Case No: CH/2007/APP/0599

Neutral Citation Number: [2008] EWHC 2107 (Ch) 
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL

Date: Friday, 6 June 2008

BEFORE:

MR JUSTICE BRIGGS

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BETWEEN:

CALLTEL TELECOM LTD & 
OPTO TELELINKS (EUROPE) LTD
Claimant
- and -

HM REVENUE & CUSTOMS
Defendant

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Digital Transcript of Wordwave International, a Merrill Communications Company
PO Box 1336 Kingston-Upon-Thames Surrey KT1 1QT
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Mr R Cordacora QC & Mr S Dhar (instructed by Ashton Law LLP) appeared on behalf of the Claimant

Mr M Cunningham QC & Mr P Moser (instructed by Solicitor’s Office of HM Revenue & Customs) appeared on behalf of the Defendant

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Judgment

1.	MR JUSTICE BRIGGS:  There are two applications before me which arise in the course of an appeal by Calltel Telecom Limited and Opto Telelinks (Europe) Limited against a decision of the VAT Tribunal which dismissed the companies’ appeal against Her Majesty’s Revenue and Customs’ refusal of VAT input credits in the aggregate sum of £18.25 million.  The decision was made on 20 July 2007 and the appeal to the High Court is due for hearing in November of this year.	

2.	The first application is by the respondents, the Revenue, for security for its costs of the appeal in the sum of £60,000.  The second application is also by the respondents for security for its costs which have been ordered to be paid to it in respect of the proceedings before the tribunal but which have not yet been assessed. That order is sought as a condition for the further prosecution of the appeal by the appellants and the sum of £187,000 is sought under that heading.	

3.	Both applications are opposed and counsel for the appellants, Mr Roderick Cordara QC, describes them as unprecedented in his 28 years of experience of VAT appeals and indeed misconceived.	

4.	I must first mention two important aspects of the background to these applications.  The first is that the decision of the VAT Tribunal from which the High Court appeal is pending upheld the Revenue’s refusal of VAT input credits on the basis of the tribunal’s conclusion that the two companies, through their sole shareholder and director, Mr Mohammed Safdar Gohir were knowingly involved in a huge VAT fraud and that the claims for input credits were an instrumental part of the commission of that fraud.  They reached that conclusion after hearing Mr Gohir giving evidence and being cross-examined and having largely disbelieved his evidence.  They describe Mr Gohir as a ringleader in that fraud.  I do not thereby mean to infer that the appeal against their decision has no arguable merit or has no real prospect of success.  I express no view at all upon the merits of the appeal which is in part based upon arguments that the fraud found had never been pleaded and that the conclusions of the tribunal as to the inherently corrupt nature of the business in which these transactions occurred had not been part of the Revenue’s case and were inconsistent with findings in other cases.	

5.	Nonetheless the relevance of the point is that Mr Gohir plainly therefore has a real interest of his own, and not merely of a financial nature as a shareholder in the two appellant companies, in the successful outcome of the appeal.  The second point of background is that the appeal is brought, as is commonly said, as of right pursuant to section 11(1) of the Tribunals and Inquiries Act 1992 which provides that if any party to proceedings before any tribunal specified in paragraph 44 of schedule 1, which includes the VAT Tribunal, is dissatisfied in point of law with the decision of the tribunal he may, according as rules of court may provide, either appeal from the tribunal to the High Court or require the tribunal to state and sign a case for the opinion of the High Court.	

6.	I note that that provision confers a right of appeal which is expressed to be according as rules of court may provide.  The rules of court in question are of course the Civil Procedure Rules and the relevant part of the CPR in point for present purposes is mainly, but not exclusively, part 52 which in terms provides in part 52.1(1)(b), “The rules in this Part apply to appeals to the High Court” and it is well understood and not in dispute that that includes statutory appeals such as the present appeal.
7.	Mr Cordara took a preliminary point in relation to both these applications by reference to section 84(3) of the Value Added Tax Act 1994 which is in the following terms:	

“Where the appeal is against a decision with respect to any of the matters mentioned in section 83 [and then there are a number of sub subsections identified none of which are relevant for present purposes] it shall not be entertained unless -
	(a) the amount which the Commissioners have determined to be payable as VAT has been paid or deposited with them; or 
	(b) on being satisfied that the appellant would otherwise suffer hardship the Commissioners agree or the tribunal decides that it should be entertained notwithstanding that that amount has not been so paid or deposited.”	

8.	Mr Cordara submits that this is an exhaustive legislative code in relation to issues as to security arising on appeal at any level, so that these applications are therefore both misconceived.  With respect to Mr Cordara I do not accept that submission.  It seems to me first that section 84 has nothing to do with appeals to the High Court.  It is prefaced by subsection 1 which provides that references to this section in an appeal are references to an appeal under section 82 and it is clear that section 82 is a reference to appeals to a tribunal rather than subsequent appeals to the High Court.	

