MOUNTAIN ASH PORTFOLIO LIMITED v BORIS TSIBENOVICH VASILYEV

An application for security for costs involves two stages. The court must first decide whether a qualifying condition under Civil Procedure Rules 1998, rule 25.13, is satisfied. It must then decide whether security is just in all the circumstances and, if so, the appropriate amount.

The merits should not ordinarily be investigated in detail. They may be considered only where a high degree of probability of success or failure can be demonstrated. A claimant alleging that security would stifle its claim must provide full, frank, clear and unequivocal evidence that it cannot provide security or obtain assistance from others. A corporate trustee is not exempt from the security-for-costs regime merely because it will not itself benefit from recoveries.

The claimant, a corporate trustee, pursued a substantial claim under a shareholder’s guarantee. The defendant applied for security for his costs under Civil Procedure Rules 1998, rules 25.12 and 25.13.

The claimant accepted that it was a company unable to pay the defendant’s costs if ordered to do so. It opposed security on the grounds that the claim was highly meritorious, that its status as trustee made an order exceptional, and that security would stifle the claim. The central issues were whether the court should examine the merits, whether the trustee status altered the analysis, whether the claim would be stifled, and the proper amount of security.

1. Application granted in part as to amount. The qualifying condition in CPR 25.13(2)(c) was satisfied because the claimant was a company and there was reason to believe that it could not pay the defendant’s costs. The court then had to decide whether security was just in all the circumstances and, if so, its amount.
2. The court rejected the submission that the claim was so highly likely to succeed that security was legally precluded. The earlier set-aside decision applied a different threshold: whether the defendant had a real prospect of successfully defending. The evidence concerning execution of the guarantee remained disputed. The court therefore declined to investigate the merits further, particularly while a summary-judgment application was outstanding.
3. The authorities, including Porzelack KG v Porzelack (UK) Ltd, Keary Developments Ltd v Tarmac Construction Ltd and Danilina v Chernukhin, established that detailed investigation of the merits is strongly discouraged. It is appropriate only where a high degree of probability of success or failure can be demonstrated without detailed investigation of evidence or law. The court preferred that approach to any broader suggestion that ordinary prospects of success must always be taken into account.
4. A claimant acting as a commercial corporate trustee is not outside CPR 25.13. Its lack of personal beneficial interest is a relevant circumstance, but does not require exceptional circumstances or carry special weight on these facts. Excluding such claimants without proper justification could undermine the protective purpose of security for costs.
5. The claimant failed to establish that security would stifle the claim. The burden was on it to show, on the balance of probabilities, that it could neither provide security itself nor obtain assistance from others. Its evidence was not sufficiently full, frank, clear and unequivocal. The evidence suggested continuing assistance with legal fees and did not establish that connected parties could not provide further funding.
6. The defendant was entitled to protection against the risk of an unrecoverable costs order. A staged order was inappropriate. Applying a broad-brush approach, the court considered the requested sum excessive and ordered security of £1.1 million.