Peak Hotels And Resorts Ltd v Tarek Investments Ltd

An application for security for costs requires the applicant to establish both a condition in CPR 25.13(2) and that, having regard to all the circumstances, it is just to order security. The expression “reason to believe” requires an evaluative judgment about the future, not proof on the balance of probabilities. The discretion is broad and fact-sensitive. Where claim and counterclaim substantially overlap, that is important but not decisive; the court must assess whether security would serve protection or merely confer a tactical advantage. In an exceptional case, serious deficiencies in the claimant’s financial evidence, substantial uncertain liabilities and evidence suggesting dissipation of assets may justify security despite the overlap. Money paid into court for a specific cross-undertaking is not an asset available for security for costs unless released or the order is varied.

Peak Hotels and Resorts Ltd (“PHRL”), a BVI company, brought complex proceedings concerning the ownership and control of the Aman Group against Tarek Investments Ltd and the Sherway defendants. Tarek and the Sherway defendants applied for security for costs under CPR 25.12 and 25.13. PHRL made a cross-application for security against Tarek in respect of Tarek’s counterclaim.

The applications raised whether the corporate parties were unable to pay adverse costs, whether assets were available to meet such liabilities, and whether it was just to order security where the claims and counterclaims substantially overlapped.

1. Conditions. PHRL satisfied CPR 25.13(2)(a), because it was resident outside the jurisdiction in the BVI. That ground alone could support only security for additional enforcement costs. PHRL also satisfied CPR 25.13(2)(c): the evidence gave overwhelming reason to believe that it would be unable to pay the defendants’ costs if ordered to do so. The test is evaluative and does not require proof on the balance of probabilities. The Sherway defendants also established CPR 25.13(2)(g), although it was unnecessary to rely on that ground.
2. Available assets. PHRL’s shareholding in the joint venture could not realistically be treated as available security, given the restrictions, pledges and disputes affecting it. The US Treasury bonds were not in fact available to PHRL. The US$10 million paid into court was held exclusively as security for PHRL’s cross-undertakings in damages. Applying W A Sherratt Ltd v John Bromley Ltd [1985] QB 1038, it could not be treated as an available asset unless released by order.
3. Justice and overlap. CPR 25.13 confers a broad discretion. There is no rule that substantial overlap between claim and counterclaim automatically prevents security. The court must consider the particular circumstances, including whether the counterclaim has independent vitality and whether security would merely give a tactical advantage. The exceptional weakness and unreliability of PHRL’s financial evidence outweighed the overlap in this case.
4. Orders. PHRL was ordered to provide security of £1.746 million for Tarek’s costs and £1.392 million for the Sherway defendants’ costs. PHRL’s application for security against Tarek was dismissed. The anticipated set-off against Tarek’s shares meant there was no reason to believe that Tarek would be unable to pay PHRL’s costs.