Coral Reef Ltd v Silverbond Enterprises Ltd & Anor

Security for costs is discretionary. Where a claimant company, despite reasonable requests, deliberately withholds information about its ability to meet an adverse costs order, the court may infer that there is reason to believe it will be unable to pay. The evidential burden remains on the applicant, but the court may assess the totality of the evidence, including the absence of information uniquely available to the claimant.

A Master exercising the jurisdiction of the High Court is bound by decisions of superior courts, but is not automatically bound by a decision of a High Court judge. Such a decision should ordinarily be followed out of comity unless the Master is convinced that it is wrong. The court must balance the risk of stifling a genuine claim against the defendant’s risk of irrecoverable costs.

The defendants applied for security for their costs in proceedings concerning the claimant’s alleged beneficial ownership of 9.99% of the shares in the first defendant. The claimant was a Hong Kong company with minimal disclosed capital and provided no useful evidence of its assets or financial position.

The claimant relied on the first-instance decision in Sarpd Oil International v Addax Energy SA, which had stated that no adverse inference should be drawn from a company’s refusal to volunteer financial information. Before the present hearing, that decision had been reversed by the Court of Appeal. The court also had to determine whether a Master was bound by the earlier High Court decision.

1. Security for costs. The statutory and procedural thresholds were satisfied. The defendants had made serious attempts to obtain information about the claimant’s means, while the claimant had provided only vague and partly inaccurate assertions before refusing to provide further information. Under CPR rule 25.13(2)(c), the court need only find reason to believe that the claimant would be unable to pay the defendants’ costs, not establish that inability on the balance of probabilities.
2. The absence of relevant evidence from the party uniquely able to provide it formed part of the totality of the evidence. The reasoning of the Court of Appeal in Sarpd Oil International v Addax Energy SA was applicable. The limited information about a Costa Rican property and gemstones did not materially distinguish the case.
3. Precedent and Masters. A Master exercising the jurisdiction of the High Court is bound by decisions of the Court of Appeal and Supreme Court. A decision of a High Court judge is a decision of a court of co-ordinate jurisdiction and is not automatically binding. It will ordinarily be followed out of judicial comity unless the Master is convinced that it is wrong. The same principle applies between High Court judges.
4. The Master was therefore entitled to reject the approach in the first-instance Sarpd decision and follow the Court of Appeal’s reasoning. The claimant had taken a significant risk in withholding information while the issue remained unsettled.
5. The court also considered the claimant’s foreign residence, the absence of reliable evidence of assets, the suspicious and fact-intensive nature of the claim, the claimant’s conduct, the timing of the application and the likely substantial costs. The balance favoured security. The application was relisted for submissions on the amount and timing of security, unless agreed.