Guest Supplies Intl Ltd v South Place Hotel Ltd & Anor

On an application for security for costs under Civil Procedure Rules 1998, the claimant’s inability to pay must be assessed by reference to when the costs are likely to fall due, including the liquidity of its assets and its anticipated liabilities. The court may consider the totality of the evidence, including the absence of relevant evidence from the party best able to provide it. A company’s unexplained and substantial discrepancies between successive financial accounts may establish reason to believe that it will be unable to pay an adverse costs order. If that threshold is met, the court must decide whether security is just having regard to all the circumstances, including the risk of stifling the claim and the timing and amount of security. Legal privilege is waived where a party relies on communications with its lawyers to support its case on a material issue; the waiver extends fairly to the relevant transaction or subject matter.

Guest Supplies International Ltd brought a contractual claim against South Place Hotel Ltd and D&D London Ltd concerning the alleged exclusive supply of hotel amenities and related losses. The defendants applied for further security for costs and specific disclosure of privileged communications concerning the creation and provenance of a recreated contractual document. GSIL applied for release of £50,000 previously provided as security. The court also determined the reserved costs of an earlier specific-disclosure application. The central issues were whether there was reason to believe GSIL would be unable to pay the defendants’ costs, whether further security was just, whether privilege had been waived, and the proper scope of any waiver.

1. Security for costs. The defendants satisfied CPR rule 25.13(2)(c). The court was not required to find inability to pay on the balance of probabilities. It was enough that the evidence gave reason to believe that GSIL would be unable to pay the defendants’ costs when they became payable.
2. The assessment had to be directed to the likely future payment dates and take account of the nature and liquidity of GSIL’s assets, its liabilities and the totality of the evidence. The marked differences between GSIL’s original and restated accounts required explanation. GSIL had failed to provide relevant evidence within its particular knowledge. Its assets also appeared substantially illiquid, while substantial liabilities, including possible corporation tax liabilities, were anticipated.
3. The jurisdictional threshold being satisfied, it was just to order further security. The court could structure the security by staged payments so as not to impose an undue burden. The COVID-19 impact on the claimant’s business did not outweigh the defendants’ litigation risk. GSIL had not established that security would stifle its claim. Its application to release the existing £50,000 security was therefore refused.
4. Privilege. Applying the principles in PCP Capital Partners v Barclays Bank, the court held objectively that GSIL had referred to and relied upon communications with its former solicitors to support Mr Aristodemou’s credibility and to explain the provenance of the recreated document. The words without waiving privilege did not prevent waiver. Fairness required disclosure of communications concerning the document’s creation, provenance and authenticity, including related requests for clarification and replies.
5. Costs. Specific disclosure could be ordered before standard disclosure where it would assist the proceedings. The earlier application was justified and substantially successful. South Place Hotel Ltd was awarded its costs of that application.