When is USD 67 billion and an £11 million Mayfair property not sufficient to defend an application for security for costs of £1.9 million? When the evidence provided to support those assets isn’t worth the paper it is written on.
The case of Libyan Investment Authority and others v King and others provides an interesting result.
Background
The first claimant in this matter was the sovereign wealth fund of Libya (LIA). The second claimant was an English registered company (UK) that was wholly owned by the first claimant, LIA. The claimants had intended on proceeding with a joint venture in respect of the development of a hotel in Hertfordshire. Unfortunately, the venture failed and as a result a claim was brought in a sum of over £12 million against the defendants for fraudulent representations.
Furthermore, added to the context of this case is the ongoing political and military turmoil in Libya in the past 10 years. A consequence of the Libyan civil war that broke out in early 2011 was that an asset freeze regime was put in place.
CPR 25: the test and thresholds
When considering whether the court should grant the application for security for costs, the relevant test and thresholds are set out in CPR 25. CPR 25.12 provides the defendant the right to apply for security for costs. However, when considering the application, the court must have regard to all of the circumstances of the case and consider that it is just to do so (CPR 25.13(1)), and if one or more of the conditions set out in CPR 25.13(2) applies.
The two conditions that were considered in this application were: CPR 25.13(2)(a) that the claimant is a resident out of the jurisdiction but not resident in a state bound by the 2005 Hague Convention (applicable to LIA) and CPR 25.13(2)(c) that the claimant is a company and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so (applicable to UK).
Judgment
Sir Anthony Mann considered each relevant claimant in turn and initially dealt with the position of UK. UK was a company and the only information provided was the company accounts. UK’s accounts showed that it appeared to have no income or expenditure and the only asset that it had registered was a Mayfair property. The property had been independently valued at £10.75 million. Given the size of the property it was not considered to be a liquid asset and that any sale would not be able to raise the funds required to meet any form of significant payment on account ordered at the end of the trial. Furthermore, Sir Anthony Mann considered that given the nature of UK’s company, that it was ‘income-less and business-less’ that it would be difficult to identify a lender willing to lend against the property. As such, he found that UK was not ‘a good mark’ for the costs.
Next, Sir Anthony turned to consider whether it was just to make an order for security for costs against LIA. The defendants argued that the current turmoil in Libya meant that any form of enforcement was plainly impractical. Therefore, consideration then turned to what assets were available to LIA to demonstrate that it was ‘good for the costs’.
Whilst Sir Anthony noted that it was clear what LIA was and there was no dispute that it was the sovereign wealth fund of Libya, and that it could be imagined that ‘it is very wealthy with plenty of assets to pay the costs. However, imagination is not enough.’
When the solicitors acting on behalf of LIA responded to requests for evidence of the assets of LIA which it could use the response was short and to the point: ‘demonstrably, it can pay’. Further correspondence between the parties and a witness statement was prepared by LIA’s solicitor in support of the assets available. Within this witness statement, it was stated that LIA ‘is reputed to have assets judgement in the order of USD 67 billion and is not in the habit of defaulting on its obligations under court orders’. Sir Anthony noted on the ‘curious formulation’ of the witness statement and that the witness statement had failed to reference at least some of the significant assets held by LIA. The only other evidence that was provided in support of LIA’s ability to pay the defendants’ costs was a photocopy of a bank statement from May 2022. The bank statement was purported to relate to an account held by LIA at ABC International Bank plc. The bank statement comprised of two entries which showed a balance of £7 million for May. No further information was provided to confirm that those funds were still available at the time of the hearing.
As a result, the lack of evidence provided by LIA ultimately raised more questions than it sought to allay in respect of LIA’s ability to pay a substantial costs order. Therefore, it was considered just to make an order for security for costs to be paid by the claimants.
After finding that both LIA and ‘UK’ had failed to provide proof that sufficient funds or assets were readily available to cover the defendants’ costs, Sir Anthony Mann turned to the figure that should be ordered as the security for costs from the claimants. The proposal from the defendants’ counsel followed the usual approach which was firstly roughly set down in SARPD Oil. Namely, the total of: 70% of the incurred costs, 70% of the unbudgeted costs (relating to an ancillary application), and, 90% of the budgeted costs based on the approved cost budget minus the sums currently still held as security for costs. This ultimately amounted to £1.9 million being the final figure approved by Sir Anthony Mann.
