Dumrul v Standard Chartered Bank

Where a claim and counterclaim raise the same issues, security for costs is generally inappropriate because the costs of defending the claim would also be incurred in prosecuting the counterclaim. An order should be made only if the defendant undertakes to consent to dismissal of the counterclaim if the claim is dismissed for failure to provide security. For a claimant resident outside the Brussels/Lugano sphere, security requires likely, substantial and objectively justified additional burdens in enforcing a costs judgment. Mere possibility and execution difficulties do not suffice. Security must be tailored to the incremental enforcement burden.

The claimant brought substantial claims concerning foreign exchange transactions and the Bank’s close-out of his positions. The Bank counterclaimed the alleged close-out debt and applied for security for costs because the claimant was resident in Turkey. The issues included whether the claim and counterclaim were co-extensive, whether the Bank’s proposed stay undertaking avoided one-sided litigation, and whether enforcement or execution of a costs order in Turkey presented sufficient additional obstacles or burdens.

The Bank’s application under CPR rules 25.12 and 25.13 was determined conditionally.

1. Co-extensive proceedings. The principle in BJ Crabtree v GPT Communication Systems ((1990) 59 BLR 43) applied. The claim, counterclaim and defences engaged the same issues, including the validity of margin calls and close-out, the operation of the GIFT system, and the calculation of the alleged debt. No substantial factual inquiry or cost arose solely on the claimant’s claim. The general rule therefore applied.
2. One-sided litigation. The Bank’s offer to stay its counterclaim while the claim was stayed was insufficient. It reserved the possibility of pursuing the counterclaim if the claim were later struck out. Security could properly be ordered only if the Bank undertook to consent to dismissal of the counterclaim in that event.
3. Enforcement. Following Nasser v United Bank of Kuwait ([2002] 1 WLR 1868), the relevant question was whether enforcement in Turkey was likely to involve substantial obstacles or an extra burden significantly greater than enforcement in England or a Brussels/Lugano state. A mere possibility was insufficient. The alleged Turkish public-policy obstacle under article 54(c) of the Turkish Code Concerning Private International Law and Civil Procedure (Law No. 5718) was not shown to be sufficiently likely. The additional first-instance enforcement costs and delay justified security, but the co-extensive close-out claim meant that many costs would be incurred in any event. The appropriate amount was £25,000.
4. Execution. The Nasser approach did not extend to execution because the Brussels and Lugano regimes did not provide a common execution procedure. In any event, no significant deficiency in Turkish attachment or bankruptcy procedures was established, and no comparative evidence showed Turkish execution to be materially less effective. No security was justified on that basis.

The maximum security was therefore £25,000, but it was to be ordered only if the Bank gave the required undertaking concerning dismissal of the counterclaim.