R8: Security for costs

Stifling Appeal

 

Wrong to impose a condition that stifles an appeal

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"[12] To stifle an appeal is to prevent an appellant from bringing it or continuing it. If an appellant has permission to bring an appeal, it is wrong to impose a condition which has the effect of preventing him from bringing it or continuing it...There will seldom be a “fair hearing” within article 6 if a court which has permitted a litigant to bring an appeal then, by indirect means, does not permit him to bring it.

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 [16] But, for all practical purposes, courts can proceed on the basis that, were it to be established that it would probably stifle the appeal, the condition should not be imposed." (Goldtrail Travel Limited (in liquidation) v Onur Air Tasimacilik As [2017] UKSC 57)

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Or: stifling appeal is a factor but not a sufficient reason

 

“(a)The balancing exercise must weigh the injustice to the party against whom an order is sought if that party is prevented from pursuing, in this case, its appeal against the injustice to the respondents if no security is ordered and, having been successful, the respondents find themselves unable to recover costs. (b) The possibility or probability that the appellants will be deterred from pursuing their appeals is not without more a sufficient reason for not ordering security.” (GSM Export (UK) Limited v. HMRC [2014] UKUT 457 (TCC), §18, Judge Berner).

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Stifling of appeal must be proven by evidence

 

"[15] There is no doubt - indeed it is agreed - that, if the proposed condition is otherwise appropriate, the objection that it would stifle the continuation of the appeal represents a contention which needs to be established by the appellant and indeed, although it is hypothetical, to be established on the balance of probabilities: for the respondent to the appeal can hardly be expected to establish matters relating to the reality of the appellant’s financial situation of which he probably knows little." (Goldtrail Travel Limited (in liquidation) v Onur Air Tasimacilik As [2017] UKSC 57)

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“Before a tribunal refuses to order security on the ground that it would unfairly stifle a valid claim, the tribunal must be satisfied that, in all the circumstances, it is probable that the claim would be stifled. There may be cases, likely to be exceptional, where this can properly be inferred without direct evidence. However, it is for the party against whom an order is sought to satisfy the tribunal that it would be prevented from continuing the litigation.” (GSM Export (UK) Limited v. HMRC [2014] UKUT 457 (TCC), §18, Judge Berner).

 

Insolvency of party not sufficient: consider whether they can raise the money

 

"[17] It is clear that, even when the appellant appears to have no realisable assets of its own with which to satisfy it, a condition for payment will not stifle its appeal if it can raise the required sum. As Brandon LJ said in the Court of Appeal in the Yorke Motors case, cited with approval by Lord Diplock at 449H:

“The fact that the man has no capital of his own does not mean that he cannot raise any capital; he may have friends, he may have business associates, he may have relatives, all of whom can help him in his hour of need.”

[18] It seems that, in particular and as exemplified by the present case, difficult issues have surrounded the ability of a corporate appellant, without apparent assets of its own, to raise money from its controlling shareholder (or some other person closely associated with it); and this is the context of what follows. When, in response to the claim of a corporate appellant that a condition would stifle its appeal, the respondent suggests that the appellant can raise money from its controlling shareholder, the court needs to be cautious. The shareholder’s distinct legal personality (which has always to be respected save where he has sought to abuse the distinction: Prest v Prest [2013] UKSC 34, [2013] 2 AC 415, 487, para 34) must remain in the forefront of its analysis. The question should never be: can the shareholder raise the money? The question should always be: can the company raise the money?" (Goldtrail Travel Limited (in liquidation) v Onur Air Tasimacilik As [2017] UKSC 57)

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“It is well settled that mere insolvency of a corporate appellant or a corporate claimant does not prove that an order would stifle the relevant appeal or the relevant claim. Otherwise, in any case where an applicant for security demonstrated that the insolvency test was satisfied in relation to the party against whom security was sought, a stifling test would prima facie be satisfied. It has been made clear in a number of cases that the court must first consider whether the company has backers or supporters who have both the resources and the motivation to provide the security.” (Calltel Telecom Ltd v HMRC [2008] STC 3246, §13, Briggs J).

 

“The tribunal should consider not only whether the appellant can provide security out of its own resources, but also whether it can raise the amount needed from its directors, shareholders or other backers or interested persons.” (GSM Export (UK) Limited v. HMRC [2014] UKUT 457 (TCC), §18, Judge Berner).

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Question is not whether backers/interested persons could afford to fund, but whether they will

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"[25]...in circumstances in which Patten LJ concluded that “it seems clear to me that Mr Bagana has decided not to fund the payment by the company”, I am driven to the view that this court cannot proceed on the basis that Onur’s application for discharge of the condition was refused by reference to the correct criterion...In other words he was proceeding by reference to the Court of Appeal’s misconception, born of the additional observations in the Hammond Suddard case and developed in the Société Générale case, that in exceptional circumstances an order for a party, without apparent assets of its own, to make a payment into court could be justified by whether another person probably could advance the necessary funds to it irrespective of whether he probably would do so."  (Goldtrail Travel Limited (in liquidation) v Onur Air Tasimacilik As [2017] UKSC 57)

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Consider denials that funds will be made available realistically

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"[24]...The court should therefore not take the refutation at face value. It should judge the probable availability of the funds by reference to the underlying realities of the company’s financial position; and by reference to all aspects of its relationship with its owner, including, obviously, the extent to which he is directing (and has directed) its affairs and is supporting (and has supported) it in financial terms." (Goldtrail Travel Limited (in liquidation) v Onur Air Tasimacilik As [2017] UKSC 57)

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Ability to fund own legal team indicates appeal not stifled 

 

“Although it could not be said that there is powerful evidence in this case that the backers can provide security, it nevertheless remains the case that there is no evidence that they cannot.” (Blada Limited v. HMRC FTC/64/2010, §28, Judge Bishopp).

 

“…neither the appellants nor Mr Gohir have taken the opportunity to challenge with any evidence the powerful inference that Mr Gohir has both the means and the motive to provide the necessary security if necessary as the price of being able to pursue this appeal. Accordingly, it seems to me that no case is made out or even begun to be made out that an order for security in the present case would stifle the appeal.” (Calltel Telecom Ltd v HMRC [2008] STC 3246, §14, Briggs J).

 

Caution where HMRC are, potentially, the cause of the insolvency

 

“I agree that in the context of a dispute, as this is, between taxpayer and state one should be cautious about the making of an order for security when the taxpayer’s insolvency may, if only in part, be attributable to its treatment by the state, and when the making of an order might be seen, even if not oppressive, as a means of stifling a claim…But, important though those considerations are, it does not seem to me that there can be any basis on which applications for security if made by HMRC should be routinely refused; the general body of taxpayers is entitled to some protection from the pursuit of an appeal on the “heads I win and tails you lose” basis criticised by Waller LJ in Contract Facilities...” (Blada Limited v. HMRC FTC/64/2010, §36, Judge Bishopp).