Chady Aero Developments Ltd v Aero Engine Finance LLP

On an application for security for costs, the court must first determine whether a condition in CPR 25.27 is satisfied and then decide whether, having regard to all the circumstances, an order is just.

For the impecuniosity condition, the question is whether there is reason to believe that the claimant will be unable to pay costs when they fall due. The court assesses cash and other readily realisable assets on the material presently available. Detailed investigation of the merits is generally inappropriate. Security will ordinarily be ordered unless the claimant shows that it would stifle the claim. Delay matters only insofar as it causes relevant prejudice. Where claim and counterclaim substantially concern the same accounting exercise, security may be made conditional on the defendant abandoning the counterclaim if the claim is dismissed for failure to provide security.

The defendant sought security for costs under CPR 25.27 in a claim by a Scottish company concerning alleged sums due from an aviation investment limited liability partnership.

The claimant relied on cash, directors’ undertakings, an alleged debt owed by a third party and sums said to be due under the investment projects. The defendant relied on insolvency evidence and disputed the claimant’s accounting case. The application raised issues concerning impecuniosity, delay, the merits of the claim and the interaction between the claim and counterclaim.

1. Application granted. Security for costs was ordered in the sum sought, with the method of security to be determined after hearing the parties.
2. The non-residence condition under CPR 25.27(b)(i) had already been established. The defendant did not pursue the nominal claimant or enforcement avoidance conditions.
3. The impecuniosity condition under CPR 25.27(b)(ii) was satisfied. The relevant question was whether, on the material presently available, there was reason to believe that the claimant would be unable to pay costs when due. The claimant’s cash was insufficient and might not remain available. The directors’ undertakings were inadequate because of enforcement uncertainty, possible assignment of the loans, delayed discovery of breach, lack of effective civil remedies and the possibility of insolvency proceedings.
4. The alleged debt owed by Mr Hammerton was not established by the accounts or other evidence. In any event, there was no evidence that it would be a readily realisable asset. The court could not treat disputed sums allegedly owed by the defendant as available assets without determining the merits and undertaking a detailed account.
5. Delay did not justify refusing security or limiting it to future costs. Although there had been some delay, the claim remained at a relatively early stage and the claimant had identified no relevant prejudice.
6. The merits were considered only to the limited extent permitted by the authorities and the Commercial Court Guide. The claimant’s case on separate project accounting appeared weak, but detailed analysis of the account and underlying facts was inappropriate.
7. The Crabtree principle applied in substance to the relationship between the claim and counterclaim. Security was therefore made conditional on the defendant undertaking to consent to dismissal of its counterclaim if the claim were dismissed for failure to provide security.