Sebastian Holdings, Inc v Deutsche Bank AG

The question which arises on this application is whether we should impose conditions upon the pursuit by the Appellant, Defendant at trial, Sebastian Holdings, Inc (“SHI”), of its application for permission to appeal against an Order of Cooke J dated 8 November 2013. By that Order, after a 45 day trial, and delivery of a 400 page reserved judgment, the judge gave judgment for the Respondent, Claimant at trial, Deutsche Bank AG (“DB”), for about US$243m. He also directed that SHI was to make an interim payment on account of costs of about £34.5m by 22 November 2013.

SHI has sought permission to appeal from this court, the judge having refused it. On 6 February 2014, Sir Stanley Burnton, on a consideration on the papers, adjourned that application to a rolled up hearing on notice to the Respondent, with the appeal to follow if permission is granted. As a result a seven day hearing is listed to commence on 20 November 2014, with several days set aside in advance for pre-reading by the court. It is acknowledged that the proposed appeal is of a fact-intensive nature and that it will inevitably be costly, both for the parties and in terms of the judicial resources which must be devoted to it. Should it succeed in its appeal, SHI intends to pursue its counterclaim in an amount of up to about US$600m. It does not pursue the entirety of the counterclaim which was advanced, without success, at trial in the sum of about US$ 8bn.

In summary, the subject of the claim was Foreign Exchange, (“FX”), and Equities trading which SHI conducted with DB pursuant to a series of prime brokerage agreements. SHI’s trading was conducted either by Mr Vik, SHI’s sole shareholder and director, or by SHI’s agent, Mr Klaus Said, an experienced and senior FX trader. Both Mr Vik’s and Mr Said’s trading suffered massive losses in the market turmoil of October 2008. This left SHI owing substantial sums to DB, about US$243m, which DB claimed from SHI. Mr Vik is by any standards a man of great wealth, said to be measured in billions.

SHI brought a US$8bn counterclaim, alleging (inter alia) that DB’s breaches of alleged oral agreements or implied terms relating to SHI’s trading through DB caused SHI to incur billions of dollars of consequential losses and lost profits. Importantly, amongst other things, SHI claimed that margin calls made by DB in October 2008 in respect of SHI’s trading forced it to close positions at significant losses and to incur billions of dollars of lost profits. A key issue in dispute was whether SHI in fact had funds available to it in October 2008 which it chose not to use to meet those margin calls.

The case took over four years to come to trial, following a protracted jurisdictional battle and a series of intensely fought interlocutory applications. The trial before Cooke J concluded in August 2013. It involved 29 witnesses of fact, 17 expert witnesses, hundreds of thousands of documents hosted on an electronic trial bundle, thousands of pages of closing submissions, and was conducted at a combined cost to both parties of around £100m, reflecting the vast sums at stake. Parallel substantive proceedings have also been ongoing in New York in which SHI is claiming about US$2.5bn from DB (these are continuing, no trial having yet been held)

Cooke J handed down his 400 page judgment on 8 November 2013. The Judge substantially upheld DB’s claim in the sum of about US$243m. He dismissed SHI’s US$8bn counterclaim in its entirety.

SHI argue that central to the judge’s conclusion was his determination that although DB had been in breach of an implied contractual term requiring it to report to SHI the collateral requirements of Mr Said’s trading, performance of which obligation would in practice limit SHI’s risk on that trading to the US$35m collateral budget which it had provided, Mr Said had been authorised to waive and had waived performance of that obligation. In that regard it should be noted that the judge made findings of dishonesty on the part of some of the bank’s personnel in relation to their subsequent explanations regarding the bank’s inability properly to monitor the margin required by Mr Said’s trading. It is against the finding of waiver that the appeal is principally directed. SHI says that, had that finding not been made, then, subject to certain subsidiary issues, SHI would have obtained substantial damages from the bank regardless of the multiple criticisms which the judge made of SHI’s conduct of the case.

The judge was very critical of Mr Vik. For present purposes, it suffices to note that Cooke J found that substantial parts of SHI’s defence and counterclaim were based on dishonest evidence and fabricated documents put forward by Mr Vik, or by SHI’s only other factual witness, Per Johansson. Mr Johansson was and apparently still is engaged as a litigation consultant to SHI. Amongst other things, Cooke J found that Mr Vik had invented the alleged oral agreements with DB, and that SHI’s vast counterclaim was put forward on a dishonest basis by Mr Vik and Mr Johansson relying on fabricated documents. Cooke J was also critical of SHI’s conduct of the proceedings in other respects, in particular its approach to disclosure, its pursuit of hopeless arguments, and as to the evidence of two of its main experts.

