Coral Reef Ltd v Silverbond Enterprises Ltd & Anor

The defendants' application for security for costs was granted. The claim, brought as a Part 8 summary rectification application under s125 of the Companies Act 2006, involved a foreign claimant company incorporated in Hong Kong which declined to provide meaningful evidence of its financial position. The court held that under CPR r 25.13(2)(c) and r 25.12 the judge must consider whether there is reason to believe that a company claimant will be unable to pay the defendant’s costs; that standard is lower than the balance of probabilities; and that the absence of relevant financial disclosure by the only party able to provide it can be treated as part of the totality of the evidence. The claimant’s conduct, the peculiarity of the factual matrix and the lack of useful means evidence justified an order for security. The Master also decided it was open to him to follow the Court of Appeal’s approach in Sarpd Oil v Addax and that Masters are not automatically bound by decisions of High Court judges though they will normally follow them unless convinced they are wrong.

Background and parties: The claimant is a Hong Kong private company claiming beneficial ownership of 9.99% of shares in the first defendant (an English company). The second defendant is a Latvian company and the registered owner of those shares. The claimant alleged an allotment under a subscription letter and had paid part of the subscription. The defendants deny authenticity of key documents and allege a lack of beneficial interest.

Procedural posture: The claim was issued on 2 September 2015 by Part 8 in the Central London County Court for rectification under s125 Companies Act 2006, transferred to the Chancery Division and ordered to continue under CPR Part 7. The defendants applied for security for costs by notice dated 22 January 2016. The application was heard before Master Matthews on 4 March 2016.

Relief sought: The defendants sought an order for security for their costs under CPR r 25.12–25.14 on two bases: (i) the claimant is resident outside a Convention state (CPR r 25.13(2)(a)); and (ii) there is reason to believe the claimant (a company) will be unable to pay the defendants’ costs if ordered to do so (CPR r 25.13(2)(c)).

Issues framed: (1) Whether the statutory tests in CPR r 25.13 were satisfied so as to cross the threshold for ordering security; (2) whether, on the exercise of discretion, security should be ordered and in what amount; (3) whether adverse inferences could be drawn from the claimant’s refusal to disclose financial information given the contemporaneous authority in Sarpd Oil v Addax and the recent Court of Appeal reversal; and (4) whether a Master is bound by decisions of High Court judges for precedent purposes.

Court's reasoning: The Master set out the governing CPR rules and the established balancing exercise (weighing the injustice to claimant against injustice to defendants). He concluded that the claimant had provided no useful financial evidence despite repeated requests, that earlier assertions about assets were unparticularised or false, and that the claimant chose deliberately not to disclose after being given opportunities. The Master accepted the Court of Appeal’s approach in Sarpd Oil (2016 EWCA Civ 120) that deliberate refusal to disclose when in a position to do so supports a finding that there is reason to believe the claimant could not pay. He applied the lower standard of proof (reason to believe) and found the threshold satisfied. On discretion, he took into account the peculiar and suspicious circumstances of the claim, the claimant’s conduct, the likely scale of costs, and the lack of evidence that the claim would be stifled by an order for security; balancing these, he decided security should be ordered and relisted the matter to determine quantum and timing.

Additional finding on precedent: The Master held that a Master exercising High Court jurisdiction is not automatically bound by decisions of a High Court judge, although a Master will normally follow such decisions unless convinced they are wrong; decisions of the Court of Appeal and Supreme Court bind a Master.

The defendants' application for security for costs is allowed. The Master found that CPR r 25.13(2)(c) (company claimant and reason to believe it will be unable to pay) and r 25.13(2)(a) (claimant resident outside a convention state) were engaged: the claimant, a Hong Kong company, declined to give any meaningful evidence of means despite opportunities to do so and some earlier unparticularised or false assertions about assets. Applying the lower 'reason to believe' standard and the balancing exercise, the court concluded there was reason to believe the claimant would be unable to pay and that, in the exercise of discretion, security should be ordered; the matter was relisted to determine the amount and timing of security. The Master also ruled on precedent that Masters are not automatically bound by High Court judges' decisions but will usually follow them unless convinced they are wrong.

The claim was commenced in the Central London County Court on 2 September 2015 and transferred to the High Court, Chancery Division, by DJ Hart on 21 October 2015, with a direction to proceed under CPR Part 7. The security application was heard at first instance before Master Matthews on 4 March 2016. No appellate history from this judgment is stated in the judgment.