9.	Secondly section 84(3) is about securing tax due and payable rather than having anything to do with costs.  It so happens that there is no security for costs jurisdiction in the tribunal.  The present appeal is about a tax credit claim rather than about tax due.  Furthermore section 84(3) is essentially mechanical in its effect, subject to the hardship provision, and has nothing to do with rules for effective case management, which are designed to secure the just outcome and conduct of litigation, such as the rules in the CPR relating to security for costs.  It seems to me that it cannot be the case that section 84 sets out anything remotely resembling a comprehensive code as to the circumstances in which security might be sought or ordered in the context of revenue appeals.	

10.	I turn therefore to the substance of the first application for security for the Revenue’s costs of this appeal for which as I said they seek £60,000 and I make clear at the outset that no point is taken on behalf of the appellants as to the amount which might be ordered if otherwise the court is minded to think it is just to order security.  The application is based upon CPR parts 25.12 and 15 and it is convenient to go to part 15 first which provides:
“The court may order security for costs of an appeal against -
(a) an appellant;”

Sub-rule 2 provides that the court may also make an order under paragraph (1) which is an order, incidentally, which enables the court to order security on the same grounds that it might have ordered security against a claimant.  Sub-rule 2 providing that the court can make an order under paragraph (1) where the appellant is a limited company and there is reason to believe that it will be unable to pay the costs of the other parties to the appeal, should its appeal be unsuccessful.  In that respect that sub-rule repeats, in the context of an appeal, CPR part 25.13(2)(c) but the condition which has to be satisfied before the court makes an order under part 25 is that it must be satisfied, having regard to all the circumstances of the case, that it is just to make such an order.	
11.	The present appeal is based upon the alleged insolvency of both the appellants and their consequent inability to pay the Revenue’s costs if they lose this appeal, and it is supported by evidence in the form of an accountant’s report which plainly demonstrates that both the appellants are at present insolvent and have ceased to trade.  In the absence of any evidence to the contrary, and there is none, this demonstrates that it is probable that the appellants will not be able to pay the Revenue’s costs if they lose the appeal and I bear in mind that the test to be satisfied is that the court must be persuaded that the appellants will not be able to pay those costs rather than merely that they may not be able to pay those costs.	

12.	In my judgment the evidence plainly satisfies that test and Mr Cordara, unsupported by any evidence, was understandably brief in his submissions on that part of the case.  Mr Cordara’s real opposition was based upon the principles which affect the exercise of the court’s discretion.  He submitted firstly that the order for security would stifle the appeal.  Secondly that the impecuniosity of the appellants is the result of the Revenue’s wrongful refusal to allow the VAT credit in the first place.  If the word “wrongful” is left out, being as it were centrally an issue on the appeal, it is not disputed of course that the Revenue’s refusal of the VAT credit is in fact the, if not alternatively the main, reason for the present impecuniosity of both the appellants.  Thirdly he submitted that the Revenue has adopted an inconsistent attitude towards the appellant’s impecuniosity by refusing the hardship claim made under section 84 of the Act in relation to other ongoing proceedings where tax is claimed to be due.  Fourthly Mr Cordara submitted that the Revenue has not made this application promptly.	

13.	I deal first with the submission that an order for security would stifle this appeal.  Plainly if the court were to conclude that an order for security would stifle this appeal that would be a very powerful factor against making an order by way of security, a fortiori in a case where the appeal is brought in the relevant sense as of right rather than with the court’s permission.  Nonetheless the burden is on the appellant to show that it is probable that an order would stifle the appeal, as indeed Mr Cordara accepts.  It is well settled that mere insolvency of a corporate appellant or a corporate claimant does not prove that an order would stifle the relevant appeal or the relevant claim, otherwise in any case where an applicant for security demonstrated that the insolvency test was satisfied in relation to the party against whom security was sought a stifling test would prima facie be satisfied.  It has been made clear in a number of cases that the court must first consider whether the company has backers or supporters who have both the resources and the motivation to provide the security and I have in mind in that context paragraph 514 in volume 7.1. of the current edition of Halsbury’s Laws and Keary Developments v Tarmac Construction [1995] 3 All ER 534 in which  Peter Gibson LJ at page 540 said this:	
	“The court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation but also whether it can raise the amount needed from its directors, shareholders or other backers or interested persons.  As all this is likely to be peculiarly within the knowledge of the plaintiff company it is for the plaintiff company to satisfy the court that it would be prevented by an order for security from continuing the litigation.”
	
