Brewer Management Corporation v Christie Manson & Woods Limited

An applicant for security for costs must first establish a factual gateway under CPR r. 25.27. The court must then decide whether security is just having regard to all the circumstances.

A real, non-fanciful risk of materially greater enforcement difficulty abroad may establish the foreign-residence gateway. Incomplete information about a company’s assets may support reason to believe that it will be unable to pay costs. An illiquid asset does not necessarily defeat that gateway.

At the discretionary stage, a substantial counterclaim raising the same issues as the claim is a powerful factor against security, particularly where striking out the claim would leave the issues to be litigated defensively while depriving the claimant of affirmative relief.

The claimant, a British Virgin Islands company, brought proceedings concerning its purchase of a Picasso painting at auction. It alleged misrepresentation, breach of fiduciary duty, breach of a tortious duty of care and failure to disclose material facts. It sought rescission, repayment, damages or equitable compensation.

The defendant denied liability, counterclaimed for the unpaid purchase price and interest, and brought a Part 20 claim against the claimant’s guarantor. At an early stage of the proceedings, the defendant applied for security for costs under CPR r. 25.27(b)(i) and (ii).

The issues were whether either gateway was established and, if so, whether security was just in light of the counterclaim, the claimant’s disclosed painting and proposed undertakings.

1. Application dismissed. Mrs Ghandehari was required to provide the undertakings concerning the Yukhnovich painting which she had offered.
2. The gateways in CPR r. 25.27(b) are factual conditions, not discretionary matters. The applicant bears the burden of establishing at least one gateway. Discretion arises only after a gateway is established.
3. For residence out of the jurisdiction, the applicant must show a real, non-fanciful risk of additional substantial obstacles or burdens of enforcement, significantly greater than those arising if the claimant were resident in England. The uncertainty surrounding BMC’s assets and the possible need for ancillary enforcement proceedings established that risk.
4. For the impecunious-company gateway, the applicant need only show reason to believe that the claimant will be unable to pay costs if ordered to do so. It need not prove inability on the balance of probabilities. Incomplete financial information may support that belief. The court should focus on net assets and liabilities and assess what is likely to be available when costs fall due after trial.
5. The Yukhnovich was illiquid. Its existence and the proposed undertakings were relevant to discretion, but did not remove the gateway because costs are ordinarily payable promptly after trial. The usual period of 14 to 28 days is not absolute, but the rule requires a high degree of promptness.
6. The substantial counterclaim was a powerful and compelling factor against security. The claim and counterclaim could not be artificially separated. If the claim were struck out for failure to provide security, the same rescission and misrepresentation issues would remain live as defences to the counterclaim, while BMC would lose any affirmative remedy.
7. The alternative “good mark” argument failed. BMC provided no adequate current evidence of Mr Ghandehari’s net assets or of the availability of trust assets to meet a costs order.