Security for Costs – Latest Developments
The firm recently acted for a client (Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm)) successfully defending an application for security for costs. First, a reminder of the general principles:
· A Defendant to any claim may apply under CPR Rule 25.12(1) for security of his costs of the proceedings.
· Court may make an Order for security for costs under Rule 25.12 if:
(a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an Order; and
(b) the Claimant is resident:
(i) out of the jurisdiction; but
(ii) not resident in a Brussels Contracting, Lugano Convention or Regulation State.
Two main issues arose on the defendant bank’s application for security. The first issue was whether it is an appropriate exercise of the Court’s discretion to make an order for security in circumstances where the claim and counterclaim and the defences thereto raise the same issues. The Court confirmed the general rule that it will not exercise its discretion to make an Order for security if the same issues arise on the claim and counterclaim and the costs incurred in defending that claim would also be incurred in prosecuting the counterclaim (see Lord Bingham’s judgment in BJ Crabtree –v- GPT Communication Systems (1990) 59 BLR 43).
If the claim and counterclaim raise the same issues, they are said to be co-extensive. One way of testing whether claims are co-extensive is to consider whether the issues before the Court would be substantially unaffected by the trial of the counterclaim without the claim. The Court found in this case that the claims were co-extensive. The mischief identified in Crabtree was one-sided litigation. If the claimant failed to provide security and was then struck out, he would still have to defend the counterclaim, but with one hand tied behind his back. Lord Bingham made clear that this should be avoided.
The defendant bank in this case failed to give an unqualified undertaking not to pursue its counterclaim if the claim was struck out. That proved fatal to its chances of success on the first issue.
The second issue was whether the defendant bank faced such obstacles or costs of enforcing any costs order in Turkey as to justify an order for security.
The ‘Nasser’ approach (see Maurice LJ’s judgment in Nasser v United Bank of Kuwait [2002] 1 WLR 1868), which is applied in cases like this, is that the Court has to be satisfied that there would be an obstacle or burden to enforcement and execution, which is significantly greater than the burden faced by a party resident in England or in a Brussels or Lugano state.
The Court found in this case that a mere possibility of there being a likely obstacle or burden in Turkey is not enough to justify treating a client resident outside a Brussels or Lugano state differently. The test is higher than that and was not met by the bank.
Each country has its own process by which judgments may be executed. The risk of not being able to execute an enforceable judgment is a risk which the defendant bank would equally be subject to if the claim was brought by a resident in a Brussels or Lugano state.
In this case the Court was also not convinced that the defendant bank would incur significant costs on enforcement over and above those it would incur in any event because, if it was successful on its counterclaim and it had to pursue the client for recovery of damages, it would incur costs anyway. Enforcement of an English judgment for damages and costs would not necessarily take any longer to enforce than a judgment for damages only; the process is the same. It was also held that Nasser does not apply to difficulties and costs of execution; no security should be ordered on this basis and it was completely impractical and unsatisfactory for the defendant bank to seek to apply the Nasser approach to the issues of execution.