TC Developments (South East) Ltd & Anor v Investin Quay House Ltd

Security for costs against a counterclaiming defendant depends on the substance of the dispute, not merely the form of the pleadings. A counterclaim is not a mere defence where it has independent vitality, including because it would probably have been brought independently, substantially exceeds the claim, or requires materially broader factual and expert investigation.

Foreign residence is a necessary gateway condition but does not by itself justify security. Where enforcement abroad presents only ordinary administrative inconvenience and no material obstacle or delay, that gateway will not ordinarily support an order. Security may nevertheless be ordered under the impecunient-company gateway where the counterclaim operates as a cross-action. Staged security may be appropriate where the evidence does not reliably establish the costs of the entire litigation.

The claimants, a project-management company and an architects’ firm, claimed unpaid contractual and quantum meruit fees from the defendant, a Jersey company. The defendant denied liability and pleaded set-off and a counterclaim alleging negligent or contractually defective advice concerning a proposed redevelopment.

The claimants applied for security for the costs of defending the set-off and counterclaim. The defendant relied on its Jersey residence and argued that its counterclaim merely defended the fee claims because it arose from the same transactions and repeated facts pleaded in the defence. The central issues were whether enforcement in Jersey created sufficient justification under the foreign-residence gateway and whether the counterclaim was a mere defence or an independent cross-action.

1. The court held that the conditions in CPR r 25.13(2)(a)(i), (ii) and (c) were satisfied. The discretion nevertheless had to be exercised justly, having regard to all the circumstances. The purpose of the rules is to protect a party forced into litigation against adverse costs consequences.

2. Foreign residence alone was insufficient. The evidence showed that an English judgment could probably be registered and enforced in Jersey under the Judgments (Reciprocal Enforcement)(Jersey) Law 1960 and the Judgments (Reciprocal Enforcement)(Jersey) Act 1973. The need to make an application supported by an affidavit, with consequent administrative inconvenience and possible delay, did not amount to the material enforcement difficulty required by CPR r 25.13(2)(a).

3. The court adopted the established distinction between a defendant merely defending itself and a defendant launching a cross-claim with independent vitality. The fact that the counterclaim arose from the same transaction, or that its facts were pleaded in the defence, was not determinative. The court had to examine the substantial position rather than the formal pleadings.

4. Several features demonstrated independent vitality. The defendant said that its losses would be very substantially greater than the claimants’ claims, supporting an inference that it would have sued independently. The counterclaim also required substantially wider factual and expert investigation into the retainers, instructions, alleged defects, the ransom strip and causation than was required for the fee claims. Taken together, those matters showed that the defendant had gone beyond mere self-defence.

5. It was therefore appropriate to order security. Security was to be provided in stages because the evidence did not reliably establish the costs of the whole proceedings. The defendant was ordered to provide £40,000 up to and including the case management conference, with further security to be determined at that conference, and to pay the claimants’ costs of the application.