Olympic Airlines SA v ACG Acquisition XX LLC

Earlier this year, Teare J, in the Commercial Court, presided over the trial of a claim and counterclaim in consolidated proceedings in which the claimant is ACG Acquisition XX LLC (‘ACG’), a Delaware company, and the defendant is Olympic Airlines SA, a Greek company in special liquidation (‘Olympic’).

Olympic, a state-owned enterprise, was placed into such liquidation under the provisions of Greek insolvency law by an order of the Court of Appeal in Athens on 2 October 2009. The liquidator is Ethniki Kefaleou SA. The order was made on a petition dated 24 September 2009 presented by the Greek State (‘the State’), Olympic’s largest, and majority, creditor, with a debt exceeding €303 million. The State’s claim followed a decision of the European Commission dated 17 September 2008 that Olympic had for many years been the recipient of illegal State aid. With few exceptions (for example, claims by employees), the State’s debt enjoys preferential status in the liquidation. Olympic is also indebted to the National Insurance Institution of Greece for more than €1.2 million. The special liquidation order projected a net deficiency as regards creditors of over €411 million.

The outcome of the trial before Teare J was that, by his order of 1 June 2012, he: (i) entered judgment, plus interest, for ACG against Olympic for over US$10m; (ii) made further orders for the payment of interest until the principal judgment sums had been paid; (iii) ordered Olympic to pay two thirds of ACG’s costs; (iv) ordered it to pay £500,000 on account of such costs to ACG’s solicitors, Simmons & Simmons LLP, by 4 pm on 31 July 2012; and (v) dismissed Olympic’s counterclaim (which had overtopped ACG’s claim). The £500,000 was to be held by the solicitors in their client account unless one or other of the following events occurred: (i) Olympic did not file an appellant’s notice by 22 June 2012; or (ii) any application for permission to appeal was finally dismissed. Upon either event, the £500,000 was to be released to ACG. The judge refused Olympic permission to appeal.

Olympic filed an appellant’s notice seeking permission to appeal to the Court of Appeal, and did so before 22 June 2012. On 30 July 2012, Moore-Bick LJ, on the papers, granted Olympic permission to appeal save in relation to grounds 13-20, in respect of which no renewed oral application has been made. The appeal is to be heard on 14 January 2013. A day and a half is to be allowed for it.

Olympic did not pay the £500,000 by 31 July 2012, nor has it since paid it. By an application notice issued in this court on 14 August 2012, Olympic sought a stay of Teare J’s order. That is one of the two applications before the court. The basis for it is that Greek law is the applicable law of the liquidation, as ACG agrees; and it is said that, under that law, Olympic’s liquidator may not ‘at this time’ lawfully make any of the payments required by Teare J’s order but that ACG must in due course prove in the liquidation for them. ACG agrees that it must prove in the liquidation for the principal judgment sum and interest the subject of the order, although given the preferential status of the State as the majority creditor, the size of its debt and Olympic’s estimated deficiency as regards creditors generally, it does not expect to achieve any material return in the liquidation. Mr McLaren QC explained to us that once - at an early stage in the litigation - ACG had recovered from Olympic an aeroplane that it had leased to it, ACG had no further commercial incentive in pursuing its claim for damages, but regarded itself as locked into the litigation because Olympic was counterclaiming for sums that exceeded its own claim.

ACG disagrees with the liquidator, however, that it is not entitled to the immediate payment in full of the £500,000 ordered by Teare J’s interim payment order (‘the IPO’). Its position is that Olympic’s liability under the IPO is part of the ‘costs of execution’ of the Greek liquidation – or what in an English law liquidation would be regarded as an expense incurred by the liquidator for the benefit of the liquidation. Olympic made no submission to Teare J that it would be unlawful for Olympic to comply with the IPO, nor did it seek a stay from him of its enforcement. ACG’s riposte to Olympic’s stay application of 14 August 2012 was, on 22 August 2012, to issue an application notice pursuant to CPR Part 52.9.1(c) asking the court to make Olympic’s permission to appeal conditional upon: (i) its compliance with the IPO; and (ii) providing security for ACG’s costs of the appeal in the sum of £95,000, alternatively £82,500. That is the other application before the court.

