Aidiniantz v The Sherlock Holmes International Society Ltd

The power to impose conditions on the continuation of an appeal is exceptional. Under CPR Rule 52.9, the court must first identify a compelling reason and then decide whether, in its discretion, conditions should be imposed. Security for appeal costs is also discretionary, even where an impecunious company may be unable to pay an opponent’s costs. The court must consider all the circumstances, including the merits of the appeal, any risk of stifling it, oppressive use of the application, and whether the company’s impecuniosity may have been caused by the respondent’s conduct. A winding-up order does not create a general rule requiring security. Nor should conditions indirectly enforce liabilities against assets of third parties, such as funders, directors or shareholders, absent exceptional circumstances.

The Company, a company limited by guarantee, appealed against a winding-up order made on a creditor’s petition. The creditor applied for conditions under CPR Rule 52.9 requiring payment or security for existing costs liabilities and petition costs, and alternatively sought security for the costs of the appeal under CPR Rule 25.15.

The Company had no assets apart from claims against third parties. Its defence and appeal had been funded by a family member, and the creditor was involved in related litigation concerning alleged unpaid Museum income and an agreement about costs. The central issues were whether there was a compelling reason to impose conditions on the appeal and whether it was just to require security for appeal costs.

1. Conditions on appeal. CPR Rule 52.9 requires two separate inquiries: whether there is a compelling reason to impose conditions, and whether the court should exercise its discretion to do so. The existing authorities did not justify requiring payment of the petition costs or earlier costs orders. The petition costs were payable as an expense of the liquidation and had not been ordered to be paid immediately. The earlier costs were, at most, unsecured liabilities and payment might have been void under section 127(1) of the Insolvency Act 1986 without validation.
2. The principle in Société Générale S.A. v Saad Trading, Contracting and Financial Services Company applied with at least equal force to costs not yet quantified. A condition requiring a company to pay a judgment debt, or quantified or unquantified costs, from third-party funds could indirectly short-circuit enforcement against the company and undermine separate legal personality. No exceptional circumstances justified such an order here.
3. Security for appeal costs. Under CPR Rules 25.15 and 25.13, the court may order security where there is reason to believe that a company will be unable to pay the respondent’s costs, but the discretion remains unfettered and must be exercised having regard to all the circumstances. A general rule requiring security on an appeal from a winding-up order had been overtaken by statutory provisions and the rules of court.
4. The appeal was bona fide and had a real prospect of success. Although the evidence did not establish that security would stifle the appeal, there was a strong argument that the Company’s impecuniosity had resulted from the creditor’s failure to account for Museum fee income. In the wider family dispute it was unjust to require the funders to provide security. The application was dismissed.

The judgment concerned an application made in the Company’s appeal against a winding-up order made by Registrar Derrett on 11 March 2015. Permission to appeal had been granted by Henderson J on 19 June 2015. This court dismissed the creditor’s application for conditions and security; the underlying appeal was to proceed.