Baker Botts (UK) LLP v Carbon Holdings Limited & Anor

Security for costs may be ordered where the applicant establishes a justified reason to believe that a corporate claimant will be unable to pay a future adverse costs order. The court assesses the totality of the evidence, including unexplained financial weaknesses, unreliable projections and the absence of evidence from the claimant. The merits are ordinarily not examined.

Summary judgment is inappropriate where disputed evidence and potentially significant oral evidence require disclosure and a trial, particularly in a complex contractual dispute. It may nevertheless be granted on a severable issue where liability is established even on the opposing case. A solicitor claiming fees must prove their reasonableness where challenged.

Baker Botts claimed unpaid legal fees from Carbon Holdings Limited and EHI Limited under several engagement letters. The defendants alleged, among other matters, a collateral contract, estoppel, unreasonable fees and set-off arising from Egypt Hydrocarbon Corporation SAE’s Part 20 professional-negligence claim concerning the settlement of an arbitration.

Baker Botts sought summary judgment or strike out and security for its costs of defending EHC’s Part 20 claim. The central issues were whether EHC’s financial evidence justified security, whether the disputed contractual and estoppel issues could properly be resolved summarily, and what fees could be assessed without a trial.

1. Security for costs. The application succeeded. EHC was incorporated outside the jurisdiction and there was reason to believe that it would be unable to pay Baker Botts’ costs if ordered to do so. The court considered the evidence in the round. Relevant matters included EHC’s substantial indebtedness, past defaults, the failure of a debt settlement arrangement, unsupported evidence of improvement, unreliable cashflow projections, uncertainty concerning Egyptian-law financing and the absence of evidence about shareholders said to provide support. The merits were not considered because the financial issue was sufficient.
2. Summary judgment and strike out. The application was unsuitable for determination of the disputed balance of the claim. The alleged collateral contract and estoppel raised credible factual issues concerning conversations between the parties. Their resolution required disclosure and oral evidence. The same applied to the interaction between the alleged collateral agreement and the entire-agreement clause, and to the proposed set-off. The court stressed the need to avoid a mini-trial in a complex case.
3. Judgment was nevertheless entered for invoices totalling US$1,026,053.67 for work done for CHL and EHI. This result followed even on the defendants’ case that subsidiaries were liable for other work. The sums were subject to assessment of reasonableness.
4. Reasonableness of fees. The defendants could challenge the fees despite the late service of their Points of Dispute. The solicitor bore the burden of proving that challenged fees were reasonable. The assessment was referred to the Costs Judge unless agreed.
5. Security was fixed at £1,500,000 after a broad assessment and a 75% discount. The court permitted amendment of the Defence to incorporate the Points of Dispute and directed further submissions on the form and staging of security.