Part 52.9 provides, so far as material:

Olympic’s response to ACG’s application is that there is no ‘compelling reason’ for making either order. Mr Shepherd QC submitted that if, as it asserts, ACG is entitled to the immediate payment of the £500,000 in full, there is no reason why ACG should not enforce compliance with the IPO in Greece, as it has been entitled to do since 1 August 2012. ACG has, however, taken no such step, but has instead sought to shorten the exercise by asking that compliance with the IPO be made a condition of Olympic’s appeal. The problem with that, submits Mr Shepherd, is that there is expert evidence on Greek law before the court (from Dr Tsikrikas) that it would be unlawful for the liquidator to comply with the IPO or, therefore, to comply with the condition, and so no such condition should be imposed. Mr Shepherd says that, for like reasons, Olympic could also not lawfully comply with any requirement as to the provision of security for ACG’s costs that the court might impose as a condition of the appeal and so, once again, none should be imposed. Since Olympic could not lawfully comply with either condition, the imposing of such conditions would stifle its appeal.

There is indeed evidence from Dr Tsikrikas to the effect that Mr Shepherd asserts. There is also expert evidence from Professor Marinos to the contrary effect, namely that the IPO is part of the costs of execution of the Greek liquidation and so an expense that Olympic is bound to pay. We did not have much argument from counsel as to the rival views of the experts since it appeared clear to the court that it is not in a position to decide definitively on this application whose evidence is to be preferred. For that purpose, it would be necessary to have the benefit of their oral evidence, tested by cross-examination. I shall not, therefore, take time in explaining the expert evidence. I say simply that I accept that Olympic has an arguable case that, under the Greek insolvency law applicable to this liquidation, ACG may only be entitled to prove in the liquidation for the costs awarded to it by Teare J’s order and also for any costs that the Court of Appeal may order to be paid to it following the hearing of Olympic’s appeal.

That, however, is not the end of the matter. First, Olympic’s position is not that there are insufficient assets in the liquidation out of which any such costs might be paid. It accepts that there are sufficient assets. It is well able to pay its own lawyers its own (very substantial) costs that it incurred in the proceedings below and also those costs that is has incurred, and expects to incur, on the appeal. Its position is simply that it cannot pay ACG the costs it has been ordered to pay because to do so will be unlawful. All that Olympic can lawfully do, it asserts, is in due course to pay ACG’s costs of defending the Olympic’s counterclaim (if they are specifically identifiable) and to satisfy any proof for costs that ACG may lodge in respect of the remainder of its costs by paying it whatever dividend it is entitled to; but that it can do neither of these things until a creditors’ list has been finalised, and the date when that will happen is unknown.

Secondly, history shows that Olympic’s position with regard to the limits of what it may lawfully do under Greek law is not entirely consistent. In August 2010, ACG made an application in the proceedings to Teare J of which the outcome was that he ordered Olympic to pay costs to ACG, which Teare J summarily assessed at some £18,000 in November 2010. Olympic ignored that order. Months later, in July 2011, ACG applied for an order that unless Olympic complied with Teare J’s costs order, its defence and counterclaim should be struck out. That application was argued before Steel J on 22 July 2011, when Olympic (by Mr Shepherd) ran the same argument that it has before us, namely that it was not lawful under Greek law for it to pay the costs. That argument was apparently supported by somewhat feeble evidence, which Steel J regarded as outgunned by the contrary evidence adduced by ACG to the effect that the liquidator could lawfully pay the costs in full. Steel J accepted the latter evidence and the outcome was that he made the ‘unless’ order for which ACG had asked. Moreover, the liquidator duly complied with it, by paying the ordered costs. That was obviously expedient, since otherwise Olympic’s defence and counterclaim would have been struck out. Mr Shepherd told us that the liquidator appreciated at the time that such compliance with the ‘unless’ order was unlawful. There is, however, no evidence explaining the circumstances in which the liquidator apparently considered that it was nevertheless all right for it to apply Olympic’s assets in a manner that it asserted then, and again asserts now, was unlawful. Olympic’s evidence before us also suggests that there is no procedure under Greek law under which liquidators can seek the directions of the court as to the conduct of the liquidation. If so, it surprises me.

Mr McLaren, for ACG, submitted to us that, in the light of Steel J’s decision of July 2011, it is not open to Olympic to argue that it cannot lawfully satisfy the IPO or, equally, any costs order that may be made against it by this court on the hearing of Olympic’s appeal. That is because, the point having been decided against it by Steel J by an order of a final character, Olympic is prevented by an issue estoppel from re-opening the same question and arguing for a different result. Mr McLaren relied on the decision of Buckley J in Carl Zeiss Stiftung v. Rayner & Keeler Ltd and Others (No 3) [1970] Ch 506.

