a payment required in the exercise of a judicial discretion as a condition of appeal. No specific authority is cited for this view.

It would seem to me likely that the words in brackets were intended to expand the operation of paragraph 1.5 and that a payment which the court has required to be made (as a condition of pursuing an appeal) in the exercise of a power given to it under rules, which constitute subordinate legislation, would amount to a mandatory payment as required by the law of England.

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Note 1   Masri v CCIC [2008] EWCA Civ 1367 at [21] and [33]; Masri v CC (OG) CI [2009] EWCA Civ 36 at [6] and [27-32]; and Masri v Consolidated Contractors International Co SAL [2011] EWHC 409 Comm at [22(vii)].    [Back]