I have already mentioned the issue whether SHI had available to it in October 2008 funds with which it could have met the substantial margin calls which were required to sustain the trading. This issue was made more complicated by the bank’s failures, and in particular by the circumstance that it was only on 22 October 2013 that the bank identified, and told SHI of, a systems error which had resulted in SHI’s assets with the bank being overstated by US$315m. This notwithstanding, taking all relevant factors into account, the judge nonetheless made an unequivocal finding that on and after 13 October 2008, when Mr Vik had a clear idea that SHI’s trading liabilities ran to many hundreds of millions of dollars, he caused US$896m of funds and assets to be transferred from SHI either to himself or to companies closely associated with him or with his family. In particular, very substantial sums were transferred to CM Beatrice, Inc. (“Beatrice”), and to VBI Corporation (“VBI”). The judge found that Mr Vik procured these transfers for no bona fide commercial reason, and that he did so with a view to depleting SHI’s assets and making it more difficult for DB to seek recovery of the amounts owed to it by SHI. The judge concluded, at paragraph 1461:

“I therefore find that all these funds were available to SHI (some US$896M) prior to transfer and that, moreover, Mr Vik could, at a moment’s notice, procure the transfer of those funds back to SHI should he have chosen to do so. There was no good bona fide commercial reason for the transfers.”

In a subsequent judgment of 24 June 2014 pursuant to which the judge has made, pursuant to s.51 of the Senior Courts Act 1981, a non-party costs order against Mr Vik, the judge said this:-

“66.

First, for the reasons set out at paragraphs 1434-1465 of my judgment in the action (at paragraphs 1455, 1460 and 1463 in particular) I found that Mr Vik transferred assets out of SHI with a view to depleting those assets and making it more difficult for DBAG to recover sums from SHI in respect of any liability owed. He sought to move assets speedily away from SHI and in particular from SHI’s accounts with DBAG in order to render access to them more difficult. At paragraph 1461, I concluded that all the funds which he had transferred were still available to SHI because Mr Vik could, at a moment’s notice, have procured the re-transfer of those funds to it had he chosen to do so. The funds were available to SHI to produce margin for Mr Said’s FX trading at the time and Mr Vik could choose to utilise them whilst they were in SHI’s accounts, whether at DBAG, HSBC or elsewhere and equally use them even after transfer to Beatrice, to VBI or to himself. Until 30th October 2008 at the earliest, Mr Vik owned Beatrice as well as SHI and moved money between these companies “as he saw fit”.

67.

SHI’s financial situation was very much an issue at the trial because of the allegations of about forced close out, duress, available funds and transfers as well as the counterclaim. I found that there was no duress and that Mr Vik was not forced to close out any of SHI’s transactions, whether those concluded by Mr Said or those concluded by himself, because of these available funds. The effect of the transfers was that intended. Assets available to DBAG to satisfy debts owed to it by SHI were depleted. Whatever might have happened to those funds since October 2008 in the counterfactual situation had these transfers not occurred is not relevant for this purpose. The transfer of SHI’s assets, on Mr Vik’s instructions, has undoubtedly caused or contributed to SHI’s inability to meet the costs order of 8th November 2013.

68.

Moreover, there was, as I have found, a strong element of impropriety in making those transfers.”

By an order of 2 July 2014 the judge ordered Mr Vik to pay DB about £36m, i.e. the interim payment on account of costs ordered against SHI together with accrued interest. We were told that Mr Vik made this payment to DB within 48 hours of being required so to do, albeit, and naturally, on terms which protected his position in the event of the success of either SHI’s proposed appeal or his own.

The application now before the court is DB’s application seeking an order from the court imposing conditions upon the pursuit by SHI of its application for permission to appeal and, if successful, its appeal. Three conditions are sought:-

It is accepted that we have jurisdiction to make these orders pursuant to CPR3.1(3)(a) and 3.1(2)(f) and that, in the case of (i) and (ii) above our jurisdiction is to be applied in a manner analogous to that which obtains under CPR 52.9(1)(c) and 52.9(2) and in the case of (iii) above our jurisdiction is to be applied by reference to the same tests as set out in CPR 25.15. See Golubovich v Golubovich [2011] EWCA Civ 528, per Wilson LJ at paragraphs 8-9 and Schlaimoun v Mining Technologies International Inc [201] EWCA Civ 772, per Lord Neuberger MR at paragraphs 12-14.

Mr Vik has made a witness statement for the purposes of this application. It is his case that SHI is unable to fund the payments into court sought by the bank. I am prepared to approach this application on the footing that SHI does not currently have standing to its credit in its own name substantial funds other than such rights as it has against the transferees for the return of the funds transferred out of SHI in October 2008 without bona fide commercial reason. I agree with Mr David Foxton QC for DB that it is implicit in the judge’s findings that, at any rate as at October 2008, SHI had the right to recover its funds.

