Sebastian Holdings, Inc v Deutsche Bank AG

On an application to impose conditions on an appeal, the touchstone is whether there is a compelling reason to protect the ordinary enforcement process. The jurisdiction is not a routine means of securing a judgment debt. A materially stronger case arises where the judgment debtor has already taken steps outside the ordinary course of business to frustrate enforcement, including dissipating assets before judgment. The court may take account of resources available through an owner where the condition requires the company to restore its own assets, rather than requiring a third party to discharge its debt. An appellant cannot rely on self-induced impecuniosity to show that a condition would stifle the appeal. If justified, continuation of the appeal may be made conditional on payment into court of the judgment sum, costs and appropriate security.

Deutsche Bank AG obtained judgment after a 45-day Commercial Court trial for approximately US$243m against Sebastian Holdings, Inc, and SHI’s US$8bn counterclaim was dismissed. Cooke J also ordered an interim payment on account of costs of approximately £34.5m. Permission to appeal was refused below and the Court of Appeal adjourned SHI’s application to a rolled-up hearing.

DB applied for conditions requiring payment into court of the judgment sum, the interim costs payment and security for the proposed appeal costs. The application arose against findings that SHI’s sole shareholder and director had transferred approximately US$896m to connected entities without bona fide commercial reason, thereby depleting assets and making enforcement more difficult. The central issues were whether those findings could be relied on at this interlocutory stage, whether the proposed conditions would stifle the appeal, and the appropriate security for costs.

1. Conditions on pursuit of appeal. The court held that the relevant jurisdiction under CPR 3.1 was to be exercised for a compelling reason, by analogy with CPR 52.9 for payment of the judgment debt and CPR 25.15 for security for costs. The power must not be used simply to secure enforcement. Its touchstone is conduct outside the ordinary course of business directed at frustrating the normal enforcement process.
2. Reliance on prior findings. On an interlocutory application the court was not in a position to review the trial judge’s findings on the available funds issue. It therefore proceeded on the basis that SHI had transferred assets to deplete its resources and make recovery more difficult, and that the funds remained recoverable by SHI. It was unnecessary to decide whether the findings created an issue estoppel, were res judicata, or whether the attempt to reopen them was an abuse of process.
3. Compelling reason and stifling. Previous authority showed that payment of all or part of the judgment sum is unusual and requires caution. Here, however, the prior asset dissipation, the continuing non-payment of the judgment debt and costs, the availability of resources, and the absence of convincing evidence that the appeal would otherwise be stifled constituted compelling reasons. SHI could not rely on impecuniosity which it had itself created by transferring assets beyond ordinary enforcement. The choice lay with its owner: procure restoration of SHI’s assets and payment into court, or permit the application for permission to appeal to be struck out.
4. Orders. SHI was ordered to pay into court the judgment sum with accrued interest as a condition of further pursuit of its permission application and any appeal. Its Appellant’s Notice and permission application were to be struck out if payment was not made within 28 days. Equivalent provision was made for the interim costs payment, subject to the terms of the payment already made by Mr Vik. Security for DB’s costs was required in the sum of £1.7m by 31 July 2014, failing which the Appellant’s Notice and permission application would be struck out.

• Court of Appeal (Civil Division): conditions imposed on SHI’s further pursuit of its application for permission to appeal and any appeal; security for costs ordered.
• High Court of Justice, Queen’s Bench Division, Commercial Court: Cooke J, after a 45-day trial, gave judgment for DB for approximately US$243m, dismissed SHI’s counterclaim, and ordered an interim payment on account of costs: [2013] EWHC 3463 (Comm).