International Pipeline Products Ltd v IK UK Ltd & Ors

An application for security for costs under CPR 25.13 requires a two-stage assessment. The applicant must first establish a reason to believe that the claimant will be unable to pay the likely costs when they fall due. The assessment is made on the evidence available at the hearing, while taking account of reasonably anticipated changes before payment becomes due. If that threshold is met, the court must decide whether security is just in all the circumstances. Existing assets, expected trading income, funding arrangements and reliable third-party undertakings may be relevant. General economic uncertainty is insufficient without evidence connecting it to the claimant’s likely ability to meet the costs.

The claimant brought wide-ranging claims concerning the departure of employees and the alleged misuse of confidential information, equipment, customers, employees and intellectual property following the proposed acquisition of its business. The defendants applied for security for costs under CPR 25.13.

The application raised whether there was reason to believe that the claimant, a company, would be unable to pay an estimated £800,000 to £900,000 in costs likely to become payable in October or November 2021. The court also considered, in the alternative, whether it would be just to order security in light of third-party undertakings and possible enforcement difficulties.

1. The defendants’ application for security for costs was dismissed. The defendants failed to satisfy the threshold condition in CPR 25.15(2)(c).

2. The court applied a two-stage assessment. First, it considered whether there was reason to believe that the claimant would be unable to pay the defendants’ likely costs when due. Secondly, if that threshold had been met, it would have considered whether an order was just having regard to all the circumstances under CPR 25.13(1)(a).[13]-[15]

3. The relevant question was whether the claimant would be able to pay, rather than whether it might be unable to pay. The court assessed the claimant’s position at the hearing, while taking appropriate account of evidence concerning what was expected to occur before the costs fell due. The claimant had at least £900,000 in net assets and could meet the anticipated interim payment. Its continuing trading prospects, the limited evidence of pandemic-related deterioration, the treatment of a substantial loan and the contractual support available from Dhanekula meant that there was no reason to believe that it would be unable to pay. [15], [21]-[33]

4. The court nevertheless considered the discretionary stage briefly. The proposed third-party undertakings, including undertakings concerning enforcement costs and submission to the jurisdiction of the Dubai International Financial Centre, provided substantial support. Possible delay or complication in enforcement in Sharjah or the DIFC did not itself establish a real risk that enforcement would be impossible. The court preferred the evidence supporting enforceability and considered that it would not be just to order security. [34]-[45]

5. The application was dismissed. [46]