In SARPD Oil the Court of Appeal considered a number of points in relation to the court’s discretion to make a security for costs order against a company in circumstances where there was no financial information publicly available about it and the defendant therefore had real concerns that it would be unable to pay their costs if ordered to do so.
There were three key issues to be determined by the Court:
- whether the condition contained in CPR rule 25.13.2(c) would be satisfied where the claimant company had no publicly available accounts, had no discernible assets and refused to say anything about its financial position;
- whether the defendant could include the costs incurred by the third party in Part 20 proceedings in the security for costs order against the claimant; and
- whether the judge was correct to calculate the amount of the security with reference to the approved costs budget or whether he should have gone behind the budget to determine the amount.
Issue 1: was there reason to believe the claimant would be unable to pay the defendant’s costs?
CPR rule 25.13.2(c) provides that a security for costs order can be made by the courts where:
“c) the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so.”
At the heart of the issue was the question of whether there would be reason to believe in the claimant’s inability to pay where there was an absence of information about their finances rather than any positive evidence suggesting that they would be unable to pay. Sales LJ considered that this would give clear reason to believe in the claimant’s inability to pay the defendant’s costs for a number of reasons:
- “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.”
- “Mr Nolan's alternative explanation in oral argument was that Sarpd might just want to keep its financial position confidential for business reasons. But as Sales LJ pointed out, arrangements can always be made by the court if a litigant has legitimate business reasons for keeping something confidential. No application was made for the court to sit in private or to avoid referring in public to relevant financial amounts.”
- “Even if deliberate reticence on the part of a respondent is not a breach of CPR Part 1.3 a court can and should take account of deliberate reticence as part of the overall picture. Any evaluation has to be made on the totality of the evidence before the court; part of that totality is the absence of relevant evidence from the only party who is able to provide it.”
Sales LJ therefore allowed the first ground of appeal.
Issue 2: could the defendant include the third party’s costs in the security for costs order?
The logic behind this point was simple – if the claimant ultimately failed to substantiate its claim against the defendant, then the defendant would very probably be ordered to pay the third party’s costs since the defendant itself would have lost as against that third party. The question to be determined was whether these costs could form part of the security provided for the defendant even though the third party’s costs were not currently the defendant’s costs, and would not become the defendant’s costs until the end of the trial.
Sales LJ considered that it was inevitable that the defendant would have to pay the third party’s costs if the claimant lost and that it would very likely be able to recover those costs from the claimant. The third party’s costs were therefore “costs for which, pursuant to CPR Part 25.12, [the defendant] ought to obtain security if it can come within CPR Part 25.13.”
Issue 3: was the trial judge correct in his assertion that the amount of the security should be determined with reference to the approved costs budgets?
The claimant had cross appealed this point on the basis that the judge should have gone behind the approved costs budgets and found that the costs already incurred by the defendant at the time the first costs budgets were made were disproportionately high, and so the amount of the security should be lowered to reflect that. Sales LJ disagreed. The parties should have appreciated that the first CMC was the appropriate time at which issues regarding the quantum of costs shown on the budgets should be debated, and it would be an inappropriate allocation of the courts’ resources to revisit an issue that had already been determined once. Secondly, the approved costs budgets would be a “strong guide” as to the likely costs order to be made after trial, and so the budgets should quite clearly be used as the relevant reference to determine the amount of the security.
The Court of Appeal therefore reversed the decision of the trial judge and made a security for costs order against the claimant for the combined total of the approved costs budget of the defendant and third party.
[For more information, please refer to the case judgment.]