In Prest v Petrodel Resources Limited (in Liquidation)(1) the Manx court recently confirmed that where security for costs orders is appropriate, the amount ordered will not always be restricted to a sum representing the extra costs incurred in enforcing an order in the jurisdiction in which the claimant is resident or in which assets are situated.

Background

Restricting orders to the extra costs of enforcement has been the norm since the English case of Nasser v United Bank of Kuwait [2002] 1 WLR 1868. The decision and rule espoused in Nasser were adopted by the Manx court and highlighted in Akhavan v Quinn Legal Advocates Limited ([2013] MLR 310), which quoted an unreported Manx decision (in respect of an application in the same proceedings):

"Prima facie the Defendant is entitled to apply for an order for security for costs as both Claimants are ordinarily resident out of the jurisdiction. It still appears to be an almost automatic reaction of advocates who are acting for defendants to make an application for costs in very substantial sums. The fact that this happens regularly seems to me entirely to ignore the case law which arose following the enactment of the Human Rights Act which provides essentially that there should be no discrimination between persons resident in this jurisdiction and those resident outside the jurisdiction. The court will only award a sum which is referable to the additional enforcement costs and delay which might occur because the claimant is resident out of the jurisdiction. The old days when one could cheerfully go along to a Deemster and ask him for £100 - 200,000 of costs simply because the claimant was resident in Liverpool or London are long gone."

Facts

In order to understand why and how the Manx court found it both possible and necessary to depart from its earlier precedent in Akhavan, it is useful to understand the background to the Manx litigation in the Manx court.

The Manx case stemmed from an Isle of Man winding-up claim and contentious divorce proceedings in England. In the proceedings in England the UK Supreme Court determined that assets belonging to a Manx company, Petrodel Resources Limited, ostensibly owned and controlled by Mr Prest, could be made the subject of certain financial orders in respect of divorce proceedings and paid to his estranged spouse as a result. The UK Supreme Court further found that Petrodel, which held said properties legally, also held them on constructive trust beneficially for Mr Prest. When Petrodel was subsequently wound up in the Isle of Man, Prest claimed (per the claim in the Manx court case) that as a result of the UK Supreme Court case, the liquidator held all assets on trust for him.

Decision

Faced with this background, and bearing in mind Akhavan among other things, how did the Manx court satisfy itself that it could order security for costs at a sum exceeding the extra enforcement costs? The key appears to be ensuring that the claimant is not prejudiced or discriminated against by virtue only of his residence. The Manx court accepted the argument that there was evidence to show that the claimant lacked probity. It said that it was evident from the UK Supreme Court case, which had recorded that the claimant had been found to conduct legal proceedings by obstruction, obfuscation and deceit and that he had failed to comply with rules and orders of court and had attempted to conceal the extent of his assets in his divorce case. He had also brought what were described as 'collusive proceedings' in Nigeria, claiming that he held all assets on trust for his siblings.

In the Manx case the court was referred to the fact that the claimant had also failed to pay an English court maintenance order and per certain divorce proceedings in England, as a result of which he was the subject of a suspended sentence at the time of the security for costs hearing. The court was also referred to the fact that the claimant had failed to pay certain cost orders (in favour of Petrodel) in the Isle of Man winding-up proceedings.

The Manx court felt enabled to tailor an order for security for costs to the particular circumstances. In doing so, it relied on the English cases of Kazakhstan Kagazy plc v Zhuns ([2015] EWHC 996 (comm)) and De Beer v Kannar & Co (no 1) ([2001] EWCA Civ 1318). In particular, the court referred to various extracts of De Beer:

"in considering whether to exercise its discretion to order security it is material for the court to consider whether there is a want of probity on the part of Mr de Beer...

In [Thune v London Properties Ltd [1990] 1 WLR 562] the claimants were Norwegian trustees in bankruptcy, and although there was no question but that they would act with complete rectitude in relation to the enforcement of an order for costs against the bankrupt's estate, there was nevertheless a risk that the defendants would be unable to achieve full recovery since there might be other competing priority claims of unknown amount. Bingham L J said…

Thus the defendants are put to the very great cost of defending this expensive litigation with the risk, however small, that if they are ultimately successful they will be unable to recover their taxed costs despite the ease of procedural enforcement in Norway. I consider, in the exercise of my discretion, that this is a risk to which the defendants should not be put and that security should be given."

Comment

Costs in De Beer and Thune were not restricted to the extra costs of enforcement. In the Manx case the court therefore felt able to make an order for security at a sum greater than the extra costs of enforcement (in fact, security was ordered based on the anticipated full costs of proceedings). It did so being clear that it was not because the claimant was outwith the Isle of Man, but rather because of the UK Supreme Court findings as to probity and what it described as "other un-contestable facts" (the failure to pay maintenance and other Isle of Man cost orders). On that basis, the court stated that the claimant seemed likely to do all he could to avoid paying any cost order. The court was conscious of the interests of the defendant's creditors, which it said should be at the forefront of its mind, and reminded itself of the point of making an order for security for costs (ie, to protect a defendant who is obliged to litigate at the election of a claimant).

For further information on this topic please contact Damian Molyneux at M&P Legal by telephone (+44 1624 695800) or email (dpm@mplegal.im). The M&P Legal website can be accessed at www.mplegal.im.

Endnotes

(1) August 13 2015.

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