Stavrinides & Ors v Cyprus Popular Bank Public Co. Ltd (t/a Laiki Bank UK & Anor

For security for costs, satisfaction of a gateway does not automatically require an order. The court must consider whether security is justified in the circumstances and must assess the practical effect of the claimant’s conduct on recovery. Under the asset-removal gateway, security should reflect the actual adverse consequence of the relevant steps; where that consequence is insignificant, refusal may be appropriate. Corporate impecuniosity concerns prompt ability to pay, so substantial but illiquid assets may satisfy the gateway. The court must also assess whether security would stifle a realistic claim. That assessment is not mechanistic: the court must consider available resources, access to potential funders and the amount ordered, taking a realistic view of the sum that can be raised.

The claimants, a property developer and two corporate vehicles, brought proceedings concerning an alleged agreement to release loan liabilities, charges and guarantees formerly held by Cyprus Popular Bank. Following a transfer of the relevant loan portfolio, Bank of Cyprus continued the litigation and counterclaimed for the alleged indebtedness.

Bank of Cyprus applied for substantial security for costs against all three claimants under Civil Procedure Rules 1998. The application relied on corporate impecuniosity, the claimants’ residence outside the jurisdiction and alleged steps by the individual claimant affecting enforcement. The central issues were whether the gateways were satisfied, whether security would be unjust or stifle the claims, and what amount and form of security were appropriate.

1. Bank of Cyprus’s application was dismissed as against Mr Stavrinides personally. It was allowed against Stovaco and Bellerive, but only to the extent that each was required to pay £100,000 into court. The time for payment and consequences of non-payment were reserved.

2. Under Part 25 of the Civil Procedure Rules 1998, the corporate claimants accepted that there was reason to believe that they would be unable to pay an adverse costs order promptly. Substantial but illiquid property assets did not defeat that gateway. The question then was whether justice nevertheless required security.

3. Potential surplus equity in charged property did not provide sufficient protection where its availability and realisation were uncertain. In particular, where a bank or lending institution was unwilling to lend against a property, its residual equity was, in principle, inadequate security absent special circumstances. The court applied the approach discussed in AP (UK) Ltd v West Midlands Fire Authority [2002] CLC 766.

4. The gateway under rule 25.13(2)(g) concerning steps affecting enforcement was satisfied in relation to some offshore structures. However, the order should reflect the actual adverse consequence of those steps. As the steps had no significant effect on Bank of Cyprus’s prospects of recovery while the corporate claimants remained co-claimants, it was not just to order personal security against Mr Stavrinides.

5. The stifling inquiry required a realistic assessment. The burden lay on those asserting stifling to show both lack of resources and lack of access to persons who might reasonably provide support. That burden was important but not automatic or mechanistic. The court had to consider the likely resources available, the realistic level of support and the amount of security sought. A sum that would not stifle the claims at one level might do so at another.

6. The court found that the corporate claimants could raise £100,000 with support from their beneficial owners and connections, but that security approaching the £850,000 sought would probably stifle the litigation. The discussion of BJ Crabtree v GPT Communications Systems 1990 59 BLR 43 and Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm) supported the conclusion that the counterclaim did not make security inappropriate where the defendant undertook to discontinue it if the claim were dismissed for failure to provide security.