Relational LLC v Hodges

Security for costs against a claimant resident outside the jurisdiction requires more than foreign residence where the discretion is constrained by the prohibition on discriminatory access to justice. The court must identify an objectively justified substantial obstacle to, or substantial extra burden in, enforcing a future costs judgment abroad. A foreign judgment creditor’s likely set-off against that costs judgment is not, without more, such an obstacle. The location of assets may justify security where enforcement is notoriously difficult, but ordinary expense is insufficient if the offered security covers it. The fact that proceedings concern enforcement of a non-EU judgment, or that the issue concerns execution rather than enforcement, does not remove the non-discrimination constraint.

Relational LLC brought Commercial Court proceedings to recognise and enforce an Illinois default judgment against Hodges under a guarantee. Hodges sought security for costs of £100,000 under rule 25.13 of the Civil Procedure Rules 1998; Relational offered £25,000. Gloster J rejected the application, holding that likely set-off of the English costs order against Relational’s Illinois judgment was not a substantial obstacle and that greater security would discriminate against an EU claimant. The appeal concerned whether the Convention-based approach to security for costs applied where the underlying judgment came from a non-EU state, and whether set-off or execution created a sufficient obstacle.

1. Appeal dismissed. Longmore LJ delivered the judgment, with Munby LJ and Thorpe LJ agreeing.
2. The conditions in rule 25.13(2)(a) of the Civil Procedure Rules 1998 were satisfied because Relational was resident outside the jurisdiction and outside the specified Convention and Regulation States. Their satisfaction did not make security automatic. Following Nasser v United Bank of Kuwait [2002] 1 WLR 1868, the discretion had to rest on objectively justified grounds showing substantial obstacles to, or a substantial extra burden in, enforcing a future costs judgment abroad. Foreign residence alone created no inflexible assumption. Any relevance of impecuniosity concerned its effect on enforcement, not merely the claimant’s apparent means.
3. The court rejected the submission that this approach depended on the proceedings falling within the Brussels Convention, the Lugano Convention or the European Regulation. Even if proceedings concerning enforcement of a non-EU judgment fell outside those instruments, the anti-discrimination principle in Article 14 of the European Convention of Human Rights remained relevant. Owens Bank Ltd v Bracco [1994] QB 509 did not require a different conclusion.
4. Likely set-off in Illinois of the English costs order against Relational’s existing judgment was not an obstacle to enforcement in this case. Treating it as one would impose a burden on a US claimant that could not be imposed on an EU claimant. Asset location could justify security where enforcement was notoriously difficult, but Relational’s assets were mainly in the United States, where English judgments could be enforced, and the offered £25,000 covered the additional expense.
5. Characterising set-off as an obstacle to execution did not assist Hodges. Set-off was either substantive or procedural; it was not solely a matter of execution. Even if execution fell outside the Lugano Convention or European Regulation, that did not displace the non-discriminatory approach.
6. In an obiter postscript, Longmore LJ expressed doubt that security would normally be appropriate for proceedings enforcing a foreign judgment from a country with a broadly similar enforcement process. The point was stronger where the foreign judgment was on the merits, and remained applicable, though less strongly, where the defendant had agreed to submit to the foreign court. The approach was consistent with Gater Assets v Nak Naftogaz [2008] Bus L.R. 388.

1. Court of Appeal (Civil Division). Appeal dismissed.
2. High Court of Justice, Queen’s Bench Division, Commercial Court. Gloster J rejected Hodges’s application for security for costs in the amount sought: [2011] EWHC 245 (Comm).