That was a case against security in proceedings at first instance but the principle is equally applicable to security sought upon an appeal from an appellant and indeed although a pre-CPR case it has been approved subsequently for example in the Hammond Suddard v Agrichem case to which I shall refer in due course.  In this respect the appellants proffer no evidence before me even though Mr Cordara correctly acknowledges that the burden is on them.  They rely merely upon the Revenue’s case that they are insolvent, but the Revenue’s evidence establishes, in my judgment, firstly that the appeal to the tribunal was funded at very large expense and the proper inference is that the solicitors who conducted that appeal were paid.  Secondly that the appellants were neither trading nor going concerns at that time, from which the inference is that those costs were funded from outside sources.  Thirdly, that this appeal is being similarly lavishly funded.  I was shown a 185-page skeleton argument recently lodged on behalf of the appellants in pursuit of these appeals and there were dragged into court six boxes of lever arch files which it is proposed are to be deployed at the hearing of the appeal.  It is no criticism of the appellants but they have also retained leading tax counsel and a new firm of solicitors to prosecute the appeal.  Fourthly, the evidence shows that apart from the appellant’s creditors, one of which is of course a contingent creditor (i.e. the Revenue), Mr Gohir is the sole stakeholder as the only shareholder and director in the appellant companies and would therefore be the main beneficiary of the £18.5 million prize that would be derived from the successful outcome to the appeal.  He has also, as I have indicated, an added incentive of his own as Mr Cordara rightly put it, to clear his name by reversing the finding of the tribunal that he masterminded a serious fraud on the Revenue.	

14.	Finally, neither the appellants nor Mr Gohir have taken the opportunity to challenge with any evidence the powerful inference that Mr Gohir has both the means and the motive to provide the necessary security if necessary as the price of being able to pursue this appeal.  Accordingly it seems to me that no case is made out or even begun to be made out that an order for security in the present case would stifle the appeal.	

15.	I turn to the submission based upon the undoubted fact that the present impecuniosity of the appellants is attributable to the disallowance by the Revenue of the tax credit claimed.  This is sometimes a powerful factor against ordering security, for example where a large well-resourced defendant is said to be refusing to pay a debt owed to a small, poorly-resourced claimant in circumstances which might give the court reason to suspect that an order for security would cause an injustice.  Furthermore, as I have said, the refusal of the VAT credit plainly is a prime reason for the present insolvency of the appellants.	

16.	In that context it is pertinent to bear in mind what has been said about this ground of resisting an application for security in the authorities.  In Farrar v Lacy v Hartland & Co. [1885] 28 Ch D  482, at 485 Bowen LJ said this:
	“Suppose the plaintiff in that case had been right on the point of law, his insolvency would have arisen from the wrongful act complained of in the action.  To have required a security for costs on the ground of an insolvency which (if the plaintiff was right) the defendant had wrongly caused might have been a denial of justice.”

And more recently in Keary Developments v Tarmac to which I have already referred Peter Gibson LJ said at page 540:
	“The court will properly be concerned not to allow the power to order security to be used as an instrument of oppression, such as by stifling a genuine claim by an indigent company against a more prosperous company, particularly when the failure to meet that claim might in itself have been a material cause of the plaintiff’s impecuniosity.”

I bear in mind that in both those extracts the court is concerned with the cause of the impecuniosity and the question whether that impecuniosity, if nonetheless accompanied by an order for security, would cause a denial of justice or would stifle a claim.  In my judgment the true question is whether an insolvency caused in this case by the denial of the appellant’s claim gives rise to a risk that a security order would cause a real denial of justice in the present case.  In my judgment the fact that the Revenue’s refusal of a tax credit has caused or largely contributed to the appellant’s insolvency is a relevant but a by no means compelling factor in the exercise of discretion in the present case.  My analysis is as follows.	

17.	First, whereas the merits are not in security for costs applications at first instance usually a relevant factor, on this appeal I cannot ignore the fact that the experienced VAT Tribunal has, after a full hearing with oral evidence and cross-examination, concluded that the Revenue was right to refuse the credits because the claim for them was part of a fraud of which the appellants knew and of which Mr Gohir was the ringleader.  So the starting point is not that the court simply has no idea whether the refusal to make the payment which caused the insolvency was wrongful or not.  Again I bear in mind that there is an appeal which is not suggested to be fanciful or lacking any real prospect of success. Against those conclusions  the court does not, as it usually does in a first instance security case, start with there having been no investigation of the merits by any tribunal at any level at all.	

18.	Secondly, this is not an appeal which by giving permission to appeal the court has already blessed as one having a real prospect of success.  The present situation is that the court simply does not know what are or are not the prospects of success.	

19.	Thirdly, and most important of all, this is not a case where the appellant’s insolvency means that a security order now would cause or even risk causing a denial of justice, there being no evidence of that at all.  The real risk of injustice which arises in the present case, it seems to me, is one which would arise if no order for security was made and I will return to that in due course.	

