Maroil Trading Inc & Anor v Cally Shipholdings Inc & Ors

Security for costs of a Part 20 claim depends on the court’s assessment of the contingent possibility that the claimant may ultimately bear those costs. The court should consider the likely outcome of the litigation, while avoiding a mini-trial. A rigid requirement that liability be likely is not necessarily the jurisdictional test, but a mere possibility is insufficient and the degree of likelihood informs the discretion.

Foreseeability of the precise form of the third-party claim is not generally relevant. The court should assess the claim as a whole and recognise a sliding scale between a straightforward pass-on claim and an independent, substantially different claim. Security for ordinary proceedings may be assessed by applying a single broad percentage reflecting likely recovery on detailed assessment.

The claimants sought security for costs in related Commercial Court proceedings. The applications concerned: security for the defendants’ Part 7 costs; security for the defendants’ costs of their Part 20 claims against third parties; and the amount of security to be provided by the defendants to the third parties.

The Part 20 claims included allegations concerning confidentiality, an account of profits, and rescission of a settlement agreement allegedly procured by fraud. The central issues were whether the claimants might ultimately be ordered to pay the defendants’ third-party costs and, if so, what level of security was appropriate.

1. Part 7 security. The court rejected the proposed “double discounting” approach. The appropriate method was to estimate the likely result of detailed assessment by applying a single overall percentage, having regard to the individual categories of work and the need to err, where appropriate, on the side of the recipient. Security was ordered at 65 per cent of the Part 7 costs.
2. Part 20 security. The court accepted that security may be ordered for costs incurred in a defendant’s Part 20 claim, including potential liability for third-party costs. The relevant consideration is the contingent outcome at the end of the litigation. The judgment in Sarpd Oil Limited v Addax Energy [2016] EWCA Civ 120 was not prescriptive on the test.
3. The court identified a sliding scale. At one end is a back-to-back claim passed down the contractual chain. At the other is a separate and substantially greater claim involving distinct issues. Foreseeability of the precise form of the claim was not relevant. The court should not conduct a mini-trial or determine the merits in detail, but it could assess the realistic possibilities concerning any eventual costs order.
4. On the facts, the claimants’ liability for the Part 20 costs was a fairly distant possibility. The fraud allegations and the contractual and confidentiality issues made it doubtful that the costs would simply pass back up the chain. The jurisdictional hurdle was not met. Alternatively, the discretion should not be exercised where the likelihood of a costs order against the claimants was not high. No security was ordered for the defendants’ Part 20 costs.
5. Third-party security. A like-for-like comparison with the defendants’ costs was too generous, while assessing the Part 20 claim in isolation was too restrictive. Taking account of the complexity of the case, high hourly rates, substantial pleading and witness-statement costs, and the contractual indemnity making indemnity costs a real prospect, security for the third-party costs was fixed at 60 per cent.