It is important to remember that at trial Mr Vik described Beatrice, of which in October 2008 he was the sole owner, as his “savings company” whereas SHI was his “trading company”. Beatrice was subsequently transferred to Mr Vik’s family trust as part of what he described as his “estate planning”. VBI was said to be owned by Mr Vik’s father. The judge rejected SHI’s case that the transfers were for bona fide commercial purposes. Mr Vik’s evidence was “not susceptible of belief”. In interlocutory applications Mr Vik had told lies and had refused to give relevant disclosure in order to protect SHI’s assets. An “agreement” between Beatrice and SHI which sought to create a liability in SHI to Beatrice thereby justifying a substantial part of the transfer was fabricated ex post facto.

SHI has not sought permission to appeal in respect of any of the judge’s findings so far as concerns the funds improperly transferred away. On 24 January 2014 Mr Vik, for SHI, wrote to Beatrice in these terms:-

“I am writing in my capacity as director of SHI.

As you will likely be aware, on 8 November 2013 judgment was handed down by the Commercial Court in London in the above proceedings (the “Judgment”), requiring the payment by SHI to DB of approximately $240m in damages and awarding DB its costs (including an interim payment of £32m). SHI is seeking to appeal certain elements of the Judgment, by way of an application for permission to appeal made to the English Court of Appeal on 20 December 2013.

In the Judgment, the Judge had cause to consider whether funds the subject of a number of transfers made by SHI in October 2008 remained available to SHI following transfer for the purpose of meeting subsequent margin calls. Three such transfers of funds were those set out below (the “Transfers”), instructed 8/9 October 2008 and effected between 13 and 15 October 2008:

(i)

The transfer of NOK 1.5 billion from SHI’s account with DB to SHI’s account at HSBC Zurich and from it to Beatrice.

(ii)

The transfer to Beatrice of a number of fiduciary deposits held by SHI (through HSBC) totalling NOK 1,476,244,000.

(iii)

The transfer by SHI of Norwegian Treasury Bills with a value of approximately NOK 1.4 billion to Beatrice.

SHI’s case was that Transfers (i) and (ii) were loan repayments and (iii) was a capital distribution. The Judge disagreed, in dicta, finding that these were transfers effected without any “good bona fide commercial reason” simply “in order to render access to [these funds] more difficult” for DB.

The Judge therefore found that the sums represented by the Transfers, as well as other sums paid to other legal persons, remained available to SHI following the Transfers.

SHI disagrees with the above findings, although it has concluded that they are not of such a nature as to be reasonably capable of appeal under the applicable principles in English law and procedure. In light, however, of the Judge’s findings, and notwithstanding SHI’s position, which was rejected by the Court, I write to enquire on behalf of SHI whether Beatrice will return the funds transferred to Beatrice by way of the Transfers; and if so under what circumstances and on what basis. If Beatrice is not willing to effect such a return, I should be grateful for an indication of the basis for such refusal.”

Mr Vik’s approach to the relative inviolability of these findings is realistic.

On the same day Mr Vik wrote to VBI in similar terms. The relevant part of the letter reads as follows:-

“. . . One such transfer of funds was the transfer to VBI Corporation (“VBI”) that resulted from the debt repayment request of 1 October 2008, instructed on 8 October 2008 and completed on 16 October 2008 of a NOK 1 billion Certificate of Deposit which SHI held with Den Norske Bank (“the DnB Transfer”).

SHI’s case was that the DnB Transfer constituted the partial repayment of a NOK 1.7bn loan from VBI. The judge disagreed, finding, in dicta, that it was a transfer effected without any “good bona fide commercial reason” simply “in order to render access to [these funds] more difficult” for DB, having found that “[t]here is no record in SHI’s bank statements reflecting any payments to SHI from VBI Corporation.”

The Judge therefore found that the sums represented by the DnB Transfer, as well as other sums paid to other legal persons, remained available to SHI following the DnB Transfer.

SHI disagrees with the above findings, although it has concluded that they are not of such a nature as to be reasonably capable of appeal under the applicable principles in English law and procedure. . . .”

In a witness statement of 2 April 2014 made in opposition to the current application Mr Andrew King, a solicitor with Messrs Travers Smith who represent SHI, says this, at paragraph 9(viii):-

“. . . in his witness statement Mr Snelling [a solicitor acting for DB] makes repeated reference to the fact that SHI has not sought permission to appeal in relation to the “available funds” issue as if this is somehow relevant to the Bank’s application. SHI’s submissions will explain why, if that is the Bank’s contention, it is misconceived. In any event, it is obvious why SHI has not appealed the issue of “available funds”. Quite apart from the fact that SHI does not need to do so for the purposes of its appeal, Cooke J concluded that, regardless of whether SHI had available funds to meet the margin calls without closing positions, the great majority of those positions were closed for reasons other than satisfaction of the margin calls (see paragraphs 1466-1495 of the Judgment). That in itself prevents SHI from appealing the point. It is difficult to avoid the conclusion that had SHI sought, for whatever reason and on whatever basis, to appeal the “available funds” statement by Cooke J, the Bank would have shouted just as loudly as it is now that SHI has not done so.”