20.	The next submission was that the Revenue had adopted an inconsistent position in relation to the consequences of the appellant’s insolvency in relation to a hardship claim in other proceedings.  In my judgment that is not a point which can be of any weight in the present proceedings.  I know insufficient about the circumstances in which the hardship claim was pursued and resisted.  Such information as I have been given by reference to a short decision of a differently constituted tribunal suggests that it is not the ordinary practice of the tribunal in addressing the question of hardship to consider whether third parties could contribute to the company’s resources, by contrast with the settled practice in relation to the security for costs applications.	

21.	Finally, the submission that the Revenue had not applied for security promptly is, upon the evidence submitted by the Revenue by reference to correspondence, groundless so far as I can see.  It appears that relatively soon after this appeal was notified the Revenue through its solicitors gave notice to the appellants of their intention to seek security and were asked not to make an immediate application while instructions were being obtained.  Thereafter it seems to me that no unreasonable delay ensued before these applications were launched.	

22.	Ultimately the question whether as a matter of discretion I should order security for the Revenue’s costs of this appeal turns on a broad consideration of the justice of the matter.  I have already referred to the governing consideration laid out in CPR 25 13(1)(a).  I have in mind also the observation of Potter LJ in the unreported case of Kufaan Publishing Ltd v Al-Warrak Publishing Ltd that the question is one which gives rise to broad considerations of justice with which the court is concerned in exercising its discretion on an application for security.  Mr Cordara invited me to apply those considerations not simply as between the Revenue and the appellants but also as between the Revenue and Mr Gohir.  In my judgment this is a case where it clearly is just to make an order for security in relation to the Revenue’s costs of the appeal.  My reasons are as follows.	

23.	(1) It will not stifle the appeal.  (2) Since I infer that Mr Gohir can afford to put the appellants in funds to provide the security, no injustice arises from the fact that their impecuniosity arises from the Revenue’s refusal of the tax credit claimed.  (3) It is clear that if no order is made but the Revenue win this appeal, the companies will not be able to pay the costs and it seems to me most unlikely that Mr Gohir will then pay them voluntarily by way of paying them on the companies’ behalf.  (4) The costs of an estimated ten day appeal, since that is the estimate of the appeal, are likely to be substantial.  (5) It is simply not just that by not having to provide security the companies and Mr Gohir can prosecute this appeal in circumstances where they incur no practical exposure to the Revenue’s costs if they lose.  Accordingly I propose to make the order for security sought on the first of the Revenue’s two applications, there being no issue to quantum I make it in the amount sought.  I will hear submissions about timing.	

24.	I turn to the second application.  By this application the Revenue seeks as a condition for the appellants being entitled to prosecute the appeal security for their costs incurred at the hearing before the tribunal.  £187,000 is sought.  Again, Mr Cordara makes no point on quantum.  The background is that the appellants were ordered by the tribunal to pay the Revenue’s costs once assessed.  There has yet been no assessment.  The tribunal cannot or at least does not make orders for payment of costs on account.  The application was made and is pursued under CPR 52.9(1)(c) and CPR 3.1(5).  I will take the CPR 3.1(5) point first because it is short and conveniently can be disposed of quickly.  That provides:
	“The court may order a party to pay a sum of money into court if that party has, without good reason, failed to comply with a rule, practice direction or relevant pre-action protocol.”	

That sub-rule is part of the court’s general powers of management which, and it is common ground, are available to the High Court when hearing appeals, including statutory appeals, of this type.  The failure relied upon is the late service by the appellants of the very lengthy and comprehensive skeleton argument to which I have already referred.  The original time limit was 14 days from the appellant’s notice which expired on 28 September 2007.  That was extended by application to 14 December and thereafter no further application for extension was made and the skeleton argument was in fact only served on 5 June 2008, just before this hearing.  In my judgment to order that the appellants lodged security for the whole of the Revenue’s costs in the tribunal below would be a wholly disproportionate response of the court to that late lodgement of the skeleton argument.  It is a very substantial document in a very substantial appeal.  The real failure as I see it was not so much its lateness but the failure to obtain further time in advance of its service beyond that already obtained up until December.  It does not seem to me and it is not suggested by Mr Cunningham who appears for the Revenue that any relevant prejudice has been caused by the late service of the skeleton argument, there still being plenty of time, so far as I can see, for the Revenue to respond and prepare its own skeleton and make any other relevant preparations for the hearing.  
But the application was mainly based on CPR 52.9(1)(c) and this raises a point of principle.  52.9 is headed, “Striking out appeal notices and setting aside or imposing conditions on permission to appeal” and it provides as follows:
	“(1)  The appeal court may -
	(a) strike out the whole or part of an appeal notice;
	(b) set aside (GL) permission to appeal in whole or in part;
	(c) impose or vary conditions upon which an appeal may be brought.
	(2)  The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so.
	(3) Where a party was present at the hearing at which permission was given he may not subsequently apply for an order that the court exercise its powers under sub-paragraphs (1)(b) or (1)(c).”

