[2025] EWHC 1930 (Comm)

I address the remaining issues on the basis that it does not matter whether they go to the justice of making an order in all the circumstances of this case or the broader residual discretion, and it is fair to say that Cedar Mundi drew no distinction of principle.

As Cedar Mundi has submitted, in the Commercial Court first applications for security for costs should not be made later than at the case management conference (Commercial Court Guide, Appendix 10 para 1). The cases have repeatedly emphasised that an application for security for costs should be made promptly, as soon as the facts justifying the order are known; and delay is a factor relevant to the exercise of the court’s discretion: Alta Trading UK Ltd v Bosworth [2025] EWHC 1097, at [78] Henshaw J.

In that case, Henshaw J (at [78]) adopted the analysis I offered in Re Bennet Invest Ltd (Hniazdzilau v Vajgel) [2015] EWHC 1582 at [28], which had been approved by Marcus Smith J in Santina v Rare Art (London) [2023] EWHC 807 at [26]:

“…

Lateness is a relative concept in many areas of case management. The procedural chronology in this case shows that in the Commercial Court it is possible to have a case management conference in a complex multi-party case only two months after the close of pleadings, and a four week trial eleven months later. Complaints of lateness often, as in this case, boil down to a few weeks or one or two months. The shorter the period of delay complained of, the stronger the need to show that it made a difference to the respondent’s decision-making about whether to provide security as ordered or withdraw the claim and throw away the costs invested thus far in the proceedings: see Absolute Living Developments Ltd (in liquidation) v DS7 Ltd [2018] EWHC 1432 at [38], Marcus Smith J.

In this case there is no particularly good reason why the Defendants did not first demand security when they saw Cedar Mundi’s Counterclaim in Cedar II’s proceedings on 14 June 2023, or its Particulars of Claim in Cedar Mundi’s own claim when it was served in August 2024. There was nothing in the procedural steps thereafter which would explain or justify making it at any time thereafter. The Defendants do not, for example, say that it was essential first to see Cedar Mundi’s reply and defence to counterclaim (which was served on 27 January 2025) or even why it was necessary to wait a further month thereafter. Mr Watson, who addressed me briefly on the issue, submitted that matters were held up by the resolution of the question over who was funding Cedar Mundi’s claim, but I cannot see that that was a reason not to launch the application a good deal sooner than 1 April 2025 so that it could be heard at the case management conference. I accept that this was a heavy application requiring a special listing, and that a period of negotiation in correspondence was appropriate, but I see no good reason why the five weeks which elapsed between 26 February 2025, when the Defendants first made their demand for security, and 1 April 2025 when the application was issued, could not have been earlier.

On the other hand, Cedar Mundi has not identified any prejudice at all. It simply relies on the fact of lateness. Indeed, it did not raise any lateness objection until it served its skeleton in opposition to the application. It has not advanced any reason for its own delay in raising its lateness objection, all of which suggests that it has suffered no prejudice. Cedar Mundi has not said, for example, that if the demand for security had been made before 26 February 2025, or at any time after June or August 2024 so that the application could be entertained at the case management conference in late March 2025, then Cedar Mundi would not, or might well not, have proceeded with the claim if it judged that it was at risk of having to put it up (even had a Dumrul undertaking been offered by Cedar II at that stage). On the contrary, Mr Wilson KC made it plain in oral submissions that if an order for security were to be made Cedar Mundi would comply with it. He did not say, and there was no evidence to suggest, that the amount of Cedar Mundi’s own costs already sunk in this litigation is now too much to write off as the price of not putting up security.

Accordingly, although in my judgment the Defendants could and should have demanded their security earlier and in good time for the application to be dealt with at the case management conference, it has not caused Cedar Mundi any prejudice. In the exercise of my discretion, therefore, I reject the relative lateness of the application to deny the Defendants any security at all. That would not be justified.

It is of course open to me to refuse the Defendants security for some of their past costs or to limit the security to future costs, as the court did in Warren v Marsden [2014] EWHC 4410 (at [21]). I do not propose to do that, first because of the absence of any prejudice to Cedar Mundi flowing from lateness and secondly because any intermediate start date for the Defendants’ costs would involve an element of guesswork. Nor would it be proportionate to award future costs only, even though some 70% of the total costs estimate down to the end of trial are estimated future costs. Furthermore, the Defendants have discounted their overall incurred and future estimated costs by 25%, which caters for most of their past incurred costs anyway. That is not to say that no further discounts should be made (as to which see below on quantum) for other reasons, but an order for security for future costs only would not be a fair or proportionate response to the delay.