Given the size of the sums involved, it can readily be appreciated that the closure of positions falling outside those which Mr King calls the “great majority” generated very substantial losses. In fact, as Mr Foxton was able to demonstrate, by reference to paragraphs 1467, 1468, 1486 and 1491 of the judgment below, there are losses of the order of US$300m which SHI could recover from DB were it to succeed on its existing Grounds of Appeal and demonstrate that it lacked available funds with which to meet the relevant margin calls.

It is therefore a telling feature of this litigation that SHI has not sought to appeal these damning findings.

In opposition to this application however SHI seeks to reargue its case, rejected at trial, that the October 2008 transfers of funds to Beatrice and VBI were repayments of loans made to SHI by Beatrice and VBI, pursuant to oral loan agreements and oral loan repayment agreements allegedly concluded between SHI and Beatrice/VBI. I have already summarised the basis on which Cooke J rejected these arguments. SHI seeks to rely on new evidence, in the shape of witness statements from Mr Vik and Mr Johansson, and upon documents recently created either by itself or by third parties, which it is said evidenced the loans asserted at trial. The new evidence gives previously undisclosed details of the terms and purpose of the alleged loans. A small number of documents which were in fact disclosed in the course of the action are now relied upon although no reliance was placed upon them at trial.

Perhaps most striking are the following aspects, as described by Mr Foxton in his skeleton argument for this appeal:-

All of the new material was before Cooke J on the s.51 application. He concluded that Mr Vik was precluded per rem judicatam from challenging the findings which he had made in his judgment against SHI. He also concluded that Mr Vik was precluded from raising any point which could and should properly have been raised in the context of the action against SHI, where, as the judge reiterated, SHI’s financial position was very much in issue. It was thus, thought the judge, “not open to SHI to adduce any further evidence in support of the position it took at trial or in support of any new case relating to the transfers of funds and assets between October 13 and 18 or, more generally, as to its financial situation and indebtedness.” This was, observed the judge, “exactly what SHI has sought to do in producing documents to the court which appear to evidence payments flowing from Fearnley Fonds to SHI with VBI as their source. These documents were apparently available at the time of the trial but their existence or supposed significance was not appreciated by any of the parties’ representatives, their lawyers or experts at the time. Additionally, SHI has now produced evidence from Mr Vik and Mr Johansson purporting to show the existence of two more loans, one from VBI and one from Beatrice, each to SHI, to which no reference was made at all at the trial.” – judgment of 24 June 2014, paragraph 97.

The judge went on however to consider the evidence which I have summarised above. Again, I gratefully adopt Mr Foxton’s summary of the judge’s conclusions:-

(1)

SHI’s new evidence raised as many questions as it purported to answer paragraph 98.

(2)

The evidence of the existence of a further loan from Beatrice was inconsistent with the document SHI had put forward at trial as the best evidence of the Beatrice loan then relied on, paragraph 99. This “obvious” inconsistency meant that this evidence was “incapable of acceptance”.

(3)

SHI’s evidence as to the re-characterisation of the NOK 1.44bn transfer to Beatrice as a loan repayment could not be accepted. Cooke J observed “[h]ow anyone responsible for Beatrice could agree to this is impossible to conceive”– albeit noting that this re-characterisation “highlights the approach taken by Mr Vik in treating SHI and its assets as his own”, paragraph 100.

(4)

The inconsistencies between SHI’s trial evidence, statements in its opening submissions at trial, and between the April and June 2014 evidence itself, combined with the total absence of any contemporary documents supporting the existence of the alleged loan agreements, rendered the evidence “incapable of acceptance”, paragraphs 101-102.

(5)

Cooke J observed that he did not reject this evidence “simply because I have found Mr Vik and Mr Johansson to have told lies in the past, but the fact remains that the criticisms applicable to [their] earlier evidence at trial apply equally to the new evidence adduced”.

(6)

Cooke J also addressed new documents and material put forward by SHI, observing that the “complex promissory notes dated 28^th October 2013 and 6^th February 2014 and documents now released by Beatrice and VBI which purport to evidence the loans are not consistent with [Mr Vik and Mr Johansson’s] earlier evidence”.

(7)

At paragraph 102 Cooke J also stated that the points made by Mr Lees in the Deloitte Analysis carried weight and were not explained away by the evidence SHI had adduced.

Mr David Railton QC for SHI on this application submitted that neither Beatrice nor VBI is bound by either of the judge’s judgments. I also take as read a submission that SHI is not bound by the judgment of 24 June 2014, although I am not sure that Mr Railton actually made it. Mr Railton also resisted the suggestion that SHI is bound by the findings of the judge in his November 2013 judgment because, as the judge acknowledged at paragraph 1429, both the claim succeeded and the counterclaim failed for reasons which rendered it unnecessary to determine whether in October 2008 SHI had available to it the funds represented by the transfers to the connected parties. The judge introduced his findings in this way:-

“1433.

