Abbotswood Shipping Corporation v Air Pacific Ltd (Rev 1)

An order for security for costs requires a condition in CPR 25.13(2) to be met and the order to be just in all the circumstances. For a company claimant, reason to believe that it will be unable to pay costs means more than mere doubt, although proof on the balance of probabilities is unnecessary. The defendant bears the burden. Failure to provide financial information may justify the necessary inference. There is no rule of thumb in exercising the discretion. Where claim and counterclaim raise substantially the same issues, so that costs of defending the claim would also be incurred in prosecuting the counterclaim, that overlap is a strong and often decisive reason against security. The pleadings must be assessed in substance and through a broad, practical evaluation.

The claimant, a Liberian company, brought proceedings concerning two aircraft-lease security deposits and sought declarations and an account. The defendant, a Fijian airline, counterclaimed for return of the deposits or equivalent relief. At the first case management conference, the defendant applied for security for its costs under CPR 25.12 and CPR 25.13, relying on the claimant’s foreign incorporation and the absence of evidence of its ability to pay. The issues were whether the rule-based conditions were met and whether security was just where the claim and counterclaim substantially overlapped.

1. Application dismissed. The conditions in CPR 25.13(2)(a) and (c) were satisfied, but it was not just to order security for costs under CPR 25.13(1).
2. Condition 2(c) required the defendant to establish reason to believe that the claimant would be unable to pay its costs if ordered to do so. It was unnecessary to prove that inability on the balance of probabilities, but more than mere doubt or concern was required. The burden lay on the defendant, although legitimate concerns coupled with no or incomplete financial information from the claimant could justify the necessary inference. The judge applied the principles summarised in Phaestos Ltd v Ho [2012] EWHC 662 (TCC), including the guidance drawn from Jirehouse v Beller [2009] 1 WLR 751, Re Unisoft Group Limited [1993] BCLC 532, Texuna International Limited v Cairn Energy plc [2004] EWHC 1102, Golden Grove Estates v Chancerygate Asset Management [2007] EWHC 968, Mbasago v Logo Limited [2006] EWCA Civ 608 and Sarpd Oil International Ltd v Addax Energy SA [2016] EWCA Civ 120. The claimant’s failure to answer three requests for financial information, and the absence of meaningful evidence from its witness, established the condition.
3. The discretion had to be exercised in the interests of justice and without any rule of thumb, as stated in B J Crabtree (Insulation) Ltd v GPT Communication Systems Ltd (1990) 59 BLR 43. Where the claim and counterclaim raise the same issues, so that the costs of defending the claim would also be incurred in prosecuting the counterclaim, that overlap is a strong and often determinative factor against security. The approach was accurately summarised in Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm) and reformulated in Anglo Irish Asset Finance plc v Flood [2011] EWCA Civ 799. It remained necessary to consider all relevant circumstances.
4. The overlap inquiry was one of substance rather than form and could be conducted on a broad, rough-and-ready assessment of the pleadings. Additional issues in the counterclaim did not prevent substantial overlap. The different result in Ardila Investments NV v ENRC NV [2015] EWHC 1667 (Comm) [2015] 2 BCLC 560 was treated as fact-sensitive and did not disclose a different principle.
5. The essential issue in both proceedings was whether the security deposits should have been returned or could lawfully be retained. The foreign incorporation, lack of disclosed assets and absence of any suggestion that the claim would be stifled were not sufficiently significant to outweigh the substantial overlap. The application was dismissed. Unless otherwise agreed, costs could be dealt with by paper application.