Cedar Mundi prays in aid the fact, as it alleges, that it has assets that are available for enforcement of any costs order in favour of the Defendants. It lists in particular the sum of about US $330,000 in cash sitting in a bank account with J P Morgan in the USA of which Societe General de Banque au Liban (“SGBL”) is the account-holder, some shares in and convertible loans to a handful of Lebanese tech start-ups, and, as the most significant asset the sum of about US $16.6 million held in an account with BEMO bank in Lebanon.

Mr Montagu-Smith advanced a threshold objection to the effect that Cedar Mundi’s acceptance of the court’s jurisdiction on the grounds that there is reason to believe that it will not be able to pay the Defendants’ costs precludes Cedar Mundi from seeking to rely on availability of assets as a matter going to discretion. In essence, he submitted that if there is reason to believe that Cedar Mundi will be unable to meet an order for costs, as it admits, then there is no room for the exercise of discretion against the grant of an order on the grounds that it has assets with which it might do so. I accept that submission in the circumstances of this case because it is the very inability of Cedar Mundi to remove the assets or their value from Lebanon or to use them to provide liquidity with which to meet an order for costs which has led it, rightly, to accept the court’s jurisdiction to make an order for security for costs under CPR 25.27(b)(ii) in the first place.

I should record the fact that Mr Wilson clarified the scope of his concession as to jurisdiction, which is that Cedar Mundi would not have the readily realisable assets to do so with 14 days, which is the normal period provided for in orders for security for costs. Implicit in that was that Cedar Mundi would have assets available to meet an order at some later time, which is a point that, he submitted, would go to discretion. I can see the force of that but Cedar Mundi did not identify any particular period within which it would be able to meet an order for costs after it had been made; and without any evidence or submission as to that, the uncertainties inherent in the limitation of the concession do little to persuade me that my discretion should be exercised against the making of an order.

Nor does Cedar Mundi allege that its claim will be stifled if an order for security for costs were to be made. On the contrary, as I have already said, Mr Wilson told me that were an order to be made Cedar Mundi would comply with it.

Accordingly, there is no need to analyse closely the precise asset position or value, or the intricacies of Lebanese law on the subject. However, even if there were any room for the exercise of discretion on that issue, in due deference to the arguments, I would anyway not be deflected from making an order for security for the following reasons:

Accordingly I reject the suggestion that in the exercise of my discretion Cedar Mundi’s assets position militates against making any order for security. I can also add at this stage that I also reject the suggestion that the presence of these assets can and should persuade me to “tailor” the order for security by reducing the quantum to reflect the risks of non-enforcement. It is well established that that is not an appropriate exercise of discretion to grade the risk on a sliding scale and reduce quantum accordingly: Danilina v Chernukhin [2018] EWCA Civ 1802.

The short point made by Cedar Mundi is that the material cause of Cedar Mundi’s financial position is the actions of the Defendants themselves, in reliance on the well-known principles set out in Keary Developments Ltd v Tarmac Construction Ltd [1995] All ER 543 at 540 (Peter Gibson LJ) and Lindsay Parkinson v Triplan [1973] QB 609 at 623. The Defendants’ specific action was, says Cedar Mundi, in structuring the SPA so that the consideration for the assets acquired by Cedar II thereunder was in Lollars, which has led to Cedar Mundi not having US Dollars.

I cannot accept that submission. The SPA provided in terms at clause 2.1 that the Consideration (defined thereunder) would be paid “exclusively and entirely in local non-fresh United States dollars held at Lebanese Banks (“Local Non-Fresh USD or L$”)”. That was the contract to which Cedar Mundi bound itself and which it now seeks to impugn by these proceedings. As matters stand on the evidence before me, the cause of Cedar Mundi having Lollars and not US Dollars was its own agreement to receive Lollars by way of consideration. To the extent that Cedar Mundi blames Cedar II or the other Defendants for its entry into the SPA in the first place, that is a matter for trial. Mr Wilson rightly did not invite me to investigate the merits, and as a matter of practice the court is strongly discouraged from doing so save in the most obvious cases: Commercial Court Guide, Appendix 10, paragraph 4.

Cedar Mundi says that it does not assist the Defendants to complain that the claim is being funded by the C-331 Shareholders. I disagree. The fact that the C-331 Shareholders are funding the claim (which does not appear to be in issue) explains how Cedar Mundi, despite there being reason to believe that it will not be able to meet a costs order when the time comes, is able to pursue its claims and why in turn the Defendants have incurred and are at risk of having to incur further substantial legal costs which they may not be able to recover from Cedar Mundi. It is no answer to an application for security for costs that the applicant can apply for a third party costs order under section 51 of the Senior Courts Act 1981 and CPR 46.2 following trial. On the contrary, it would be unjust that neither Cedar Mundi nor the C-331 Shareholders should take all the benefits of being able to advance their claims against the Defendants without assuming a concomitant risk as to the costs incurred by the Defendants as they are incurred.

