Kazakhstan Kagazy Plc & Ors v Zhunus (Rev 1)

Security for costs under CPR 25 requires both satisfaction of a prescribed pre-condition and a separate justice assessment. Where inability to pay is relied upon, the court considers the claimant’s likely ability to pay when costs fall due, rather than its present balance sheet alone. Where residence outside the European legal market is relied upon, security must not be automatic or inflexible. The court must identify substantial obstacles or additional burdens in enforcement and tailor the order accordingly. A claim will be treated as stifled only on objective evidence. Claimants must show, after due enquiry, that no external source of funding is available. The court may weigh the merits, likely enforcement difficulties, the claimant’s financial position and conduct said to have caused that position, but should avoid a mini-trial.

The claimants, comprising Kazakhstan and Isle of Man companies, brought fraud claims against Baglan Zhunus. Mr Zhunus applied under CPR 25 for security for costs. The application was heard in stages after further evidence concerning the claimants’ finances, residence and enforcement in Kazakhstan. The claimants later applied to reopen the matter, contending that changed financial circumstances meant that security would stifle a genuine claim.

The central issues were whether the inability-to-pay and residence pre-conditions were met, whether it was just to order security, whether the proposed order would discriminate contrary to Articles 6 and 14 of the European Convention on Human Rights, and whether the later stifling contention was adequately evidenced.

1. Disposition. Mr Zhunus’s application for security for costs was granted in the sum of £1 million. The claimants’ February 2015 application to reopen the hearing was dismissed.
2. Under CPR 25.13, the applicant had to establish at least one pre-condition and satisfy the justice test. The inability-to-pay question concerned whether the claimants would be unable to pay costs when they fell due. On the evidence, the group’s substantial liabilities, cash position, dependence on creditor forbearance and likely outcome of the limitation defence gave reason to believe that it would be unable to pay.
3. The residence pre-condition was also satisfied. Applying Nasser v United Bank of Kuwait [2001] EWCA Civ 556, security was not automatic merely because a claimant lived outside the European legal market. Here, however, enforcement of an English costs order in Kazakhstan faced substantial obstacles. The court could therefore take residence into account. The position of KK Plc was not different merely because it was resident in the Isle of Man, since its effective assets were in Kazakhstan.
4. The justice test required consideration of all the circumstances. The claimants’ prospects were weak because the limitation defence presented a major difficulty. Allegations that Mr Zhunus had contributed to the claimants’ financial position were relevant only insofar as they bore on recognised discretionary factors; deciding wider allegations would involve an impermissible mini-trial. Those factors did not outweigh the risk of irrecoverable costs and the weakness of the claims.
5. A stifling contention placed the burden on the claimants. Mere assertions by directors were insufficient. After due enquiry, the claimants had to address possible funding from shareholders, creditors, stakeholders or associated companies. The March 2015 material did not do so and disclosed no adequate evidence of stifling.
6. The amount sought was reduced to £1 million because the proposed future costs included a market premium which Mr Zhunus had to bear.

The judgment described earlier interlocutory decisions, including [2013] EWHC 3618 (Comm), [2014] EWHC 2928 (Comm) and the Court of Appeal decision in Kazakhstan Kagazy Plc v Zhunus [2014] EWCA Civ 381. This judgment determined Mr Zhunus’s security-for-costs application at first instance.