Supreme Court considers extent to which an appellant’s relationship with a wealthy third party is relevant in considering whether a payment condition will stifle its appeal

A court may impose conditions when granting permission to appeal. These conditions may include a requirement that the appellant pay money into court before an appeal can proceed – most notably in the form of security for costs, or payment of the judgment sum awarded by a lower court.

In a recent decision the Supreme Court has considered the proper approach to imposing such conditions where the appellant has limited financial means, but is closely connected to a wealthy third party who could feasibly pay the required amount on behalf of the appellant. In particular, it has considered whether the third party’s position can be taken into account in determining whether the imposition of conditions will stifle the appeal and therefore breach the appellant’s right to a fair hearing: Goldtrail Travel Limited (in Liquidation) v Onur Air Tașimacilik AȘ [2017] UKSC 57.

The decision establishes that the relationship can be taken into account, but the relevant question is whether the appellant can pay – including by raising the required sum from the relevant third party – not whether the third party can do so.

Nick Chapman from our disputes team considers the decision further below.

Background

The appellant, Onur, is a Turkish airline that was successfully sued by the liquidators of the respondent, Goldtrail, a holiday tour company. As part of the initial claim, the court found that Goldtrail had been defrauded by its owner, and that Onur had dishonestly assisted. Onur was ordered to pay damages in the sum of £3.64 million.

Onur was granted permission to appeal to the Court of Appeal. Goldtrail requested that the court impose conditions for the continuation of the appeal under rule 52.9(1)(c) of the Civil Procedure Rules, including a requirement that Onur pay the £3.64 million into court on the basis that it did not have assets in England and Wales. The Court of Appeal imposed the condition, despite objections from Onur.

Onur did not pay the £3.64 million into court as required. Goldtrail accordingly applied for the appeal to be dismissed. At the same time, Onur sought a discharge of the condition on the basis that payment of the sum was beyond its means and that its continuation would stifle its appeal in a manner that breached its right to a fair hearing under Article 6 of the European Convention on Human Rights.

The issue before the Court of Appeal was whether, in considering whether a condition requiring the appellant to pay money into court would stifle its appeal, the court could take into account the appellant’s relationship with a wealthy third party – in this case Mr Bagana, the majority owner of Onur, who effectively controlled its financial affairs and had in the past provided it with significant funds.

The Court of Appeal held that in exceptional circumstances the ability of a third party to provide funds could be taken into account. It found that the position of Mr Bagana gave rise to such exceptional circumstances, and accordingly that a condition for payment would not stifle Onur’s appeal.

Onur appealed to the Supreme Court.

Decision

The Supreme Court allowed the appeal, by a majority, and remitted the application for discharge of the condition back to the Court of Appeal, to be determined by reference to the correct test.

While the Supreme Court was split in its decision to allow Onur’s appeal, all of the justices agreed on the principles guiding the question of whether Onur’s relationship with Mr Bagana should defeat its complaint that the payment condition would stifle its appeal. The court held that the central question for assessing any such requirement is:

“Has the appellant company established on the balance of probabilities that no such funds would be made available to it, whether by its owner or by some other closely associated person, as would enable it to satisfy the requested condition?”

In this regard, where the relevant company does not have appropriate resources of its own and the question is whether it has access to the resources of others, the focus will be on whether the third party would (rather than could) provide the relevant resources.

The Supreme Court noted that, while this criterion is simple, its application to a particular set of circumstances is likely to pose difficulties. The Supreme Court’s decision contains a number of points that may assist:

  1. To stifle an appeal is to prevent an appellant from bringing it or continuing it. If an appellant has permission to bring an appeal, a court has determined that there is an issue or question which ought to be tried. It would be wrong to then impose a condition which has the effect of preventing that from occurring.
  2. A party’s participation in an appeal can be stifled equally by a condition requiring payment of security for costs, or payment of the sum that was originally awarded by the lower court. There is no need to distinguish between these different conditions in considering the question of whether they will stifle an appeal.
  3. Even when the appellant appears to have no realisable assets of its own, a condition for payment will not stifle an appeal if the appellant can nonetheless raise the required sum.
  4. Courts should be cautious of equating the appellant with a wealthy controlling shareholder. In this respect, the shareholder’s distinct legal personality must remain at the forefront of the analysis. The question should be “can the company (ie the appellant) raise the money?” It should not be “can the shareholder raise the money?” The situation may be different where the shareholder has sought to abuse the distinction between the legal personalities (see Prest v Prest [2013] UKSC 34).
  5. A court can generally expect that both the company and the third party will emphatically refute any suggestion that the relevant funds will be provided. This refutation should not be taken at face value. Rather, the court should assess the probable availability of the funds by reference to the underlying realities of the company’s financial position as well as all aspects of its relationship with its owner, particularly the extent to which they direct its affairs and support it financially.

In applying these principles, the majority (Lord Wilson, with whom Lord Neuberger and Lord Hodge agreed) was critical of courts employing “that over-used store-room in the mansion of the law which is designated as ‘exceptional circumstances'”. The majority held that the Court of Appeal erred by holding that, as the current circumstances were exceptional, the requirement for Onur to make payment could be justified by whether Mr Bagana could advance the necessary funds, irrespective of whether he probably would do so.

In their dissenting judgments Lord Clarke and Lord Carnwath focused on whether Onur had met the burden of showing that it did not have access to Mr Bagana’s resources. Both held that the evidence presented by Onur before the Court of Appeal fell short of establishing that the imposition of the payment condition would stifle the appeal. Accordingly, they were willing to uphold the original decision.

Nick Chapman
Nick Chapman
Associate (New Zealand)
Email
+44 20 7466 6321

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