Palmali Shipping S.A. v Litasco S.A.

Where the evidence establishes a real risk that a future costs order will go unsatisfied, security for costs may be ordered even though the claimant remains a substantial trading entity. The court must also address any properly evidenced risk that security would stifle the claim. Where funding or after-the-event insurance arrangements remain incomplete, a proportionate interim order may require security in tranches, preserve liberty to apply, and adjourn consideration of further security. A party which issues numerous claims protectively must carefully review their sustainability. A high-handed failure to do so, followed by conduct imposing unnecessary work on the opponent, may justify indemnity costs for the affected claims and a payment on account.

This first-instance decision concerned interlocutory applications in large-scale commercial litigation between Palmali Shipping S.A. and Litasco S.A. Litasco sought security for costs. Palmali relied on proposed funding and after-the-event insurance arrangements and raised concerns that a substantial security order might stifle the claim, but the arrangements had not been finalised and the stifling concern had not been supported by evidence.

The court also considered the costs consequences of Palmali’s withdrawal of a number of claims which had been issued protectively. The issues were whether interim security should be ordered, in what amount and form, whether further consideration should be adjourned, and whether the costs of the withdrawn claims should be assessed on the indemnity basis.

1. Security for costs. On the evidence, there was a real risk that a future costs order, likely to be substantial, would not be recovered from the claimant. The claimant’s continuing trading activity did not, by itself, remove that risk. The application was therefore justified as matters stood.
2. The court was not persuaded that an adjournment with no interim security was appropriate. The claimant had not provided sufficient evidence that an immediate security order would stifle the claim. The court also took account of the usual absence of an immediate sanction for failure to provide the next tranche, while preserving the defendant’s liberty to seek a stay or other sanction.
3. Because the proposed insurance arrangements might later demonstrate that full security was unnecessary, the fairest course was an interim and staged order rather than either full security through trial or an unconditional adjournment. The claimant was ordered to provide £900,000 in three equal tranches by 31 October, 28 November and 27 December 2018. The application for further security was adjourned, with liberty to apply as to the form of security.
4. Costs of withdrawn claims. The claimant’s protective issue of numerous claims, inadequate subsequent review, and high-handed response to the defendant’s reasonable request for time took its conduct outside the norm. It was impracticable to separate the affected claims individually. The relevant subset of costs was therefore ordered to be assessed on the indemnity basis, with £60,000 payable on account.
5. The security application was treated as entirely successful as at the hearing. The claimant was ordered to pay the costs of and occasioned by the relevant application notice up to and including the hearing.

not stated in the judgment.