Security for costs application where there is little financial information about the claimant/costs of Part 20 proceedings

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 concluded that ground (c) had not been established. There was nothing inherently "secretive" about incorporation in the BVI and the claimant had filed such returns as were required in that jurisdiction. Nor was the claimant required to demonstrate that it would have means to pay a costs order: "It might be tempting to ask why, if it has means, should [the claimant] not avoid the expense of an application for security by demonstrating them, and therefore to suppose that its refusal itself provides reason to believe that it will not be able to pay an order for costs, but that ignores the adversarial realities of commercial litigation".

The judge also noted that it was suggested that a practice had developed in the Commercial Court where security was ordered in this type of situation (ie where the claimant has not filed accounts that are publicly available, has no discernible assets and declines to reveal its financial position), but he said that "if such a practice has developed, I cannot think it justified and I decline to follow it".

Although not required to decide the point, the judge also considered whether, if security had been ordered, it should also have covered the costs of the defendant bringing and pursuing Part 20 proceedings against a third party. That in turn depended on whether those costs were costs "of the proceedings" as referred to in CPR r25.12. Smith J held that they were and that the defendant would have been entitled to those costs, provided that the Part 20 proceedings did no more than protect the defendant against the consequences if the claim against him succeeds. However, no security could be ordered to protect the defendant against a possible order requiring it to pay the third party's costs.

The judge also considered how the defendant's costs should have been assessed given the earlier approval of the defendant's costs budget. Despite that approval, the claimant had argued that the defendant's budget was excessive. The judge said that he could not depart from the earlier order as "that would destroy the scheme of the new costs regime". As for costs incurred by the time of the budget, the judge noted that the White Book states: "While those costs that were incurred cannot form part of the budget and so fall for assessment unfettered by the restraints of the budget, once assessed, on the basis that they were reasonably incurred and reasonable in amount, and added to the budgeted costs, the total figure is still subject to an overall assessment of proportionality".