SHI’s case however was that it would have retained a range of positions that it was forced to close down as a result of the FX margin calls. Whilst there is a difference between the lost profits that are attributable to the closure of these positions as opposed to the maintenance of them until the time when SHI says they would otherwise have been realised, the overall figure in respect of closure of FX positions, Russell 2000 positions, CAC 40 and IBEX 35 positions, long and short equities positions, gold forward positions and additional gold forward positions amounts to about US$1 billion. DBAG’s position is that this claim is unsustainable because SHI chose to close down these positions and because it had other funds which were available to it for margin purposes, in particular the money which SHI transferred between 9th and 22nd October 2008, which it could have used to retain such business. The question of whether these funds were available to SHI is therefore a matter which was canvassed before me and which I am prepared to determine. In addition to the question whether or not such funds were available for the purpose of meeting margin calls so that SHI was not “forced to close out various positions, in consequence of those calls” the reasons for the transfers may also have significance. DBAG contends that the transfers of such large amounts reveals Mr Vik’s understanding of the scale of risks posed by Mr Said’s trading at the time in the very volatile market conditions obtaining and his desire at the time to limit SHI’s immediate exposure to the sums remaining in SHI’s accounts with DBAG and DBS. Furthermore, the history of disclosure by SHI on this subject and the information supplied by Mr Vik demonstrate this and his willingness to mislead the court.”

All this notwithstanding, Mr Railton recognised that on an application of this nature this court is unlikely to depart from the judge’s findings as to available funds. This was a characteristically realistic approach. The court on an application of this sort essentially has very little option other than to accept findings of this nature as the basis upon which it will proceed. The court on an interlocutory application is in no position to conduct a review of the earlier findings, whether in the light of the fresh evidence or simply in the light of the evidence as adduced at trial. Mr Railton was of course entitled to attempt to induce in us, as Mr Foxton happily put it, a sense of unease as to the safety of the findings, but for my part that attempt failed. In that regard it would be unrealistic to ignore that the judge himself has reviewed the new material in the context of the s.51 application, and found it wanting on the cogent grounds summarised above. I do not regard it as necessary for present purposes to determine whether the findings give rise, as against SHI, to an issue estoppel or are to be regarded as res judicata, nor whether SHI’s conduct in seeking to cast doubt upon those findings for the purposes of this application amounts to an abuse of process. I approach this application on the basis that, as the judge himself put it at paragraph 1455 of his judgment, the transfers out of SHI were done both with a view to depleting SHI’s assets and with a view to making it more difficult for DB to seek recovery, should it need to do so. In short, SHI has sought to dissipate its assets in order to avoid paying a judgment which it knew DB would have to seek. There was, as the judge found, “a strong element of impropriety in making those transfers”.

I have already indicated that I accept it as inherent or implicit in the judge’s findings that, as at October 2008, SHI had the right to recover its funds. It has not been asserted that the ability to recover the funds has been lost in consequence of subsequent transactions in the ordinary course of business. It follows that if circumstances have changed such that SHI no longer has the right to recover its funds, that can only be because it has carried out further acts of impropriety with a view to avoidance of payment of the judgment which it anticipated would be rendered against it. I can give little weight to VBI’s protestation that “under no circumstances will it return money transferred to it by SHI.” Beatrice has not replied directly to SHI’s letter of 24 January 2014 quoted above. It has however made clear in litigation in New York that it opposes return of the funds. That is hardly surprising.

I also note that SHI is careful not to suggest in its evidence that there is any reason to believe that Mr Vik would not be able to fund any payment imposed as a condition of pursuit of the application for permission to appeal. Rather, as Mr Railton puts it in his skeleton argument, “he rationally and defensibly declines to do so”. However, whether Mr Vik’s stance is rational and defensible depends upon the validity of his assertion that no economic benefit could accrue to him as shareholder of SHI from a successful appeal. That in turn rests upon an assumption that the judge’s findings about the transfers of funds are incorrect.

The principles which guide the court when deciding whether to impose conditions such as those here sought were authoritatively stated by Clarke LJ, giving the judgment of the court comprising also Wall LJ in Hammond Suddard Solicitors v Agrichem International Holdings Limited [2002] CP Rep 21. At paragraphs 40-43 Clarke LJ said this:-

“ 40. . . . . Logically there are two questions posed by rule 52.9(1)(c) and (2). The first is whether there is in the instant case a compelling reason for making the continued prosecution of the appellant's appeal conditional upon the payment into court of the judgment debt and costs (or those debts being secured in some satisfactory way within the United Kingdom) and the second is whether the court should exercise its discretion to make the order.

41.

We turn to the question whether there is a compelling reason for making the appellant either pay the judgment debt or secure it as a condition of permitting it to proceed with the appeal. We have reached the conclusion that the answer to that question is yes. In our judgment, the facts which combine to constitute a compelling reason are the following:

(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.

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.

43.

