Summary

Where a company had appealed against a decision of the VAT and duties tribunal upholding a refusal of payment of input tax claimed by the company, the court, exercising its discretion and weighing up the injustice to the parties, ordered security for costs of the appeal. However, there was no compelling reason to order that the costs of the tribunal hearing ordered against the company should be secured as a condition of permitting the company to proceed with the appeal; such an order would stifle the appeal.

Facts

The applicant commissioners applied for security for costs against the respondent company (M) in relation to an appeal by M against a decision of the VAT and duties tribunal upholding the refusal of payment of input tax claimed by M. The commissioners also sought to secure the costs ordered against M in the tribunal proceedings as a condition of permitting M to proceed with the appeal. M was insolvent. According to the administrators, the cause of insolvency was the refusal by the commissioners to pay the input tax, which amounted to some £6 million. The proceedings in the tribunal were funded by M through its director (X). The tribunal found against M, holding that the relevant transactions entered into by M were connected with fraud. It ordered M to pay the commissioners' costs, which were over £240,000. The commissioners claimed that M, through X, was in a position to provide the security for costs in question. X submitted that, as the funds that had been previously available to him were no longer available and his debts exceeded his assets, the appeal would be stifled if an order for security for costs was made, and that the court should exercise its discretion and not make an order.

Held

(1) The court had jurisdiction to order security for costs of an appeal under CPR r.25.15. The power to make the order was discretionary, but the court had to carry out a balancing exercise weighing up the injustice to both parties, Keary Developments Ltd v Tarmac Construction Ltd (1995) 3 All ER 534 CA (Civ Div) followed. In the instant case, the balancing exercise required some security for costs of the appeal. The tribunal had found against M, but there was enough merit in the appeal for it to proceed. Also, on the evidence, X had access to some £100,000. It was appropriate to exercise discretion and order X to pay 50 per cent of the amount claimed by the commissioners as security for costs, namely £40,000. The amount should be paid into court within 21 days. (2) There was no compelling reason to order that the costs ordered against M in the tribunal proceedings should be secured as a condition of permitting M to proceed with the appeal. Neither M nor X was in a position to pay the tribunal costs, and to make an order to secure the tribunal hearing costs would stifle the appeal, Hammond Suddards Solicitors v Agrichem International Holdings Ltd (2001) EWCA Civ 2065, (2002) CP Rep 21 followed.

Applications granted in part