I was provided with useful learning on the purpose and effect of part 52.9 in three cases.  The first was Hammond Suddards v Agrichem International Holdings Limited [2001] EWCA Civ 2065, a decision of a two-judge Court of Appeal consisting of Clarke LJ and Wall J as he then was.  In that case the appellant was an offshore company which had incurred a judgment debt and an order for costs including an order for interim payment of a specified sum on account of costs pending assessment.  The company obtained permission to appeal from a single Lord Justice and then sought a stay of the trial judge’s judgment and costs orders pending appeal.  The respondent sought security for costs of the appeal.  The Court of Appeal ordered the appellant to provide security for the judgment debt and the costs below and security for costs of the appeal as a condition for the continued permission to appeal relying on CPR 52.9(1)(c) Paragraphs 3, 39 and 40 of Clark LJ’s judgment in that case are as follows:  
	“3.  The application to strike out gives rise to two points of principle.  The first is whether it is a permissible exercise of the court’s powers, either when granting permission to appeal or subsequently, to make the prosecution of the appeal conditional upon the payment of the judgment debt and costs.  The second is, if so, whether it is appropriate to do so in a case where, as here, the appellant might have to obtain the funds to meet the various orders from a third party.  There appears to be little authority on these questions, which seems to us as potentially of some considerable practical importance.  It was for this reason that, having heard full argument, we reserved judgment.
	39.  Where, as here, the judge has refused permission to appeal and permission has been granted by the single lord justice, as will ordinarily be the case without imposing conditions, the court has express power under rule 52.9(1)(c) to impose or vary conditions upon which the appeal may be brought, although by rule 52.9(2) it will only exercise such powers where there is a compelling reason to do so.  We note in passing that the requirement that there must be a ‘compelling reason’ is curious if it is intended to create a higher threshold than would have been applicable to the exercise of the discretion of a judge considering the matter on an application on notice or of a lord justice considering the matter on an application without notice whether or not to impose a condition.
	40.  However that may be, the provisions of CPR 52.9 seem to us to be clear.  Rule 52.9(3) does not apply to this case.  Logically there are two questions posed by rule 52.9(1)(c) and (2).  The first is whether there is in the instant case a compelling reason for making the continued prosecution of the appellant’s appeal conditional upon the payment into court of the judgment debt and costs (or those debts being secured in some satisfactory way within the United Kingdom) and the second is whether the court should exercise its discretion to make the order.”

25.	Thereafter Clarke LJ summarised the conditions which led to the Court of Appeal’s conclusion that there was a compelling reason in that case.  I can further summarise them as follows.  (1) It was difficult in that case for the respondent to enforce orders against the appellant, because although not necessarily impecunious it was resident offshore.  (2) The appellant had resources or access to resources to enable it to instruct solicitors and counsel to prosecute the appeal.  (3) There was no convincing evidence that the appellant did not have resources to pay the judgment debt and costs but it simply failed to do so, so it was in breach of court order.  (4) It had given insufficient disclosure of its financial affairs and it had wealthy owners and there was no evidence that if they were minded to do so they could not pay the judgment debt including any order for costs, and (5) that there was no risk of the appeal being stifled, and finally the court found it unacceptable that the appellant was at one and the same time prosecuting an appeal while continuing to disobey payment orders already made by the court below.	

26.	Clarke LJ concluded:
	“In our judgment, these six factors add up to a compelling reason to make the orders sought by the respondents.  We think there is a real risk that, unless the orders sought are made, the respondents, if the appeal is dismissed, will be deprived of the fruits of the judgment, and will only be able to recover whatever sum is secured by way of costs.  In our judgment, on the facts of this case, it is not just to allow the appellant to proceed with an appeal which is designed not only to reverse the judge’s decision that it is liable to the respondent, but also to obtain judgment on its counterclaim to a very substantial amount, especially in circumstances in which it appears it is willing and able to use resources from others, including perhaps its owners, while being unwilling to seek and obtain resources to discharge the judgment debt.”

