Caterpillar (NI) Ltd v John Holt & Company (Liverpool) Ltd

When deciding whether to order security for the costs of an appeal, the court may consider the appellant company’s ability to meet an adverse costs order, the timing and quality of the evidence, and whether security would stifle the appeal. The court may look realistically at directors and other financially interested backers who may fund the litigation. Assertions that such persons will not provide funds need not be accepted where the financial position is unclear. Full and frank disclosure is ordinarily required. On a first application, and absent breach of existing payment obligations, failure to provide security may justify a stay rather than immediate striking out. A condition requiring payment of the judgment debt may be refused where the appeal is imminent.

Caterpillar obtained summary judgment from Popplewell J on 6 September 2012 for more than $13 million, including contractual interest, on its claim for the price of generators. A stay was imposed pending appeal.

The pending appeal concerned the construction of a reservation of title clause and an anti-set-off provision. Caterpillar applied for security for its appeal costs. It also sought a condition requiring payment towards the judgment debt or the lifting of the existing stay. The central questions were whether £75,000 security would stifle the appeal and what sanction should follow if security was not provided.

1. Disposition. The formal order recorded the appeal as allowed. On the applications before the court, Holt was ordered to provide £75,000 security, in a form to be discussed, for Caterpillar’s costs of the appeal. The normal period was 21 days, with the operative deadline being close of business on 4 July. Failure to provide security would result in a stay of the appeal, with liberty to apply. Immediate striking out was not imposed.
2. Applicable considerations. The court considered only security for the costs of the appeal, not costs already incurred below. It was accepted that Holt was a limited company and that there was reason to believe it would be unable to pay Caterpillar’s costs if unsuccessful. The court also considered the relatively late application, the quality of the financial evidence, and the practical effect of security on the appeal.
3. Financial reality and disclosure. It was legitimate to consider the reality that directors and other persons with a financial interest stood behind the company and might fund the appeal. Holt’s assurances that directors would not provide further funds were not accepted at face value in the context of an unclear financial position. The late explanations concerning share and property sales, the lack of supporting documents, and the unanswered questions raised by the evidence were unsatisfactory and fell short of the full and frank disclosure ordinarily required. Holt had nevertheless funded extensive related litigation, and the evidence indicated that further funds had become available. Security of £75,000 would not stifle the appeal.
4. Authorities and sanction. The court applied the approach identified in Hammond Suddard Solicitors v Agrichem International Holdings Limited [2001] EWCA Civ 2065 and Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534 concerning the financial reality behind a company. Agrichem was distinguished because it involved an overseas tax-haven company in breach of existing payment obligations. Those circumstances did not apply here. At the first time of asking, a stay was an appropriate sanction rather than immediate strike-out.
5. The court declined to require payment of part of the judgment debt as a condition of pursuing the appeal and declined to lift the existing stay, largely because of the proximity of the appeal hearing. A later application after failure to provide security might have different prospects.

1. Court of Appeal (Civil Division): In [2013] EWCA Civ 779, the appeal was formally allowed. The court ordered £75,000 security for the appeal costs and directed that the appeal would be stayed if security was not provided by the deadline.
2. Queen’s Bench Division, Commercial Court: Popplewell J granted Caterpillar summary judgment on 6 September 2012 for the price of the generators, with a stay pending appeal. No citation for that decision is stated in the judgment.