Spy Academy Ltd. v Sakar International Inc

An appellate court may grant permission where the proceedings arguably contain a material procedural error. This applies where material evidence was excluded after a deadline was not effectively communicated through no fault of the litigant. The threshold question of permission is distinct from the ultimate prospects of the appeal. Relevant considerations in a security-for-costs application may include known impecuniosity, the parties’ understanding of the claimant’s financial structure, the alleged connection between impecuniosity and breach, and delay in seeking security. Permission may be conditional on payment of an outstanding costs order. An ancillary appeal concerning a CPR Part 18 application may also be permitted where that application has not been considered on its merits.

Spy Academy Ltd., an impecunious UK special-purpose company, pursued a contractual claim against Sakar International Inc. arising from a toy-brand licensing agreement. HHJ Brown QC ordered £20,000 security for costs after excluding the company director’s witness statement because it was filed after a deadline in an order which, on the evidence before the Court of Appeal, had not been effectively served. The claimant sought permission to appeal and also challenged the handling of a CPR Part 18 application for further information. The central question was whether the procedural history disclosed an arguable material error warranting permission.

1. Permission to appeal. The application was granted. The Court of Appeal held that there was an arguable material error in the proceedings. The claimant had apparently failed to meet the evidence deadline because the relevant order had not been effectively directed to the appropriate recipient, through no fault of the claimant or its director.
2. Exclusion of material evidence. The excluded witness statement contained both evidence and submissions which the claimant wished the judge to consider. The judge excluded it and proceeded to judgment without properly considering the explanation for the default or calling for further submissions. That gave the claimant an arguable basis for appellate review. The court considered that the appeal had prospects of success, while making clear that this was distinct from determining the substantive merits.
3. Security for costs. Although the claimant’s impecuniosity was common ground, the court identified matters which should fairly have been placed before the judge. These included the claimant’s alleged status as a deliberately funded special-purpose vehicle known to the defendant, the alleged connection between its continuing impecuniosity and the defendant’s breach or repudiation, and the defendant’s delay in seeking security after an earlier unsuccessful strike-out attempt. The Court of Appeal did not finally determine whether security was warranted.
4. Conditions and ancillary appeal. Permission was granted on condition that an outstanding costs order for £1,555, together with any applicable interest, was paid within 14 days. Permission was also granted, ancillary to the security-for-costs appeal, in relation to the rejection of the application under CPR Part 18, because that application appeared not to have been considered on its merits in light of the procedural history. The operative order was: application granted.

• Court of Appeal (Civil Division): Permission to appeal was granted conditionally on payment of the outstanding costs order within 14 days, with ancillary permission concerning the Part 18 application: [2009] EWCA Civ 481.
• Birmingham Mercantile Court: HHJ Brown QC ordered £20,000 security for costs on 15 September 2008 after excluding the claimant’s witness statement.