Cedar Mundi (Holding) Sal v Bassel Attieh & Ors

Security for costs may be ordered where the jurisdictional condition is satisfied and the order is just, subject to the court’s broad discretion under the overriding objective. Where a claim and counterclaim concern substantially the same issues, the Crabtree principle ordinarily weighs against security because dismissal of the claim could leave the same issues to be tried on the counterclaim. That principle is not automatic. A counterclaim may serve an independent commercial purpose, including obtaining declarations needed to establish title or certainty in dealings with third parties. An effective undertaking to dismiss the counterclaim if the claimant’s claim is dismissed for failure to provide security can neutralise the resulting unfairness. Delay, enforcement prospects, funding and quantum remain discretionary matters.

The claimant, a Lebanese venture-capital company, brought consolidated proceedings challenging the validity of agreements transferring portfolio assets to the defendants and seeking declarations, restitution and compensation. Cedar II, one of the defendants, had originally commenced proceedings seeking declarations that the sale agreement was valid and that it acquired title to the assets.

The defendants applied for £2.5 million security for costs under Civil Procedure Rules 1998, rule 25.27. The claimant accepted that the jurisdictional grounds were satisfied but argued that security was unjust, principally because the claim and counterclaim involved the same issues, and relied on delay, enforceability of assets in Lebanon, alleged defendant-caused impecuniosity and funding by shareholders.

1. Order for security. The defendants were entitled to security for costs. The court ordered security of £2 million for Cedar II and £1,552,477 for the First to Fourth Defendants, to be provided within 14 days.
2. Applicable discretion. Under rule 25.27, the court must be satisfied, having regard to all the circumstances, that security is just. Even where there is reason to believe that the claimant will be unable to pay a future costs order, the court retains a broad discretion governed by the overriding objective.
3. Crabtree principle. The principle in B J Crabtree (Insulations) Ltd v GPT Communications Systems Ltd applies where the counterclaim serves no purpose beyond litigating the same issues as the claim. It prevents the claimant being deprived of its defence if its claim is dismissed for failure to provide security, and prevents a party who is in substance a claimant from obtaining security. It is not an automatic rule. Here Cedar II had an independent commercial interest in declarations confirming title and enabling dealings with third parties. The principle therefore applied, but did not itself prevent security.
4. Dumrul undertaking. Cedar II’s undertaking to consent to, or procure, dismissal of its counterclaim if Cedar Mundi’s claim were dismissed for failure to provide security was sufficient to eliminate the potential injustice identified by the Crabtree principle. The additional provision for a stay did not detract from the effective offer of dismissal.
5. Discretionary factors. The application was later than it should have been, but Cedar Mundi showed no prejudice. Assets in Lebanon did not justify refusing or reducing security, particularly since their liquidity and enforceability were uncertain. The court would not grade the amount of security according to enforcement risk. The alleged defendant-caused impecuniosity depended on the merits and was not investigated. Funding by the C-331 Shareholders did not answer the application; it explained how the claim was being pursued despite the claimant’s financial position. No general rule required evidence that each defendant would personally pay its own solicitors, provided the indemnity principle was engaged.
6. Quantum. Security was limited to a reasonable and proportionate proportion of the estimated costs. The court applied a 65% recoverability assumption and a further 5% discount for staffing choices, producing £2,008,149.60, rounded down to £2 million. Costs incurred by Cedar II in its original claim were included only in security for Cedar II.