[2025] EWHC 1930 (Comm)

The overarching legal principles applicable to an application such as the present are well established. I am greatly assisted by the recent summary of the law by Peter McDonald Eggers KC (sitting as a Deputy Judge of the High Court) in Explosive Learning Solutions Limited v Landmarc Support Services Ltd [2023] EWHC 1263, at [17] to [24]:

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17.

First, the basis of the jurisdiction being that there is a " reason to believe " that the Claimant will be unable to comply with a costs order, if made, signifies that the Defendant does not have to prove that there is a likelihood or probability that the Claimant will be unable to pay (Jirehouse Capital v Beller [2008] EWCA Civ 908; [2009] 1 WLR 751, para. 26-35). That said, the Defendant must establish that there is reason to believe that the Claimant will not be able to pay the ordered costs. Furthermore, there must be justification for the reason for that belief and evidence for that justification. It is not sufficient if there is no more than a doubt that the Claimant is able to pay or if it is established that the Claimant might be unable to pay (Phaestos Ltd v Ho [2012] EWHC 662 (TCC), para. 71; Abbotswood Shipping Corporation v Air Pacific Limited [2019] EWHC 1641 (Comm), para. 17).

18.

Second, the burden of proof rests on the Defendant applicant for security for costs. The Court's inquiry is not to be addressed as to the Claimant's current inability to pay a costs order (unless the costs order is imminent), but an order requiring costs to be made at some future time, often after the trial of the action ( Guest Supplies Intl Limited v South Place Hotel Limited [2020] EWHC 3307 (QB), para. 65). If, however, the Defendant establishes legitimate concerns about the Claimant's financial position, and if the Claimant provides no evidence to override those concerns, the Court may be justified in concluding that the Claimant will be unable to pay the costs order which might be made. The Court therefore will take into account the totality of the evidence, including the absence of relevant evidence from the Claimant (considering that the Claimant is in most cases in the best position to provide such evidence) and the lack of any adequate explanation for any discrepancies between accounting documents ( Abbotswood Shipping Corporation v Air Pacific Limited [2019] EWHC 1641 (Comm), para. 17 ; Guest Supplies Intl Limited v South Place Hotel Limited [2020] EWHC 3307 (QB), para. 95). However, the Court will not ordinarily assess the merits of the Claimant's claim in deciding whether to grant security for costs ( Keary Developments Ltd v Tarmac Constructions Ltd [1995] 3 All ER 534, 540; Commercial Court Guide at Appendix 10, para. 4).

19.

Third, if it is established that there is reason to believe that the Claimant will be unable to pay the Defendant's costs, if ordered to do so, the Court may make an order for security for costs only if it is also satisfied that it is just to make an order for security for costs ( CPR rule 25.13(1)(a) ). However, it has been said that once it is established that there is reason to believe that the Claimant will not be able to comply with a future costs order, it will ordinarily be just to grant security for costs ( World Challenge Expeditions Limited v Zurich Insurance Plc [2022] EWHC 1365 (Comm), para. 10 ). This is because the jurisdiction is founded on inability to pay and so such an inability must have been envisaged as entitling a defendant in many cases to an order for security and, further, the interests of justice are generally best served if successful litigants recoup much of their costs and unsuccessful litigants pay those costs ( Keary Developments Ltd v Tarmac Constructions Ltd [1995] 3 All ER 534, 536, 539-540 ).

20.

Fourth, if the Court is satisfied that it has jurisdiction to grant an order for security for costs, the Court still has a broad discretion to determine whether or not it will make such an order, to be exercised in accordance with the overriding objective. Of course, there may be circumstances where such an order, even if there is reason to believe that the Claimant will not pay a costs order in favour of the Defendant and it is just to order security for costs, will not be appropriate.

21.

Where, as in the present case, the Defendant applying for an order for security for costs in respect of its defence of the Claimant's claim is advancing a counterclaim and that counterclaim is based wholly or in a very substantial part on the same facts or substantially the same facts as the Claimant's own claim, additional considerations arise in respect of the application for security for costs. In such cases, what may be described as the default principle is that the Court will not order security for costs against the Claimant. The principle was summarised by Moore-Bick, LJ in Anglo Irish Asset Finance Plc v Flood [2011] EWCA Civ 799, at para. 20 :

"If the claim and counterclaim raise the same issues it may well be a matter of chance which party is the claimant and which a counterclaiming defendant and in such a case it will not usually be just to make an order for security for costs in favour of the defendant, although the court must always have regard to the particular circumstances of the case."

22.

The rationale for this principle is that the sanction for not complying with the security for costs order is that if security were ordered and not provided, the claim might well be dismissed (Commercial Court Guide, Appendix 10, para. 6; Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm); [2010] 2 CLC 661, para. 19 ) but the same underlying factual issues would still be litigated in the trial of the counterclaim ( BJ Crabtree (Insulations) Ltd v GPT Communication Systems Ltd (1990) 59 BLR 43 ; Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm); [2010] 2 CLC 661, para. 18 ; Ardila Investments NV v ENRC NV [2015] EWHC 1667 (Comm), para. 67 ; Abbotswood Shipping Corporation v Air Pacific Limited [2019] EWHC 1641 (Comm), para. 29 ).

23.

That said, the fact that there is a claim and counterclaim arising out of the same or substantially the same facts and matters does not, of itself, mean that the defendant must be denied security for costs ( Jones v Environcom Ltd [2009] EWHC 16 (Comm); [2010] Lloyd's Rep IR 190, para. 17-27 ). For example, if it is established that the Defendant would not have advanced its counterclaim had the Claimant not instituted proceedings, that well may be a relevant consideration in granting security for costs ( Autoweld Systems Ltd v Kito Enterprises LLC [2010] EWCA Civ 1469, para. 58-60 ). If, however, both parties - the Claimant and the Defendant - were intending to advance a claim and it was only a matter of chance of who instituted proceedings first, the Court might in those circumstances refuse to order security for costs, or it might order that both parties should provide security for costs, assuming that it had jurisdiction to do so ( The Silver Fir [1980] 1 Lloyd's Law Reports 371 ; Petromin SA v Secnav Marine Ltd [1995] 1 Lloyd's Law Rep 603).

24.

Insofar as any unfairness arising from this state of affairs might exist, if such unfairness can be neutralised, that may sweep aside any concerns entertained by the Court in allowing the application for security for costs. Thus, in Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm); [2010] 2 CLC 661 , Hamblen, J said at para. 19:

"If security is not put up the likely outcome is dismissal of the claim. If the Bank wishes to obtain security it should make it clear now what its position would be in that eventuality. If it was prepared to undertake to consent to the dismissal of the counterclaim in the event of the Claimant's claims being dismissed for failure to put up security then the difficulty raised by the Crabtree principle would be avoided. However, unless an undertaking is given to that effect, I do not consider that it would be appropriate to exercise my discretion to order security."

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In addressing the issues below I have had regard to these principles.