An application for security for costs can be a significant part of any commercial litigation, and it is therefore important that practitioners are familiar with the relevant principles.
This blog considers two recent cases which have provided valuable guidance in this area, namely Pisante v Logothetis, in which the authors acted, and Rowe v Ingenious Media Holdings Plc.
Pisante v Logothetis: the conditions for security
In Pisante v Logothetis, the defendants applied for security for costs against the claimants on the grounds that: (a) each of them was resident out of the jurisdiction, and (b) three of them were companies which there was reason to believe would be unable to pay the defendants’ costs if ordered to do so.
Resident out of the jurisdiction
There was no dispute that the three corporate claimants were resident out of the jurisdiction (in the BVI and Marshall Islands). However, the remaining claimant (Mr Pisante) was an individual who divided his time between New York and Greece, and the question arose whether he was “resident” within Greece for the purposes of the rules (in which case security could not be granted against him).
In considering this issue, Henshaw J explained (at paragraph 22) that a person is resident in a place for the purposes of CPR 25.13(2)(a) if they:
“… habitually and normally reside lawfully in that place from choice, and for a settled purpose, apart from temporary or occasion absences, even if their permanent residence or ‘real home’ is elsewhere”.
The judge went on to note that a person “may reside at more than one place and indeed in more than one jurisdiction” (paragraph 23). On this basis, the judge went on to conclude, on the evidence, that Mr Pisante was resident in Greece for the purposes of the rule.
The Nasser condition
As for the corporate claimants, the issue before the court was whether the fact of their residence in the BVI and the Marshall Islands was likely to render enforcement of a costs order more difficult or costly (for the purposes of Nasser v United Bank of Kuwait). The claimants argued that it did not, because the evidence did not suggest that it would be more difficult or costly to enforce a costs order in the BVI or Marshall Islands than it would in this jurisdiction. However, this submission was rejected by the judge (paragraph 72). In particular, it was held that the fact that the claimants were incorporated in these jurisdictions made it more difficult for the defendants to locate their assets to enforce against, because there was little if any publicly available information as to the assets of companies incorporated in such jurisdictions. This was sufficient to satisfy the Nasser condition, even if it would be possible to bring enforcement proceedings in those jurisdictions if relevant assets were located there.
A good mark?
The claimants sought to resist an order for security for costs on the ground that Mr Pisante personally had sufficient assets within the EU to meet any costs liability on behalf of all the claimants, relying in particular on a house said to be worth €15 million. However, this submission was rejected. In this context, the judge emphasised that, in considering a claimant’s assets for the purposes of a security for costs application, it was important to have regard not only to their existence but also their liquidity. In particular, the question is not whether the claimant will ever be able to pay, but rather whether it will be able to pay promptly (that is, within about 14 to 28 days). A residential house is therefore unlikely to be a sufficient asset to satisfy the court that a claimant is a good mark.
Ability to pay debts
Henshaw J went on to hold that, in any event, there was reason to believe that the corporate claimants would be unable to pay the defendants’ costs if ordered to do so.
In reaching this conclusion, a number of points of interest arise out of the judgment:
- The judge emphasised that it was important to look at the claimants’ net asset position, not their gross asset position. And so it was not sufficient for the claimants to put in evidence as to their assets, without also putting in evidence as to their liabilities (paragraph 53).
- The judge pointed out that if a claimant has not been fully transparent about its asset position, this will count against it in the assessment of its ability to pay (paragraphs 63 and 81).
- It was emphasised that the question of ability to pay is a forward looking one, having regard to the likely position at the time a costs order may be made (paragraph 65). It follows that the mere fact that, at the time of the application, a claimant may appear to have sufficient assets is not enough to defeat a security for costs application if there is a risk that there is reason to believe that the claimant’s position may change.
Rowe v Ingenious Media: cross-undertaking
In the Pisante case, the judge required the defendants to give an undertaking, as a condition of the grant of security, that they will comply with any order that the court may make if the court later finds that the order for security for costs has caused loss to the claimants and that the claimants should be compensated for such loss. Such an undertaking is contemplated by the Commercial Court Guide, and has been ordered in a number of other recent cases.
This practice was considered for the first time by the Court of Appeal in Rowe v Ingenious Media. After a detailed discussion, the court held that an undertaking of this nature should only be required in “rare and exceptional circumstances”, which did not exist in any of the recent cases, including Pisante, which should no longer therefore be followed (paragraph 82).
However, the court went on to advise that it would be preferable if the law in this area were developed by primary or delegated legislation, rather than by the courts (paragraph 83). It is possible, therefore, that there will be further developments in this area in the near future.