Once it is concluded that there is a compelling reason to make the order sought, there can really be no doubt as to how the second question identified above, namely whether the court should exercise its discretion to make the order, should be answered. In short, it would be just, and in accordance with the overriding objective to make the order. We do not think that such a solution is in any way disproportionate. The appellant has been ordered to pay the judgment debt and costs after a trial, and should do so as a condition of the court giving it permission to challenge the order, provided only that it can raise the money. We see nothing unjust or inconsistent with the overriding objective in requiring such a company to obey the court's orders as a condition of being permitted to continue to prosecute its appeal. Thus we see nothing unjust in providing the trust which owns the appellant with a choice. If it is in the interests of the appellant for the appeal to continue, the trust must procure the payment of the current orders. If it does, the appeal will proceed. If it does not, the appeal will be struck out.”

On the face of it every one of the considerations which there together constituted a compelling reason for requiring security in that case is also here present, save only that SHI is incorporated in the Turks and Caicos Islands rather than in BVI. Mr Railton suggested that there are two differences. First, he suggested, there is no evidence to suggest that the position of DB will materially deteriorate between now and the hearing of the application for permission to appeal and, if appropriate, the appeal. The emphasis should be, he suggested, on what SHI might in the interim do in an effort to frustrate enforcement. Secondly, he suggested, the court could be satisfied by Mr Vik’s evidence that in the event that a condition is imposed, the application for permission to appeal and, if appropriate, the appeal will be stifled because (a) SHI has no funds and (b) it is manifest that Mr Vik will not fund the condition. Furthermore, to require Mr Vik to fund the condition would effectively short-circuit the New York and other proceedings in which he is resisting attempts to impose upon him personal liability.

Before addressing these points I should refer briefly to some of the learning that has followed the decision in Hammond Suddards.

In Dumford Trading AG and OAO Atlantrybflot [2004] EWCA Civ 1265 Clarke LJ, sitting alone, emphasised that it will be an unusual and perhaps rare case in which it will be appropriate to require payment into court of all or part of the judgment sum as a condition of permitting an appellant to proceed with an appeal. Furthermore, Clarke LJ stressed that the court will adopt a cautious approach and will only impose such a condition for compelling reason. In that case Clarke LJ regarded as a crucial aspect of the application the submission that there was strong evidence to suggest that the appellant, OAO Atlantrybflot, registered in Russia and without assets in the UK or any other EU state, had already taken steps to denude itself of assets in anticipation of the judgment which was, in due course, rendered against it and against which it wished to appeal. At paragraph 13 Clarke LJ said this:-

“The key question on the facts of this particular case is whether OAO has sought to dissipate its assets in order to avoid paying the judgment, as is submitted on behalf of Dumford, or whether it has disposed of assets in the ordinary course of its business as submitted on its behalf. If OAO has sought to dissipate its assets in order to avoid paying the judgment, there would be much to be said for making an order along the lines suggested by Mr Marshall.”

Clarke LJ noted that the adoption of ordinary company structures should be respected. At paragraph 16 he said this:-

“In my judgment, that the mere fact that OAO has a parent company, namely OceanProduct, or indeed that PSB has some shares in OAO, would not be a sufficient reason to impose the kind of draconian condition suggested on behalf of Dumford. Groups of companies are entitled to set themselves up through separate legal entities. In the absence of funding of the kind to which I have referred, or of dissipation of assets, it would not in my opinion be right or just to impose the conditions sought. One can readily understand why both oceanProduct and PSB have indicated that they do not propose to provide funds to discharge the judgment. Put simply, it would not be in their financial interest to do so. I shall return to the question of funding.”

Wittman (UK) Ltd and Willdav Engineering SA [2007] EWCA Civ 521 was a decision of Moore-Bick LJ. It was a case in which it was not shown that enforcement of the judgment debt would be especially difficult. The appellant was a Swiss company and Switzerland is party to the Lugano Convention. The judgment had not been paid because Sir Henry Brooke, on giving permission to appeal, had also imposed a stay of execution. There was no conclusive evidence either of ability to pay or of impecuniosity. However, conduct at trial cast doubt upon the probity of those responsible for managing the appellant’s affairs. The relevant passages from Moore-Bick LJ’s judgment are as follows:-

“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 co-operate 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 co-operate but may seek to take steps to put its assets beyond reach of the normal enforcement process. In my view there is little evidence to support that conclusion. Moreover, I am not persuaded that, in this case at any rate, an order of this kind should be made for disciplinary purposes to mark the court’s displeasure at the way in which the appellant behaved at the trial.

17.

The next point made by Mr Sugar is that the appellant is what is described as a “nominee litigant”. However, I am not quite sure what that submission is intended to convey. In one sense any private company owned and controlled by a small number of persons is a nominee litigant, in the sense that the fruits of the litigation can be expected to enure to the benefit of those persons, but the company nonetheless retains it legal personality and continues to own its assets. The fact that there are individuals who stand to benefit if the company is successful and who may themselves exercise considerable informal control over its affairs is no ground, in my view, for requiring them to fund a payment into court if the appellant itself does not have the means to do so.

