Mahan Air & Anor v Blue Sky One Ltd & Ors

An appellant who contends that security for costs or a financial condition would stifle its appeal must provide full and frank evidence of its means. That requirement is compatible with Article 6.

A compelling reason may justify a financial condition under rule 52.9(1)(c). Relevant circumstances include continuing contempt, failure to satisfy unappealed liabilities, the likely inability to enforce the judgment abroad and inadequate financial disclosure. Security for costs may include costs incurred before the application.

When deciding whether to stay execution, the court may consider the judgment creditor’s ability to repay if the appeal succeeds and may protect repayment through an undertaking or security.

Following two Commercial Court trials concerning the ownership and conversion of three aircraft, Beatson J ordered the Mahan parties to deliver up the aircraft or pay substantial damages. He also made costs orders and found the Mahan parties in contempt for failing to comply with orders concerning the aircraft and bills of sale. The Mahan parties appealed against parts of the financial and contractual determinations, while PK Airfinance pursued a separate appeal on applicable law.

The Mahan parties sought stays of the financial orders. The Balli parties and PK sought security for the costs of the Mahan parties’ appeals and financial conditions under rule 52.9(1)(c). The central questions were whether those orders would stifle the appeals, whether compelling reasons existed for imposing conditions and whether execution should be stayed.

1. The applications for security and financial conditions were granted in substantial part. The Mahan parties’ appeals against PK’s orders were to be stayed unless they provided £100,000 as security for PK’s costs. Their appeals against the Balli parties’ orders were to be stayed unless they provided £250,000 as security. The sums were payable within 28 days.

2. An appellate court should not use security for costs or financial conditions to stifle a meritorious appeal. An appellant asserting that an order would have that effect must, however, provide full and frank evidence of its means. Requiring that evidence did not infringe Article 6. The Mahan parties had not provided reliable and complete evidence. Their accounts contained redactions and qualifications, their evidence had varied over time, and the financial position of their shareholders and related entities remained unclear. The court was therefore not satisfied that the proposed orders would stifle the appeals.

3. Security for costs could cover costs incurred before the application. Security was appropriate because the Mahan parties remained in contempt, enforcement in Iran was not realistically established, they had no identified assets elsewhere, and they had paid nothing towards substantial financial liabilities, including liabilities not under appeal.

4. There was a compelling reason under rule 52.9(1)(c) to require US$45 million as a condition of pursuing the appeal against PK. PK had been unaware of the arrangements designed to circumvent United States sanctions, approximately US$70 million of its judgment was not under appeal, and the Mahan parties had continued to disobey the delivery orders. A separate condition of US$10 million was imposed for pursuing the appeals against the Balli parties.

5. The stay concerning sums payable to PK was refused, subject to PK undertaking to retain disputed recoveries in an English bank account pending the appeals. A stay was granted for damages payable to the Balli parties because relevant special-purpose companies had doubtful credit and receivers had been appointed over two of them. That stay could be reconsidered if suitable repayment security were offered.

Gross LJ agreed with Stanley Burnton LJ.

1. Court of Appeal (Civil Division): Ordered security for the costs of the Mahan parties’ appeals and imposed financial conditions under rule 52.9(1)(c). It refused a stay concerning disputed sums payable to PK, subject to an undertaking, and granted a stay concerning damages payable to the Balli parties.

2. Commercial Court: Following two trials, Beatson J held that the claimant companies beneficially owned the aircraft, made delivery-up or damages orders, determined set-offs and costs, and found the Mahan parties in contempt. An application to discharge a grounding order was refused in [2010] EWHC 33 (QB).