There is, in my view, force in Mr McLaren’s submission. Arnold and Others v. National Westminster Bank plc [1991] 2 AC 93, at 109, per Lord Keith of Kinkel, identifies the type of circumstances in which it may be open to a party to escape the finality of an issue estoppel, and it is not obvious that such circumstances apply in the present case. This being, however, an interim application, the limited time for which did not permit full argument on the point, I express no final view on whether Steel J’s decision finally precludes Olympic from making the ‘unlawfulness’ case that it now seeks to make. That said, I still regard it as relevant to the disposal of Olympic’s arguments on the present applications that (a) its like argument was rejected by Steel J in 2011, and (b) Olympic then did precisely that which it asserted then, and repeats now, it cannot lawfully do.

I turn to the applications before us. I shall deal first with ACG’s application for security for costs.

On the footing that the hearing of the appeal would require one day, ACG’s estimate of its costs was £82,500. One and a half days have now been allowed for the appeal and the estimate has been increased to £95,000, although both figures are said by Mr Moses, of ACG’s solicitors, to be conservative. There was some discussion as to whether the security application must be treated as made exclusively under Part 52.9(1)(c), which is the only basis upon which ACG’s application notice is founded; or whether ACG can also invoke Part 25.13 and 25.15, as it had earlier indicated it would.

There are in my view possible problems with the latter alternative. The only condition that might appear applicable is that in Part 25.13(2)(c):

In the somewhat unusual circumstances of the case, I consider, therefore, that ACG was probably cautiously correct in making its application under Part 52.9. As to that, however, ACG’s case appears to me to be strong. Although Olympic is (questions of lawfulness apart) able to provide security, its avowed intent is to pursue an appeal to the Court of Appeal free of the risk of having to pay ACG’s costs of the appeal in full if it fails. I have noted that Olympic has an arguable case that, under Greek law, ACG would not be entitled to such costs as costs of execution of the liquidation. Against that, however, must be set the following considerations.

First, ACG has a good arguable case that Olympic is issue estopped from asserting the Greek law point, and I am at present unclear what answer Olympic has to that case. Second, save for that small class of cases, of which this is not one, in which there is an absolute right of appeal, there is not strictly any right to appeal to the Court of Appeal against an adverse decision of the court below, the giving of permission being a discretionary matter: note the ‘may’ in Part 52.3(6). Third, whilst Moore-Bick LJ gave unconditional permission to appeal, he had before him written submissions from ACG opposing the giving of permission but also indicating that, were he to give permission on any ground, ACG would then apply under Part 25.15 and 52.9(1)(c) for the imposition of various conditions, including one for the provision of security for ACG’s costs of the appeal. Moore-Bick LJ cannot, therefore, be taken to have formed a view on whether the giving of permission should have been subject to conditions (see Part 52.3(7)(b)).

Fourth, in my view there is in all these circumstances a ‘compelling reason’ to require security to be provided. It is founded on basic considerations of justice. ACG has secured a first instance judgment in its favour. In principle, it is obviously unjust for ACG to be expected to incur costs in resisting an appeal brought by an insolvent corporate appellant such as Olympic without being secured as to its costs of such resistance. Whilst Olympic’s stance is that it cannot provide security because to do so would be unlawful under Greek law, it is also faced with a decision of the English court in this very litigation that it would not be so unlawful. In any event, even if the liquidator has concerns about the lawfulness of the giving of security, it is well settled that when it comes to the question of giving security the court also has regard to the ability of those behind the corporate appellant to help it out (see Keary Developments Ltd v. Tarmac Construction Ltd and another [1995] 3 All ER 534, at 540j, per Peter Gibson LJ). The liquidator wishes to pursue the appeal because, presumably, it regards it as for the benefit of the liquidation; the liquidation is being conducted primarily for the benefit of the State; and so the State has the primary interest in the pursuit and success of the appeal. Whilst the court can take judicial notice of the current straitened economic circumstances with which the State is faced, there is no evidence that the State cannot or would not itself be prepared to put up the (in the context of the sums the subject of Olympic’s claims in the litigation) relatively modest sums sought by way of security in order to keep the appellate show on the road. Moreover, any security provided will be paid into court and, as I understood to be accepted by Mr McLaren, if ACG wins the appeal, no money will be ordered to be paid out to it except by consent or after a full inquiry as to ACG’s claim to the money. By that, I mean an inquiry as to the Greek law and issue estoppel points.

