SARPD Oil

The Court of Appeal held that, under CPR Part 25.13(2)(c), a defendant is entitled to an order for security for costs where a claimant company incorporated abroad (here a BVI company) is given every opportunity to show its ability to pay but deliberately refuses to provide financial information. Deliberate reticence about finances gives the court reason to believe the claimant will be unable to pay the defendant’s costs if ordered to do so. The court further held that security may properly include costs which a defendant will be ordered to pay a third party in Part 20 proceedings (because those costs will become the defendant’s costs if so ordered). Finally, the court held that approved costs budgets and the court’s recorded comments on incurred costs at the first case management conference provide an appropriate reference point for fixing the amount of security to be ordered.

Background and procedural posture:

• The claim concerned an international sale of gas oil. The claimant, SARPD, a BVI company, alleged defective quality and sought damages or an indemnity from the defendant, Addax, a Swiss company. Addax denied liability and brought Part 20 proceedings against Glencore for contribution or indemnity.
• Addax applied for security for costs under CPR Part 25.12/25.13(2)(c) on the grounds that SARPD was a company and there was reason to believe it would be unable to pay Addax’s costs if ordered to do so. The Commercial Court (Andrew Smith J) refused to order security, accepting the claimant’s silence might be a litigation tactic but not sufficient to satisfy the rule. Permission to appeal was granted.

Issues framed by the court:

• Whether deliberate withholding of financial information by a foreign claimant gives rise to a "reason to believe" under CPR Part 25.13(2)(c) that it will be unable to pay the defendant’s costs.
• Whether security for costs can include (a) the defendant’s own costs of prosecuting Part 20 proceedings against a third party, and (b) the costs which the defendant will be ordered to pay that third party if unsuccessful in Part 20.
• What role approved costs budgets and their incurred-costs elements should play in assessing the quantum of security.

Court’s reasoning and conclusions:

• The court adopted the established test that the judge need only have "reason to believe" the claimant will be unable to pay; that test does not require proof on the balance of probabilities. The court held that deliberate reticence by the claimant, after being given the opportunity to disclose its finances, is a proper and weighty part of the overall evidence and justifies an inference that it will be unable to pay if ordered to do so.
• The court concluded that costs which a defendant will likely be ordered to pay a third party in Part 20 proceedings effectively become the defendant’s costs for the purposes of CPR Part 25.12 and may therefore be included in an order for security for costs.
• The court explained the costs budgeting regime and held that where costs budgets and any court comments on incurred costs were considered and approved at the first case management conference, those budgets are an appropriate and proportionate basis for quantifying security for costs, subject to the court’s discretion.

Outcome:

• The Court of Appeal allowed the appeal, substituted an order for security for costs and directed security in the sum agreed between the parties, being £868,254.42, with reasons as above.

Appeal allowed. The Court of Appeal found that a claimant company’s deliberate refusal to disclose financial information provides a sufficient basis for the court to have "reason to believe" under CPR Part 25.13(2)(c) that it will be unable to pay the defendant’s costs if ordered to do so. The court further held that security for costs may include (a) the defendant’s own costs of pursuing Part 20 proceedings and (b) the costs which the defendant will be ordered to pay a successful third party, and that approved costs budgets and the court’s recorded comments at the first case management conference are an appropriate reference point for quantifying security. The court substituted an order for security in the sum of £868,254.42.

Appeal from the Commercial Court (Queen's Bench Division), judgment of Andrew Smith J (Commercial Court, case no. 2014-1019). Permission to appeal was granted at the appellate level (Lewison LJ). The Court of Appeal delivered judgment allowing the appeal: [2016] EWCA Civ 120.