18.

In my view this case is very different from that of Hammond Suddards v Agrichem in which there had been an unexplained failure to discharge the judgment debt and in which there were positive grounds for thinking that if the appellant lost its appeal it would seek to avoid meeting the judgment debt by whatever means might be necessary. That is not this case.”

Mr Railton accepted that Moore-Bick LJ’s formulation was not intended to rule out the imposition of conditions in circumstances where assets have already been put beyond the reach of the normal enforcement process. The more normal case will no doubt be focusing upon steps which the appellant may take to frustrate enforcement, but Dumford Trading was a case in which the allegation, accepted by Clarke LJ to be critical, was that the appellant had already dissipated its assets, other than in the ordinary course of business, in order to avoid paying the prospective judgment. In fact Clarke LJ found that allegation not made out. He also accepted that the appellant could not pay the full judgment debt out of its own resources, and that there had been no failure to provide adequate disclosure as to its financial condition.

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 not all of these cases has there been complete citation of authority, which is unsurprising given that the judgments are for the most part unreported rulings by single Lord/Lady Justices. It is however worth noticing Société Générale SA v Saad Trading, Contracting and Financial Services Company & Anr [2012] Civ 695, a judgment of Aikens LJ concurred in by Rimer LJ. The case is notable for two reasons. Firstly, the court imposed as a condition payment into court of only about 10% of the judgment debt, although payment of the whole sum had been sought. Secondly, Aikens LJ helpfully discussed the relevance of the circumstance that a corporate appellant has “wealthy owners”. Aikens LJ said this:-

“54.

Fifth factor: does Saad have “wealthy owners” and was there evidence that they could not, if minded to do so, pay the judgment debt on behalf of the judgment debtor corporate entity? This factor raises the difficult question of principle as to whether or not this court can legitimately impose a condition that a judgment debt (or part of it) be paid into court where, effectively, this will require an “owner”, or others, such as a director, or shareholder, or backer or other interested person, to fund that condition. (I emphasise that I am not dealing here with security for costs). I think the answer must be that, except in exceptional circumstances, it should not do so. If a condition is imposed on an appellant that it must bring the outstanding judgment debt into court in order to pursue its appeal, that does, effectively, short circuit the enforcement process against the judgment debtor. It means that if the appellant loses his appeal, the judgment creditor has the means of enforcing the judgment debt quickly and easily and in a way that he otherwise could not when the judgment debtor has no assets within the jurisdiction. Furthermore, the right to enforce is, at least in the first place, only exercisable against the assets of the actual judgment debtor, not those of any other entity or person. So a condition which has the practical effect that a third party will provide the funding to bring the judgment debt of the corporate entity into court is, potentially, an indirect way of obtaining enforcement with the funds of another. That, generally speaking, must be contrary to the principle of respecting the existence of different legal personalities, as Moore-Bick LJ pointed out at [17] of the Wittman case. Alternatively, if the funds brought into court are to continue to be treated as those of the third party, there is no point in the exercise at all, because it will not benefit the respondent/judgment creditor.

55.

However, given the clear statement of Clarke LJ at point (4) of paragraph 41 of his judgment in the Hammonds Suddards case there cannot be an absolute bar against taking account of the position of other entities or persons close to the appellant in deciding whether there are compelling reasons for making a condition such as requiring the judgment debt to be paid into court. I think Moore-Bick LJ must have recognised that in Wittman at [18] when he distinguished the Hammond Suddards case on the facts and did not suggest that point (4) of paragraph 41 of the judgment of Clarke LJ in the Hammond Suddards case was wrong in principle or could never be applied. I would be prepared to say that the facts of the present case are exceptional. Mr Al-Sanea is not only the general partner of this Saudi limited partnership but he is also the owner of 90% of its share capital. Equally pertinent is the fact that he has provided a personal guarantee for the liability of Saad to Soc Gen under the F/L, if such liability exists. Mr Weisselberg accepted that Mr Al-Sanea’s position on the substantive appeal is “almost entirely parasitic” on that of Saad, although he does raise two additional points on the issue of interest. But, as Mr Weisselberg also accepted, those are obviously of less immediate importance.”

It is right to point out that Mr Vik gave no guarantee for the liabilities of SHI to DB, and that is a point which he is entitled to stress and does stress. However there is no evidence to suggest that Mr Vik is not still the sole owner and director of SHI as he was in 2008. SHI apparently observed no corporate formalities. Given the judge’s findings as to the manner in which Mr Vik treated SHI and its assets as his own, it is difficult to think that there can be a more appropriate case in which to take into account that he could, if minded to do so, pay the judgment debt. However, it is not in my judgment necessary to go that far. On the basis on which I approach the case SHI could itself pay the judgment debt into court if Mr Vik chose to procure it to do so. That does not involve Mr Vik funding SHI or paying the judgment debt on its behalf. It involves Mr Vik taking steps to restore to SHI what are rightfully its assets.

