Merchant International Company Ltd v Natsionalna Aktsionerna Kompaniia Naftogaz Ukrainy (Rev 1)

Under rule 52.9 of the Civil Procedure Rules 1998, requiring an appellant to secure a judgment debt is exceptional and requires a compelling reason. The power is not an alternative method of enforcement and must be exercised cautiously.

A compelling reason may nevertheless arise where a debtor of means deliberately obstructs enforcement, has placed or may place assets beyond reach, or presents considerable practical difficulties for execution. The assessment is a fact-sensitive value judgment. These principles apply with particular force to an appeal against an enforcement order where the underlying liability is no longer open to challenge.

MIC held an unpaid English judgment against Naftogaz for about US$24.7 million. After earlier enforcement attempts failed, a Deputy High Court Judge appointed a receiver over Naftogaz’s rights in US$25 million held by a London bank. Permission to appeal was granted and the receivership was stayed.

MIC applied under rule 52.9 of the Civil Procedure Rules 1998 for a condition requiring Naftogaz to secure the judgment debt, historic costs and appeal costs, totalling US$28.5 million. Alternatively, it sought security for appeal costs. The central issue was whether there was a compelling reason to require security for the judgment debt as a condition of pursuing an appeal against an enforcement order.

1. Application granted. There was a compelling reason under rule 52.9 of the Civil Procedure Rules 1998 to require Naftogaz to pay US$28.5 million into court as a condition of pursuing its appeal. The sum was to be held to the order of the Court of Appeal.

2. The essential question was whether the particular facts supplied a compelling reason for a security payment order. The power was not designed merely as an alternative means of enforcing a judgment. An unpaid judgment and the absence of a stay did not, by themselves, justify such a condition. The jurisdiction therefore required caution: [2016] EWCA Civ 710, paras 37–40.

3. A compelling reason commonly exists where a debtor has taken, or is likely to take, steps to denude itself of assets or place them beyond ordinary enforcement. That conduct was not indispensable. Considerable practical difficulties in executing against foreign assets, deliberate obstruction and the adoption of stratagems intended to defeat enforcement could also suffice.

4. Naftogaz had the resources to conduct the appeal and satisfy the debt, but had no intention of honouring the judgment unless compelled. The history demonstrated persistent efforts to avoid payment and created a real risk that assets would be placed beyond execution. The court would have made the order even without that risk because of the exceptional enforcement difficulties and deliberate non-compliance.

5. The fact that this was an appeal against an enforcement order did not require a different approach. The underlying liability was fixed and would remain due whatever the appeal’s result. The case for imposing a condition was therefore at least as strong as it would have been on a liability appeal.

6. The possibility that the Court of Appeal might ultimately direct payment of the secured money to MIC did not stifle the appeal. Nor could Naftogaz rely merely on Ukrainian exchange-control restrictions. It had not produced full and frank evidence showing that payment, third-party funding, alternative security or a waiver had been properly explored and found impossible.

7. The order was made subject to MIC undertaking not to attach the money without the Court of Appeal’s permission and, if requested, to cooperate in procuring payment of US$24.7 million held by the London bank into court.

1. Court of Appeal (Civil Division): By [2016] EWCA Civ 710, granted MIC’s application and made continued pursuit of Naftogaz’s appeal conditional on payment of US$28.5 million into court.

2. Commercial Court: On 4 June 2015, a Deputy High Court Judge held that the London bank was obliged to account to Naftogaz for the relevant funds and appointed a receiver over Naftogaz’s rights in US$25 million. Permission to appeal was subsequently granted and the receivership stayed.