The first instance decision in this case was reported in Weekly Update 31/15. The defendant sought security for costs from the claimant, a company incorporated in the British Virgin Islands. The application was not made pursuant to ground (a) of CPR r25.12 (ie that the claimant is resident out of the EEA), because it could not be shown that there would be an extra burden/cost of enforcing a judgment in the BVI. Instead, the application was brought under ground (c) (ie that the claimant is a company and "there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so").
However, the claimant had given no details of its financial position and the defendant had access to only limited information. As a result, Smith J had concluded that ground (c) had not been established, finding that there was nothing inherently "secretive" about incorporation in the BVI and the claimant was not required to demonstrate that it would have means to pay a costs order. He also criticised a Commercial Court practice of ordering security in this type of situation.
The Court of Appeal has now allowed the appeal from that decision. It held that: "If a company is given every opportunity to show that it can pay a defendant's costs and deliberately refuses to do so there is, in our view, every reason to believe that, if and when it is required to pay a defendant's costs, it will be unable to do so". Although deliberate reticence is not a breach of the rules, the court can and should take account of it as part of the overall picture. The Commercial Court practice was said to be sound and the Court of Appeal upheld it.
The judge's finding regarding the Part 20 defendant's costs was also reversed. If the claimant was to lose, then the defendant would be ordered to pay the costs of the Part 20 defendant (and it is highly likely that the defendant could then recover those costs from the claimant). The Part 20 defendant's costs would therefore be the defendant's costs, and so ought to be covered by any security for costs order in its favour. The Court of Appeal upheld the judge's finding, though, that the security costs order would cover the defendant's own costs in pursuing the Part 20 proceedings against the third party.
The Court of Appeal also agreed with the judge that he could not depart from the defendant's approved costs budget when considering how the defendant's costs should be assessed. Strictly speaking, the court cannot approve the costs already incurred before the costs budget was approved. However, the court was entitled to comment on that element of the defendant's costs and, if it felt that the costs already incurred were reasonable and proportionate, it is likely that those incurred costs would be included in any standard assessment of costs at the end of the case. Accordingly, "There was little if any difference between the practical effect of the court's order in relation to incurred costs and its order in relation to estimated costs". The approved costs budget was a "strong guide" to the likely costs order to be made after trial if the defendant wins.