27.	The second case is Contract Facilities Limited v The Estate of Rees Deceased [2003] EWCA Civ 1105, again a two-judge Court of Appeal consisting of Waller LJ and Hale LJ.  In that case the appellant, which again had obtained permission to appeal, was an impecunious company funded at trial by a backer called Mr Shuck.  It had been ordered to pay costs and the respondents had obtained an interim cost certificate and two summary assessments on other interim applications, adding up in total to just less than £44,000 which the appellant had failed to pay.  The respondent applied under CPR 52.9(1)(c) for an order that the appellant’s permission to continue with the appeal should be conditional upon making payment into court of that sum or otherwise the appeal should be struck out.  The Court of Appeal acceded to that request and before I summarise its reasons for doing so I must briefly mention an earlier decision heavily cited and in the event distinguished by the Court of Appeal and the contract facilities case, namely CIBC Mellon Trust Company v Mora Hotel Corporation and Anor [2002] EWCA Civ 1688.  In that case which concerned an application to set aside a default judgment rather than strictly an appeal but which raised similar issues about security, Peter Gibson LJ acknowledged the risk that where an applicant for security would if security was ordered obtain it from a third party, i.e. a person other than the respondent who was backing the respondent, in circumstances where that party could not be shown to have funded the relevant proceedings that led to the cost liability and could not be shown to have exposed himself to a third party costs order, it might be unjust therefore if the consequence would be to provide an additional fund to enable the applicant to make recovery in respect of its judgment at the expense of that third party.  Paragraphs 31, 33, and 34 of the judgment of Peter Gibson  LJ in that case are as follows:
	“31.  With respect to the judge, whilst in an appropriate case that may be a determinative consideration in respect of both types of application (for example, where the applicant has not satisfied the court that he has disclosed his full assets but has asserted his impecuniosity), other differentiating factors may be crucial to the proper exercise of discretion.  There is no injustice in requiring an applicant, asserting impecuniosity, to provide security for the respondent's future costs of the application, provided that thereby the application is not stifled.  Nor is there injustice in requiring an applicant, who does not assert impecuniosity but has repeatedly failed to pay past costs orders, to pay what is already due to the other side if he is to be allowed to make a further application (see Graham v Sutton Carden & Co [1897] 2 Ch. 367 at 371 per Chitty L.J.). There may be injustice in requiring an applicant to set aside a judgment to make a payment into court in respect of past costs as a condition of being allowed to proceed with such application when the court knows that the applicant cannot make such payment out of his own resources and that the only source of funding to make such payment is a third party against whom no order for costs under s. 51 has been sought in respect of those costs and little reason to think that such an order could be made.  In this context it must be a relevant consideration that the effect of requiring such payment is, if the application fails, to give the respondent the ability to recoup part of what he is owed from additional assets which, had the application not been made, would not have been available to him.
	33.  If, as it would appear, that was part of the thinking of the judge, then I am afraid that I cannot accept that it provides justification for the order to make a payment in respect of past costs, because it ignores the possibility that the application to set aside will fail.  In that event the payment into court will have enlarged the pool of assets available to the other party from which it can recoup the past costs.  The Claimants have been allowed by the judge to improve their position against the Appellants in respect of the past costs orders by taking advantage of the Appellants' applications, even though those applications are not said to be frivolous or vexatious.  Mr Wardell does not dispute that if the applications succeed, the court is likely to require the Appellants to pay past costs and that Mr Cavazza is likely to be the source of monies to comply with such order, but that does not meet the objection that the application may fail.
	34.  The judge robustly stated his complete lack of concern that Mr Cavazza had to make the payment required of the Appellants and that it was irrelevant that he was a third party.  For my part I cannot see how that fact can be of no relevance to the exercise of discretion.  Dealing with a case justly must require the court to have regard to the substantive effect of the order being made and to the justice of, in reality, requiring the third party to make payment.  In fact the judge did have regard to Mr Cavazza's position.  The judge rightly identifies the commercial reality as being that Mr Cavazza was seeking by the application to protect his investment in the Appellants.  That provides good justification for making an order for security for the costs of the applications even though the Appellants could not pay.  But the point in issue is whether that is sufficient to enable the court to require the payment into court in respect of the past costs when Mr Cavazza would have to fund such payment.  The judge said that Mr Cavazza must take responsibility for what happened in the past.  I presume that the judge is there adverting to the fact that Mr Cavazza has had 75% of the shares since 1995 and so he could have exercised his majority control earlier to prevent the Appellants conducting the proceedings in such a way as to cause the judgments in default to be entered and the costs orders to be made against the Appellants.  But the court does not normally punish the person having share control of a litigant company against which a costs order is made by an order against that person under s. 51 (see, for example, Taylor v Pace Developments Ltd [1991] BCC 406). The position might be different if there was evidence that Mr Cavazza had funded the Appellants before August 2001, for example in the jurisdiction proceedings, or was actively involved in the litigation at that earlier time.  But there is no such evidence and no s. 51 application against Mr Cavazza.”

28.	Returning to Contract Securities v Rees Estate the Court of Appeal there through Waller LJ distinguished the CIBC case in the following terms at paragraph 27 of his judgment:	
	“The instant case is very different from the CIBC case.  First, Mr Shuck had financed the whole of the trial process or been a party to the financing.  Second this is a case in which a section 51 application must stand a considerable prospect of success.  Third it is an appeal and that places the case management powers in a very different context.  Fourth this is not a case where the respondents are simply seeking to inflate the pool against which they can later execute any judgment.  Their position is that when Mr Shuck has financed the trial and is financing the appeal, there is no reason why he should be allowed to conduct that appeal on a heads he wins and a tails they lose basis.”	