In my judgment, in light of these considerations, there is a compelling reason for imposing upon Olympic, as a condition of the bringing of its appeal, a requirement to pay an appropriate sum into court by way of security for ACG’s costs of the appeal. I am not satisfied that the making of such an order would ‘stifle’ the appeal, any more than Steel J’s July 2011 ‘unless’ order prevented Olympic from maintaining its defence and counterclaim. I take the view that that sum should be £82,500. I would invite counsel to indicate by when such payment should be made.

ACG asserts that a further condition of Olympic’s appeal should be that Olympic should comply with Teare J’s IPO. Mr Shepherd’s position is that there is no ‘compelling reason’ why Olympic should be subjected to such a condition. As ACG claims that Olympic is liable to satisfy the IPO in full as an expense of the liquidation, Mr Shepherd says there is no reason why it could not already have sought to enforce the order in Greece, or why it cannot proceed to do so now. He says that an appellant is not ordinarily required to comply with the order below as a condition of pursuing an appeal against it and no different rule ought to apply in this case.

The suggestion that ACG should already have sought to enforce the IPO in Greece, or should do so now, rather than to seek the relief it did in its August application notice is in my view unrealistic. Mr Shepherd was unable to explain precisely how ACG might have sought to enforce the IPO in Greece, but it appears to me that probably the only way in which it might have done so, or might now do so, is by an application in the Greek liquidation for an order for payment. That would provoke the very issue that divides the experts who have given evidence to this court.

A more realistic assessment of the position is that any recourse that ACG might have to the Greek courts in order to enforce the IPO would be likely to be protracted and expensive, perhaps disproportionately so. In particular, the liquidator (which I presume would have a voice in response to such claim) would be likely to mount resistance to it with all the legal firepower at its command. The IPO was, however, intended to be satisfied in, relatively speaking, very short order; and it was made in litigation in which it had earlier been decided, contrary to the liquidator’s case, that such orders are for payments in the nature of costs of execution of the liquidation that are liable to be satisfied in full.

As I have said, I accept that Olympic has an arguable case that Greek law does not permit the satisfaction in full of the IPO, just as I accept that it is also well arguable that Olympic is estopped from so contending. All that ACG is asking for is that it should be a condition of Olympic’s appeal that it should comply with the IPO. Again, however, I do not understand it to be any part of Mr McLaren’s position that, upon such compliance, the money should, if Olympic’s appeal is dismissed, be automatically released to ACG. ACG accepts that its entitlement to the money should be the subject of a like enquiry as I have referred to in paragraph 19 above; and I did not understand Mr McLaren to disagree with Mr Shepherd that, if there is to be condition for compliance with the IPO, it should be by way of a requirement for the payment of the money into court rather than to ACG’s solicitors.

There is no doubt that this court has a discretionary jurisdiction to impose a condition of the nature sought by ACG: see the discussion in Société Générale SA v. Saad Trading, Contracting and Financial Services Company & Anr [2012] EWCA Civ 695, per Aikens LJ at paragraph 32, in a judgment with which I agreed. Given (i) the difficulties, expense and delay with which ACG will be faced if it seeks to enforce the IPO in proceedings in Greece; (ii) the fact that Olympic has already fought and lost in this jurisdiction the point that it is not obliged under Greek law to comply in full with orders such as the IPO; (iii) that Olympic, despite its protestations about its inability to comply with such orders, has shown that it is prepared to satisfy such orders if it regards it as in the commercial interests of the liquidation for it to do so; (iv) that there is no doubt that Olympic has assets with which to comply with the condition; and (v) that in any event the condition proposed by ACG requires no more than that Olympic should pay the money into court, following which there will then be an inquiry as to whom it might be paid out, it seems to me that the justice of this case requires, and that there is therefore a compelling reason for, the imposing upon Olympic as a condition of its appeal that it should be required to bring £500,000 into court.

I would therefore impose such a condition, and would again invite counsel’s submission as to the timing for compliance with it.

In the light of the orders that I would make on ACG’s application, I would dismiss Olympic’s application.

I agree.