Calltel Telecom Ltd & Anor v Revenue & Customs

In a statutory appeal to the High Court, security for costs may be ordered under the Civil Procedure Rules 1998 notwithstanding the statutory regime governing appeals to the tribunal. A corporate appellant’s insolvency may establish inability to pay, but it does not by itself show that security would stifle the appeal. The court must consider available backers, their resources and motivation, and the justice of the order in all the circumstances.

Impecuniosity caused by the respondent’s refusal of the claim is relevant but not decisive. The court may impose conditions on an appeal brought as of right under CPR 52.9 where there is a compelling reason. Such a reason may arise where an interested funder has financed both the proceedings below and the appeal on a basis exposing the respondent to substantial unrecovered costs.

Calltel Telecom Ltd and Opto Telelinks (Europe) Ltd appealed to the High Court against a VAT Tribunal decision dismissing their challenge to HM Revenue & Customs’ refusal of input-credit claims totalling approximately £18.25 million. The tribunal had ordered the companies to pay the Revenue’s costs, subject to assessment.

Pending the appeal, the Revenue applied for security for the costs of the High Court appeal and for security for the tribunal costs. The companies opposed both applications, relying principally on the statutory VAT appeal provisions, the alleged risk of stifling the appeal, the cause of their insolvency, the Revenue’s conduct and delay. The central issues were whether the court had jurisdiction to order security and whether such orders were just and, for the second application, supported by a compelling reason.

1. First application. The statutory regime in section 84 of the Value Added Tax Act 1994 was not an exhaustive code governing security on appeals to the High Court. It concerned appeals to the tribunal and securing VAT payable, rather than costs or High Court case management. CPR 52 applied to the statutory appeal.
2. Under CPR 25, the evidence established that the corporate appellants were insolvent and probably unable to pay the Revenue’s costs if unsuccessful. The burden of showing that security would probably stifle the appeal lay on the appellants. Insolvency alone did not discharge that burden. The court had to consider whether directors, shareholders or other interested backers could provide security. The evidence supported an inference that Mr Gohir had funded the litigation and had both the means and motivation to continue funding it.
3. The fact that the Revenue’s refusal of the VAT credits had caused or contributed to the companies’ insolvency was relevant but not compelling. The tribunal had investigated the merits and found that the claims formed part of a fraud, although the High Court expressed no view on the merits of the appeal. There was no evidence that security would cause a denial of justice. The order for £60,000 was therefore just.
4. Second application. CPR 52.9 applied to statutory appeals brought as of right. Its power to impose conditions was subject to the compelling-reason requirement, but where no permission application had occurred the ordinary balance of justice largely addressed the concern underlying that requirement. The late skeleton argument did not justify security for the tribunal costs under CPR 3.1(5), because that would have been disproportionate and no relevant prejudice was shown.
5. There was nevertheless a compelling reason under CPR 52.9(1)(c) to require security for the tribunal costs. Mr Gohir was inferred to have funded both stages of the litigation for his own financial and reputational interests. It was unjust to allow the companies to prosecute the appeal on a basis under which they and their funder could obtain the benefit of success while the Revenue faced no practical prospect of recovering its costs if successful. Security of £175,000 was ordered across the two applications, payable within 28 days, failing which the appeal would be struck out. Costs were summarily assessed at £17,392.40.

• VAT Tribunal: On 20 July 2007, dismissed the companies’ appeal against the Revenue’s refusal of VAT input credits and ordered the companies to pay the Revenue’s costs, subject to assessment.
• High Court (Chancery Division): In the pending statutory appeal, ordered security for the Revenue’s appeal costs and tribunal costs under the Civil Procedure Rules 1998.