Bend Weld Engineering Sdn Bhd v FMC Technologies Limited

An order for security for costs requires both a qualifying condition and a conclusion that the order is just. Where a defendant’s counterclaim substantially overlaps the claimant’s claim, the usual starting point is that security should not be ordered. Security may nevertheless be appropriate where the counterclaim is advanced purely defensively and the defendant undertakes to consent to the dismissal or stay of the counterclaim if the claim is dismissed for failure to provide security. Security is directed to costs incurred because the claimant brought proceedings. Pre-action costs already incurred by a defendant considering its own claim fall outside the scope of the order, although they may remain recoverable on assessment. The amount should reflect realistic costs estimates supported by the evidence.

Bend Weld Engineering Sdn Bhd, a Malaysian fabricator, claimed unpaid sums and damages from FMC Technologies Limited following the termination of purchase orders. FMC applied for security for costs under the Civil Procedure Rules 1998. It relied on BWE’s financial position and advanced a proposed counterclaim concerning allegedly defective welding work.

BWE accepted in principle that security might be required but disputed entitlement, the treatment of the counterclaim and the amount sought. The central issues were whether the gateway condition was satisfied, how the overlapping counterclaim affected the just exercise of the discretion, and whether security could include FMC’s pre-action costs.

1. Entitlement. The court accepted that FMC had initially failed to provide evidence addressing the threshold requirements, contrary to CPR 25.12(2), but the subsequent evidence established a reason to believe that BWE would be unable to pay an adverse costs order. The condition in CPR 25.13(2)(c) was therefore satisfied.
2. Counterclaim. The principles stated in Explosive Learning Solutions Ltd v Landmarc Support Services Ltd [2023] EWHC 1263 (Comm) applied in the TCC. Where claim and counterclaim arise from substantially the same facts, security will ordinarily be refused because dismissal of the claim for failure to provide security would leave the same issues to be tried on the counterclaim. That concern is neutralised where the counterclaim is being used purely defensively and the defendant gives an undertaking in Dumrul terms. FMC had given such an undertaking. Security for costs incurred after commencement and up to the CMC was therefore just.
3. Pre-action costs. Pre-action costs were not included. The rationale for security is protection against costs which the defendant will incur because the claimant brings proceedings. Costs already incurred before proceedings were started were sunk costs and were not costs of defending those proceedings, even though they might later be recoverable on assessment.
4. Amount and order. The estimates of £45,250 for issue and statements of case and £25,550 for the CMC were realistic. The court declined to apportion them to exclude counterclaim work because the counterclaim was understood to be defensive. BWE was ordered to provide security of £70,800 up to the conclusion of the CMC. The parties were invited to make submissions on the consequential order.