The Defendants’ application for security for costs was made by and on behalf of all of them without distinction between them. The effect of the application of the Crabtree principle, however, would (but for the effective Dumrul undertaking) have been that only the First to Fourth Defendants would be entitled to security for their own costs. Cedar Mundi submitted that it would not be just to order security against the First to Fourth Defendants if they could not demonstrate by evidence not only that they were legally liable to their solicitors to pay them but that they had actually paid and would continue actually to pay them themselves; or in other words that nobody (such as Cedar II) was discharging their liability for them.

The point had not been flagged in the parties’ skeleton arguments and really only emerged during oral argument by Mr Wilson in response to the application. I enquired whether there was any authority on the point. After the hearing had concluded I received, unwontedly, a number of rounds of email submission, and two further (short) sets of written submissions, for which I gave permission. I have considered those submissions carefully, as well as the decision of the Court of Appeal in Heathfield International LLC v Axiom Stone (London) Ltd [2021] Costs LR 819 relied on by Cedar Mundi.

In my judgment there is nothing in Cedar Mundi’s point. First, since I have held that Cedar II is entitled to security for costs (because of its Dumrul undertaking), if it is actually paying all or any of the costs of the First to Fourth Defendants’ costs (as Cedar Mundi suggests) then the absence of any evidence as to how the First to Fourth Defendants actually propose to discharge their own liability (if they have any) is neither here nor there. Cedar Mundi rightly accepts at paragraph 1 of its post-hearing note of 11 July 2025 that the issue only arises at all if I am against the Defendants on the effect of the Dumrul undertaking, which I am not.

Secondly, in the Heathfield casethe Court of Appeal expressly disavowed any general principle that parties should routinely disclose their source of funding in security applications in order to persuade the court to exercise its evaluation, or its broader discretion, to order security for costs (see Nugee LJ at [28]). The point being taken on appeal was that the judge below in that case should not have taken account of the fact that he did not know who was actually discharging the defendant’s liability for its costs, in the context of a wider mystery about why either side was litigating at all. All that the Court of Appeal held was that that was a matter which was relevant to the exercise of the judge’s discretion in the particular circumstances of that case and that the appellate challenge to the exercise of his discretion should fail (see Nugee LJ at [30]).

Thirdly, as a general principle it would in my judgment introduce a burdensome and highly intrusive requirement if every applicant for security for costs was required to satisfy the court with positive evidence not only as to his liability for the costs but the absence of any other person who might discharge that liability before the discretion to order security could be exercised in his favour. There is no justification for making a defendant prove on a security for costs application that which he would not be required to prove in order to obtain an order for a summary assessment of costs, or a payment on account of costs, at the interlocutory stage or even an order for costs at the end of the proceedings. Provided the indemnity principle is engaged, that is all that matters; and it is engaged by the fact of liability, not by further proof that the relevant party will actually pay. Security for costs is intended to secure against the liability which is engaged by the indemnity principle.

Fourthly, Cedar Mundi submits that the court should infer from the absence of any evidence about the funding arrangements as between the various defendants that Cedar II is funding all of the Defendants’ costs. As I say, even if that inference were properly open to me and I were to draw it, it would make no difference since Cedar II is entitled to an order for security for its costs. In any event, I decline to draw that inference. It has now been confirmed by Pinsent Masons that notwithstanding that they remain jointly and severally liable for the whole of the legal costs, the five Defendants have agreed between themselves to bear 20% of those costs. Cedar Mundi says that I should reject that assertion on the grounds that it is not credible because it conflicts with Mr Gardiner’s previous evidence and should have been raised earlier. I am unpersuaded by that. The issue of who was bearing the liability as between the five Defendants was never properly and clearly canvassed in the inter-solicitor correspondence before the application was made, or since, was not addressed in the evidence, and was not the subject of written submission. Although there was much discussion of the allocation of the Defendants’ costs as between issues in which Cedar II was interested as part of its counterclaim and the incremental costs of the issues only going to the defence of the First to Fourth Defendants, that was important because Cedar Mundi accepted that its Crabtree point did not affect the First to Fourth Defendants. The discussion was about the costs of issues, not who was bearing how much of all the costs. I do not think that Pinsent Masons can fairly be criticised for not making the costs-sharing position clearer earlier, and there is no basis on which I can fairly reject a representation of fact made by leading counsel on instructions from Pinsent Masons.

The real gist of Cedar Mundi’s complaint is that there is a risk that each Defendant might be oversecured for his costs exposure. That is not a real risk given that each Defendant still bears joint and several liability for all of the costs. The 20% arrangement is simply a costs-sharing arrangement as between the Defendants. As I understand it the arrangement does not limit Pinsent Masons to a 20% recovery from each Defendant.