MERCHANT INTERNATIONAL CO LTD v NATSIONALNA AKTSIONERNA KOMPANIIA NAFTOGAZ UKRAINY (2016)

A company (M) applied for an order for security for costs as a condition of the grant of permission for the respondent Ukrainian state energy company (N) to appeal against the appointment of a receiver.

M had obtained judgment for US$25 million against N in 2011 which it had been unable to enforce. M became aware that N’s bank in the UK was holding $25 million and obtained a freezing order over it. On M’s application, the court appointed a receiver over N’s rights and interests in that sum. N obtained permission to appeal against the appointment, whereupon M applied for an order for security in the judgment sum and costs.

N submitted that M was not entitled to use the court’s power to impose conditions as a means of enforcement of its judgment. It argued that there was no basis for inferring a risk of asset dissipation. Further, N attested that if its appeal succeeded and the Receivership was set aside, M should not have been provided with an additional fund. N further argued that a Ukrainian law enforcing currency restrictions prevented it from complying with any security order.

HELD: (1) In the light of a considerable authority, it was clear that the decision was a value judgment. Just because a judgment had been entered against the appellant and no stay had been granted, that did not necessarily mean that compliance with the judgment should be made a condition of granting permission to appeal, or of making a payment order. On the contrary, the power in CPR r.52.9 was not designed to be an alternative means of securing enforcement and was only to be exercised with caution. The court was likely to find a compelling reason to make a security payment order if the judgment debtor was likely to put assets beyond the reach of normal enforcement processes. However, there might be a compelling reason to make a security order even without such action, for example where there were practical difficulties in effecting execution, Hammond Suddards Solicitors v Agrichem International Holdings Ltd [2001] EWCA Civ 2065, [2002] C.P. Rep. 21, Bell Electric Ltd v Aweco Appliance Systems GmbH & Co KG (Application to Stay Appeal) [2002] EWCA Civ 1501, [2003] 1 All E.R. 344, and Goldtrail Travel Ltd v Aydin [2015] EWCA Civ 926 followed, Societe Eram Shipping Co Ltd v Compagnie Internationale de Navigation (Security for Costs) [2001] EWCA Civ 568, [2001] C.P. Rep. 113, Dumford Trading AG v OAO Atlantrybflot (Staying Proceedings: Security for Costs) [2004] EWCA Civ 1265, CIBC Mellon Trust Co v Mora Hotel Corp NV [2002] EWCA Civ 1688, [2003] 1 All E.R. 564, Wittman (UK) Ltd v Walldav Engineering SA [2007] EWCA Civ 521, Cruz City 1 Mauritius Holdings v Unitech Ltd [2013] EWCA Civ 1512, Sebastian Holdings Inc v Deutsche Bank AG [2014] EWCA Civ 1100, Gold Harp Properties Ltd v McLeod [2014] EWCA Civ 532 considered (see paras 37-40 of judgment).

(2) It was necessary to consider whether some different approach was appropriate in execution as opposed to liability appeals. If a security payment order was made in a liability appeal and the appeal succeeded, the money paid into court would go back to the appellant. In the case of a successful execution appeal, the court would have to decide what was to happen to the monies held in court (para.41)(3) There were compelling reasons for requiring N to make a payment into court as a condition of pursuing its appeal:(a) the factors identified in Hammond Suddard applied. If N succeeded on appeal, it would be very difficult to enforce against it and it had the resources both to mount the appeal and to pay the judgment debt; (b) the fact that if N’s appeal failed the court might order the money in court to be paid to M was not a stifling of the appeal. N had sought to use the appellate process and would have to trust the court to make a fair judgment;(c) It was unacceptable that N should invoke the appellate jurisdiction whilst failing to comply with the 2011 judgment;(d) The instant case was not a normal case where the respondent should be left to pursue the usual means of enforcement and prevented from invoking r.52.9 as another means of enforcement;. (e) N plainly had no intention of honouring the 2011 judgment unless forced to do so. It had been assisted in that by the actions of the Ukrainian State as a flagrant abuse of M’s ECHR art.6 rights.(f) there was a real risk that N would dispose of its assets otherwise than in the ordinary course of business and make them unavailable for execution; (g) the fact that this was an execution appeal did not justify taking a different stance. If it had been a liability appeal, there would have been a compelling reason to make an order; in an execution appeal, where liability was a given, that was so a fortiori. N was perfectly entitled to appeal on an execution point but doing so did not alter the fact that it owed the judgment sum. The court was entitled to deal robustly with appellants who sought to avoid enforcement;(h) there was likely to be $24,700,000 available from the bank so there was no question of needing two funds;(i) neither the status quo, nor the stay had any bearing on the decision (paras 49-50).

(4) (Obiter) It was likely that a payment required by the court would fall into the category of “mandatory payments as required by laws of foreign countries” as an exception to the Ukrainian currency control restrictions.

Application granted

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