29.	The third authority to which I was referred is Bell Electrics Ltd v Aweco Appliance Systems GMBH & Co [2003] 1 All ER 344, another decision of a two-judge Court of Appeal consisting of Potter LJ and Carnwath LJ.  At paragraph 19 Potter LJ said this:
	“The discretion under rule 52.9(1)(c) to impose or vary conditions upon which an appeal may be brought is unfettered by any provision specifying or classifying the nature of the condition which may be imposed or varied.  The only requirement is that the court should be satisfied that there is a ‘compelling reason’ why it should, for the purpose of doing justice between the parties, intervene in the ordinary progress of the appeal between leave being granted and the date for the hearing of the appeal.  Since such intervention involves placing a fetter on the appellant’s right to appeal on grounds which have been recognised by the court to be arguable upon the application for leave it will in the ordinary way be undesirable and a misuse of court resources and a waste of costs for the court to revisit the merits of the grounds of the appeal before the date fixed for their determination.  Hence, (i) the provision in rule 52.9(3) that where a party was present at the hearing at which permission was given he may not subsequently apply for an order under 51.9(1) and (ii) the form of the note in the White Book [to which I have already referred and to which I shall shortly return] however the power in rule 52.9(1)(c) is one which may in appropriate circumstances properly be relied upon where the condition sought to be imposed does not involve consideration of the merits of the appeal but is based upon some aspect of the conduct of the appellant or some other circumstance which either had not occurred or was at any rate not available to be advanced by the respondent at the time of the grant of permission.  It remains necessary that the reason for imposing any condition must be ‘compelling’, but the task of the court in deciding whether that is so will be the more straightforward.”

In the present case of course because the appeal is as of right there was no earlier occasion when the matters now relied upon by the Revenue in support of this application could have been considered by the court and in my judgment that paragraph of Potter LJ’s judgment in that case provides a revealing insight into the reasons for the inclusion in CPR 52.9(2) of the compelling reason requirement.  The note in the White Book to which he referred is described in the White Book current edition at page 1410 at note 52.9(2) as a cautionary note and it is to much the same effect as Potter LJ’s judgment and begins:
	“This tempting provision should not lure advocates into tactical skirmishing or into manoeuvres designed to wear down the opposition.  Save in exceptional circumstances it is a misuse of the court’s resources and a waste of costs for the court to consider the substance of an appeal on some intermediate date between the permission hearing and the full appeal.”

30.	Mr Cunningham QC for the Revenue submitted that first if the considerations in paragraph 41 of Clarke LJ’s judgment in the Agrichem case are tested against the facts of this case most of them plainly apply, save as he accepted that the appellants are not, in the present case, in breach of some costs order or other order for payment.   Secondly he submitted that the ‘heads I win tails they lose’ analysis in Waller LJ’s judgment in the Contract Facilities case which I have read out in full applies precisely to the circumstances of these appellants and in particular to Mr Gohir.  For the appellants, Mr Cordara submitted first that it was not clear that CPR 52.9 was really designed to deal with appeals made as of right.  Plainly such appeals must be a very small subset of the whole compendium of appeals governed by the general and uniform provisions of part 52.  	

31.	Secondly he submitted that it was wrong in principle for the court to impose conditions on the prosecution of an appeal where, (a) the appeal is as of right, and (b) the appeal is not frivolous, and (c) the appellant is not in default or breach of the rules and thereby in need of some coercive form of case management to bring it into line with its procedural obligations.  Finally, he submitted that it was wrong to use CPR 52.9 as a means of improving the Revenue’s prospect of obtaining execution of its order for costs before the tribunal, especially if the reality is that if this is done by means of obtaining security it will be Mr Gohir who has to pay.  That submission was fairly and squarely based on the observations of Peter Gibson LJ in the CIBC case.	

32.	My conclusions are as follows.  First, the draftsman of CPR 52.9 (or more likely the drafting committee) probably did not have in the forefront of its collective mind appeals which do not require permission.  The rule does nonetheless apply to such appeals.  Plainly CPR 52.9(1)(a) which enables an appeal notice to be struck out in whole or in part must as a matter of commonsense apply, since for statutory appeals of this kind can be brought without permission, there is otherwise no way in accordance with the rules in which a wholly frivolous appeal or frivolous part of an appeal could be dealt with as a matter of sensible case management by striking out.	

33.	If part 52.9(1)(a) applies as a matter of construction then it is impossible to discern within the body of the rule any reason why the whole of part 52.9 should not apply to statutory appeals which do not require permission.  I bear in mind the context that the rule is preceded by a heading which is part of the rules and which contemplates that the conditions are imposed on permission to appeal.  Nonetheless it seems to me that, as is reflected in the main textbook on construction, Benyon, headings although available as an aid to construction (if part of the relevant statutory provision) are necessarily a brief and inaccurate guide to the full meaning of the rule.	

