Longstaff International Ltd v Baker McKenzie

For security for costs, a company may be unable to pay an adverse costs order when it falls due even though it has substantial net assets. The relevant question is the company’s ability to meet the liability within the ordinary timescale, having regard to the nature and liquidity of its assets. A valuable but illiquid asset is insufficient.

Where the claimant company relies on an undertaking by another company, that does not remove the claimant from Civil Procedure Rules 1998 rule 25.13(2)(c). It may instead amount to an offer of security. The court may reject an unsecured undertaking where payment depends on future borrowing or negotiation by persons hostile to the defendant.

Longstaff International Limited, a British Virgin Islands company managed in Jersey, claimed repayment of approximately £750,000 in professional fees from Baker & McKenzie. Baker & McKenzie applied for security for costs under the Civil Procedure Rules 1998, relying on Longstaff’s residence outside the jurisdiction and its financial position.

Longstaff had substantial value through its shareholding in Redwell Limited, whose principal asset was a valuable but illiquid development site. Redwell offered an undertaking to meet any costs ordered against Longstaff. The issues were whether the conditions for security were met, whether it was just to order security, and whether Redwell’s undertaking was an acceptable form of security.

1. Application granted. Longstaff was ordered to provide security for Baker & McKenzie’s costs. If security was not provided, the claim would be dismissed. The merits of the claim were not assessed, and no stifling argument was advanced.
2. Longstaff’s residence outside the jurisdiction satisfied Civil Procedure Rules 1998 rule 25.13(2)(a), but that condition did not justify an order on its own. Following the approach in Nasser v United Bank of Kuwait [2002] 1 WLR 1868, the relevant question was whether enforcement would in practice be materially more difficult or expensive because of the claimant’s non-resident status. Longstaff’s principal value was represented by English assets, and no such material difficulty was shown.
3. The condition in Civil Procedure Rules 1998 rule 25.13(2)(c) was satisfied. The question was whether Longstaff could pay an adverse costs order when it became due, normally within about 14 days. Its positive net asset value did not determine the issue because its current liabilities exceeded its current assets and its principal asset, shares in Redwell, was not readily realisable.
4. The court applied the reasoning in Re Unisoft Group Limited (No.2) [1993] BCLC 532, and referred to the similar approach in Thistle Hotels Ltd v Gamma Four Limited, as further support for considering the nature and liquidity of assets.
5. Redwell’s undertaking did not remove Longstaff from rule 25.13(2)(c). The rule concerned the claimant’s ability to pay. In any event, Redwell was itself illiquid, and the undertaking was unsecured. The court was not required to expose Baker & McKenzie to the uncertainty of future borrowing by persons effectively adverse to it.
6. The court contemplated payment into court, an acceptable bank guarantee, or another form accepted by Baker & McKenzie as appropriate security. Liberty to apply was granted concerning the reasonable acceptability of proposed security.