Geophysical Service Centre Co v Dowell Schlumberger (ME) Inc

On an application for security for costs, the defendant must first establish a threshold condition under CPR 25.13. The burden is to show reason to believe that the claimant will be unable to pay an adverse costs order, not to prove that inability on the balance of probabilities.

A properly drafted after-the-event insurance policy from a substantial and reputable insurer may provide sufficient protection. The question is whether, despite the policy, there is reason to believe that the claimant will be unable to pay. A merely theoretical risk of avoidance or cancellation is insufficient. If the threshold is met, the court retains a broad discretion having regard to all the circumstances.

The claimant, a Jordanian seismic exploration company, claimed that the defendant had excluded it from work under an English-law agreement concerning a successful tender for BP seismic services in Jordan. The defendant denied liability and counterclaimed substantial damages.

The defendant applied for security for costs under CPR 25.12 and CPR 25.13. The claimant relied on an after-the-event insurance policy covering the defendant’s costs. The central issue was whether the policy meant that there was reason to believe that the claimant would be unable to pay an adverse costs order.

1. Application dismissed. The defendant failed to establish the threshold condition for an order for security for costs.
2. Under CPR 25.13, the defendant bore the burden of showing that there was reason to believe that the claimant would be unable to pay the defendant’s costs. Proof on the balance of probabilities was unnecessary. The court’s discretion to order security arose only if the threshold conditions were satisfied.
3. The claimant’s own resources gave reason to believe that it could not meet a substantial costs order. The relevant question, however, was whether that remained so despite the after-the-event policy. The policy need not be equivalent to cash. Depending on its terms, it could itself remove the reason to believe that the claimant would be unable to pay.
4. The policy covered the defendant’s costs and disbursements. Its provisions concerning fraudulent non-disclosure, compliance with policy conditions and cancellation created no more than theoretical risks on the evidence. An adverse finding on liability would not necessarily amount to fraudulent misrepresentation, and the insurer would remain liable for costs incurred before cancellation. The policy was administered by a reputable insurer, and the commercial relationship between the insurer and the claimant’s solicitors was a relevant consideration.
5. The court distinguished the factual circumstances considered in Michael Phillips Architects Limited v Riklin, (2010) EWHC 834. The observations in Nasser v United Bank of Kuwait, [2001] EWCA 556, and Belco Trading Co v Kondo, [2008] EWCA Civ 205, had been made in materially different or abstract circumstances. The reasoning in Al-Koronky v Time-Life Entertainment Group Ltd, (2006) EWCA 1123, did not apply because fraud was not an inevitable or probable consequence of losing this claim.
6. It was unnecessary to determine the effect of a proposed notification undertaking or the defendant’s ability to enforce the policy directly. The application therefore failed at the threshold stage.