34.	Generally of course as is common ground  part 52 does apply to appeals of this type.  Secondly, the compelling reason test in 52.9(2) and the restriction of 52.9(3) is for the reasons given by Potter LJ in the Bell Electric case both designed to minimise the risk of satellite litigation and second bites of the cherry, but this operates mainly in relation to appeals which require permission and ensures that only in exceptional circumstances will such matters not be finally resolved on the permission application itself.	

35.	In circumstances where there has been no permission application it seems to me that if the ordinary balance of justice test militates in favour of making an order for security or some other relevant condition it is not clear what the compelling reason requirement adds and in that respect I echo the uncertainty as to the additional requirement, if any, in terms of a general standard imposed enunciated by Clarke LJ in the Agrichem case.  	

36.	Thirdly, there is in my judgment nothing of substance in Mr Cordara’s point that no such order as is now sought has ever been made before in a Revenue appeal, at least in his experience, or in the fact that these proceedings are not ordinary litigation between private parties.  Nor in my judgment is there any substance in the point that the VAT Tribunal itself has limited powers especially in relation to third party costs liability and orders for payment on account of costs.	

37.	Fourth, these appeals are in a sense appeals as of right but section 11 of the Tribunals and Inquiries Act makes it expressly subject to the rules of court, which are themselves of statutory force. Thus the right of appeal conferred by section 11 is expressly subject to the court’s power in CPR 52.9(1)(c) to impose conditions.	

38.	Fifth, the appellants have not committed any rule breach which would of itself make it unjust for them to be allowed to pursue this appeal without first complying in the sense of remedying the breach or providing security.	

39.	Sixth, there is some force in Mr Cordara’s point that the Revenue would, by obtaining the security sought, create at Mr Gohir’s expense a pool or security fund for recovery of its costs order in its favour in the court below, (that is before the tribunal) once they have been assessed and are therefore in a sense seeking to improve their position at the expense of a person who is not himself exposed to a third party cost liability in relation to the costs before the tribunal. 	

40.	Seventh, the Revenue are contingent creditors of the appellant companies for their costs, once assessed but subject of course to the outcome of the appeal.  The appellants have, at Mr Gohir’s personal direction, prosecuted this appeal regardless of the Revenue’s claim as a creditor and benefiting for themselves from the fact that no assessment has yet occurred.  In my judgment it is not a matter for criticism of the Revenue that no assessment has yet occurred, although on inquiry I was provided with no reason.  It seems to me that unless some form of security is ordered the costs of an assessment would on the face of it be likely to be costs thrown away.	

41.	Eighth, there is in the present case no risk of an injustice if the appellants have to provide security since for the reasons I have already given on the security for costs appeal it is clear that even if this additional sum is ordered to be paid that no case has been established to the effect that this appeal would thereby be stifled.  The only injustice, if it be an injustice at all, would be the additional burden on Mr Gohir, but he has a real interest of his own in the further prosecution of this appeal.  In the end it all  seems to me to turn on the question whether the ‘heads I win tails you lose’ point enunciated by Waller LJ in the Contract Securities case applies to the facts of the present case as a compelling reason for ordering security.  This is a case in which by contrast with the CIBC case I can and do infer that Mr Gohir is funding not merely this appeal but also funded the proceedings before the tribunal, since I have been told that both the appellant companies had by then ceased to trade and were by then insolvent.  Again, as I have said, he was no doubt funding the appeal before the tribunal, like this appeal, for his own interest and advantage, which is not merely a pecuniary interest having regard to the allegations made against him.  The relevance of this point is set out in terms by Peter Gibson  LJ at paragraph 34 of the CIBC case and in paragraph 27 of the Contract Facilities case in which it was central to the conclusion that it was a compelling reason for security that Mr Shuck had financed the whole of the process which had led to the orders made at the end of the trial.	

42.	On that basis it seems to me that the fact that throughout Mr Gohir has funded this case in pursuit of his own financial and reputational interests on a ‘heads I win tails the Revenue get no cost recovery’ basis is a compelling reason to make the order for security sought, and a reason why even if Mr Gohir has to provide that security he thereby suffers no injustice which the court should recognise.  In those circumstances I propose to make the order for security sought on the second application as well, there being no issue as to quantum in the amount sought.  	

43.	I make an order for security for costs of £175,000 to be split between the two applications and therefore the two relevant items of costs in the ratio of £60,000 over £187,000 to be paid within 28 days, the appeal to be struck out if not paid within that time.  I summarily assess the costs in the sum of £17,392.40, to be paid within 28 days.