Eminent Energy Limited v Krässik OŰ

On an application for security for costs, the court must first determine whether a condition in CPR 25.13(2) is satisfied and then decide, having regard to all the circumstances, whether an order is just. There is no rule of thumb for cases involving an overlapping claim and counterclaim. Security will not normally be ordered where the counterclaim is in substance merely defensive. Otherwise, the court must assess the practical effect of the proposed order, the risk of stifling a bona fide claim, evidence of the applicant’s means, and the likely recoverable and proportionate costs. Substantial factual overlap does not prevent security where the claim and counterclaim are independent.

Eminent Energy Limited, Berkeley Energy Services Ltd and Mr Contomichalos applied for security for the costs of defending a counterclaim brought by Krässik OŰ, formerly Daxin Baltic OŰ. The counterclaim alleged fraud, sought rescission and damages, and was advanced against all three applicants. The relevant condition under CPR 25.13(2)(c) was conceded. The issues were whether the counterclaim was bona fide and would be stifled by an order, whether the application was oppressive, whether the overlap between claim and counterclaim made security unjust, and what amount and form of security were appropriate.

1. The application was granted. The court ordered staged security for the counterclaim costs, including £250,000 for Eminent, £100,000 for Berkeley and £16,500 for Mr Contomichalos up to completion of disclosure, followed by security calculated by reference to 80% of defined costs budgets.

2. The applicable test under CPR 25.13 is twofold: a condition in CPR 25.13(2) must be satisfied, and the court must be satisfied, having regard to all the circumstances, that it is just to order security. The conceded condition in CPR 25.13(2)(c) opened the jurisdiction but did not determine whether the discretion should be exercised.

3. Daxin Baltic showed that its counterclaim was brought in good faith and was not demonstrably unmeritorious. It failed, however, to provide full and frank evidence of its own means or of the unavailability of outside funding. The court therefore could not conclude that a reasonable order would prevent prosecution of the counterclaim.

4. There is no single touchstone for overlapping claim and counterclaim applications. Security will not normally be ordered where the counterclaim is in substance merely a defence. Where that principle does not resolve the matter, the court must apply the statutory test and consider all the circumstances. The practical consequences of an order, including whether it gives one party only a tactical advantage, are relevant and may be decisive.

5. Here the counterclaim had an independent vitality. Proceedings in Riga and Estonia, additional defendants, the claims for rescission and damages, and the burden of setting aside written agreements showed that it went beyond a purely defensive case. The claim and counterclaim could each stand independently despite their substantial factual and legal overlap.

6. The security had to reflect proportionate, reasonably incurred and reasonably recoverable costs. Costs solely referable to the claim and injunction proceedings were excluded, while overlap was taken into account. Security could be provided by payment into court, an acceptable first-class institutional guarantee or another reasonably acceptable method. Permission to apply was given for disputes about form or material changes of circumstances.

First-instance application in the High Court (Commercial Court). No prior appellate decision is stated in the judgment.