SARPD Oil International Ltd v Addax Energy SA & Anor

For security for costs under CPR rule 25.13(2)(c), the court need not find on the balance of probabilities that a company will be unable to pay. It must have a reason to believe that result will occur. A foreign company’s deliberate refusal to disclose financial information, combined with no public accounts and no discernible assets, can provide that reason.

A defendant’s recoverable costs may include both the costs of related third-party proceedings and costs it will be ordered to pay to the successful third party. An agreed or approved costs budget is ordinarily the proper reference point for quantifying security. A party which had a fair opportunity to challenge the budget cannot ordinarily reopen it on the security application.

SARPD Oil International Ltd, a BVI company, alleged that gas oil sold by Addax Energy SA failed to meet the contractual specification. Addax denied liability and brought Part 20 proceedings against its supplier, Glencore Energy UK Ltd.

Andrew Smith J refused Addax’s application for security for costs. He held that the evidence did not give reason to believe that Sarpd could not pay Addax’s costs. He also expressed views on the scope and amount of any security.

Addax appealed. The central questions were whether Sarpd’s deliberate reticence about its finances justified security, whether security could cover Part 20 costs, and whether the parties’ agreed and court-approved costs budgets should determine the amount.

1. Appeal allowed. The judge was plainly wrong to find no reason to believe that Sarpd would be unable to pay Addax’s costs. The statutory test is evaluative and does not require proof on the balance of probabilities. Where a company has no publicly available accounts or discernible assets and deliberately declines to reveal its financial position despite having the opportunity to do so, that reticence itself provides reason for the requisite belief. A legitimate need for financial confidentiality could have been protected by suitable court arrangements.

2. The court upheld the Commercial Court practice of commonly ordering security in those circumstances. CPR rule 1.3 did not require Sarpd voluntarily to fill evidential gaps in Addax’s case. However, the court was entitled and bound to evaluate the totality of the evidence, including the absence of information held only by Sarpd.

3. Under Civil Procedure Rules rule 25.12, Addax’s costs could include both its own costs of pursuing the Part 20 claim and the costs it would probably be ordered to pay Glencore if Glencore defeated that claim. Those third-party costs would ordinarily be added to Addax’s recoverable costs against Sarpd. It would be unjust to permit security for Addax’s own Part 20 costs but exclude its liability for Glencore’s costs.

4. The court also held that the agreed and approved costs budgets were the appropriate reference point for security. Under the costs-management regime, formal approval applies to estimated costs, while the court may comment on incurred costs. Here the order and the parties’ agreement gave the incurred costs substantial practical weight. Sarpd had a fair opportunity to challenge the budgets at the first case management conference and could not reopen them on the security application without changed circumstances.

5. The court substituted an order requiring Sarpd to provide security for costs of £868,254.42.

• Court of Appeal (Civil Division) — allowed Addax’s appeal and substituted an order for security for costs: [2016] EWCA Civ 120.
• High Court, Queen’s Bench Division, Commercial Court — Andrew Smith J refused Addax’s application for security for costs, holding that there was no reason to believe Sarpd could not pay Addax’s costs.