In the case of Nicholas G Jones v (1) Environcom Limited and (2) Environcom England Limited [2009] EWHC 16 the Commercial Court was asked to determine, as a preliminary issue, whether a claimant insurer could be granted an application for security of its costs. The Claimant was the insurer of recycling facilities owned by the Defendants which burned down during the period of cover. The Claimant eventually sought a declaration from the court that it had validly avoided the policy on the grounds of nondisclosure. The Defendants counter claimed that they were entitled to recover their losses under the policy. After reviewing the Defendants' financial position, the Claimant made an application for security of their costs in relation to the counter claim.

The judge considered CPR 25.13 which states that such an order for security of costs can be made if it is just to make such an order on the facts of the case. She also considered "whether the costs of the counterclaim for the purpose of an application for security for the costs of the counterclaim [were], as a matter of law, confined to those costs that [were] exclusively referable to the counterclaim (as contended by the Defendants); or whether such costs [could] include, as a matter of law, costs relating to issues which [were] common to both the claim and counterclaim (as contended by Insurers)?"

In relation to the first issue, the judge ultimately found that the Defendants' counter claim for an indemnity was necessary in order for it to recover under the policy. In contrast, she found that the Claimant's claim was no longer strictly necessary as it could discontinue its claim and merely defend the Defendants' counter claim for an indemnity in order to achieve its aim. In other words, it was the Defendants' action which was the necessary action and the Claimant was in effect the defendant in the proceedings. The Insurer was therefore entitled to seek protection regarding payment of its costs should it prevail. In circumstances such as these, the judge found that it was just to grant the Claimant's application for security of costs. The judge followed the judgment in the case of Silver Fir [1980] 1 Lloyd's Rep 371 when making her decision regarding the second issue. As a result, she found that it was appropriate that all costs of a counterclaim could be included in an order for security of costs. This meant that the Claimant was entitled to include costs which related to issues which were common to both the claim and the counterclaim.

The case is useful guidance for claimants who find themselves as a defendant on a significant counterclaim. In such circumstances, the court will review whether it is just to make such an order having regard to all the facts of the case.