I reject as unprincipled and as unsupported by authority the submission that the emphasis should on an application such as this be on what may happen in the future rather than on what has happened in the past. That would seem to me to put a premium on prospective successful asset stripping. Indeed, it is clear in my judgment that a case where the judgment debtor has already taken steps to frustrate enforcement of the judgment is ordinarily likely to be a stronger case for imposition of a condition than one where the court has to assess the likelihood of the appellant so acting in the future. That I think underlies what Clarke LJ said at paragraph 13 of his judgment in Dumford Trading.

I also reject the submission that the evidence here demonstrates that the imposition of a condition will stifle the appeal. First, the argument is totally without merit. It is SHI which has rendered itself judgment-proof by transferring its assets into hands and places where enforcement may be difficult or even impossible. It cannot rely upon its own conduct as stifling the appeal. Second, the answer to this point was given convincingly by Clarke LJ at paragraph 43 of his judgment in Hammond Suddards. Just as there, the owner of SHI has a choice. If it is in the interests of SHI for the application for permission to appeal and, if appropriate, the appeal, to continue, he must procure the payment into court of the judgment debt. If he does, the application and if appropriate the appeal will proceed. If he does not, the application for permission to appeal will be struck out.

Standing back from the arguments, it is in my judgment difficult to think of a case which could present more compelling reason for making the order sought. I have not so far mentioned the circumstance that SHI is intending to pursue its application over a seven day hearing 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. This is as unacceptable in this case as it was in Hammond Suddards. It is an additional reason militating in favour of imposing the conditions sought. There is nothing unjust or inconsistent with the overriding objective in giving to Mr Vik, and thus to SHI, the choice which Clarke LJ describes at paragraph 43 of his judgment in Hammond Suddards. On the contrary, it would be unjust and not in accordance with the overriding objective not to do so.

Accordingly I would order SHI to pay into court the judgment sum, together with interest accrued to the date of this judgment, as a condition of further pursuit of the application for permission to appeal and, if permission is granted, the appeal. I would further direct that SHI’s Appellant’s Notice and its application for permission to appeal be struck out if payment is not made within 28 days. The application for permission to appeal should be stayed in the interim.

I would for the same reasons have required payment into court of the interim payment on account of costs had not Mr Vik already paid that amount to DB. This aspect is, I think, for the moment academic as Mr Vik’s appeal against the s.51 order will not be heard before the November application for permission to appeal and, if granted, the appeal. Moreover, we have not been shown the precise terms upon which Mr Vik has made payment to DB. However it is not appropriate that SHI should be permitted to pursue its application without also paying into court the interim payment on account of costs, unless the payment by Mr Vik is made conditional only upon the success of SHI’s appeal rather than upon the success of his own appeal. Accordingly I would make the same order as indicated above in respect of the interim payment, although, subject to further argument in the light of the precise terms upon which the existing payment has been made, compliance therewith would be unnecessary if within 28 days Mr Vik agreed to dispense with the condition on the payment related to the success of his own appeal against the s.51 order. It must also follow, I consider, that if SHI makes a payment into court of the amount ordered by way of interim payment on account of costs, Mr Vik must be entitled to the return of his payment of the like amount. I would invite Counsel to draft an appropriate Order.

There was no dispute that this is in principle a case in which it is appropriate to require SHI to give security for DB’s costs of the application and of the appeal. SHI submitted that it could pay no more than £1m, this being a sum made available to it by a third party which turned out to be a family trust of Mr Johansson. Apparently the sum is made available on terms that it will attract interest from SHI at 15% per annum and on terms that the trust will receive a substantial success fee in the event that SHI’s appeal is successful. It will be apparent that I am wholly unpersuaded that SHI is not in a position to pay more than this and in any event the basis upon which I am proceeding is that it has US$896m available to it.

DB’s costs schedule indicates that its costs, actual and projected, will be £1,887,000. Whilst SHI’s equivalent costs are greater than that, SHI has had the burden of preparing a skeleton argument in support of its application for permission to appeal. DB however will wish to put in a Respondent’s Notice and must prepare for a full appeal. We concluded that DB’s costs are unlikely to be significantly overstated and moreover that in the context of this litigation and the resources of the parties the sums the subject of argument in this context are relatively trifling. That is why at the end of the hearing we announced our decision that security for costs must be provided in the sum of £1.7m by 31 July 2014 and that if it is not so provided, the appeal would be struck out. Strictly, the order should be that the Appellant’s Notice and the application for permission to appeal will be struck out.

I wish to pay tribute to the extraordinarily high quality and helpful nature of the submissions made to us by Mr Foxton and Mr Railton, both orally and in writing, informed I have no doubt by the great assistance of their respective legal teams. Advocacy of this quality renders our task at once easier and more difficult, but above all immensely more enjoyable than is often otherwise the case.

I agree.