A recent Court of Appeal decision has clarified how the court will exercise its discretion when granting an order for security for costs against a claimant resident outside the EU (or other relevant state): Bestfort Developments LLP v Ras Al-Khaimah Investment Authority [2016] EWCA Civ 1099.

The decision confirms that the correct test is whether there is a "real risk" of difficulties in enforcing a costs order in a particular jurisdiction. There is no need for the defendant to establish such difficulties on a balance of probabilities test. As well as concluding that this test was sufficient to justify an order for security and avoid discriminating against claimants in the relevant states, the Court of Appeal clearly considered it a more workable test at the interlocutory stage, where it may be difficult for a court to reach clear conclusions on a balance of probabilities.

Here the court granted an order for security against the Ras Al-Khaimah Investment Authority, a sovereign wealth fund, as it was satisfied there was a real risk of difficulties in enforcement in Ras Al-Khaimah and Georgia, where the claimants' assets were.

Legal background

One of the grounds under which a defendant may apply for a security for costs order is where the claimant is: (i) resident out of the jurisdiction; but (ii) not resident in the EU or another state which is subject to a regime for the enforcement of English judgments, including Iceland, Norway, Switzerland, Mexico and Singapore (ie resident in a "non-Convention state") (see CPR 25.13(2)(a)).

However, falling within this ground is insufficient in and of itself to justify granting an order for security for costs. The court must also be satisfied, in all the circumstances of the case, that it is just to do so (see CPR 25.13(1)(a)). This means the court has a wide discretion in deciding whether or not to order security and in what amount.

In Nasser v United Bank of Kuwait [2001] EWCA Civ 1454 the Court of Appeal held that the English courts must exercise this discretion in a way that is not discriminatory in order to comply with Articles 6 and 14 of the European Convention on Human Rights ("ECHR") (preventing discrimination on grounds of nationality with respect to access to the courts). As a result of this decision, there can be no "inflexible assumption" that a litigant who is resident in a non-Convention state should provide security for costs. However, so long as the order is objectively justified, there will be no breach of Article 14. For these purposes, difficulties or burdens of enforcing a costs award in the relevant state may provide an objective justification.

Factual background

In the present case, the claimants brought proceedings in the English court for a worldwide freezing order and associated disclosure orders against the defendants in support of proceedings they had brought or intended to bring in Ras Al-Khaimah (in the UAE) and Georgia.

The defendants sought security for costs under CPR 25.13(2)(a) on the basis that the claimants were incorporated and resident outside the jurisdiction and the EU and their only assets were in Ras Al-Khaimah and Georgia. The claimants, while not conceding the point, did not seriously challenge the argument that there would be difficulties of enforcement in Ras Al-Khaimah, but argued that the defendants could not show there would be such difficulties of enforcement in Georgia as would justify an order for security for costs.

At first instance, the Master refused the application, relying on the decisions in Nasser and Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm), as he was not satisfied that there were likely to be obstacles to or burdens of enforcement in Georgia as compared with enforcement in a Convention state.

The defendants appealed the decision, arguing that the threshold applied by the Master was too high. The appropriate test was not "likelihood" but whether there was a "real risk" of difficulties in enforcement arising. Mr Justice David Richards dismissed the appeal, reasoning that when reading the judgment of Nasser as a whole it was clear that the court intended the test to be one of likelihood. The defendants appealed further to the Court of Appeal.

Decision

The Court of Appeal allowed the appeal. Gloster LJ, giving the leading judgment with which Black and Briggs LJJ agreed, confirmed the principle in Nasser that "in order for the court to be satisfied that it is exercising its discretion in a just manner – ie a manner which is not discriminatory for the purposes of Article 14 – it has to conclude that it is doing so on 'objectively justified grounds relating to obstacles to or the burden of enforcement in the context of the particular foreign claimant or country concerned'".

The court accepted that CPR 25.13(2)(a) gave rise to prima facie discrimination against litigants who were resident in a non-Convention state. It was suggested by the claimants that, given the obligation of the state to ensure fair and impartial procedures and to avoid obstacles to access to the courts, the highest level of justification was necessary when exercising the court's discretion. Gloster LJ disagreed, stating that a balance had to be struck between access to the courts on the one hand, and the wider interests of defendants on the other. What is required is to exercise the discretion contained in CPR 25.13(2)(a) on objectively justifiable grounds.

Gloster LJ held that it was sufficient for an applicant simply to adduce evidence to show that, on objectively justified grounds relating to obstacles to or the burden of enforcement, there was a real risk that it would not be in a position to enforce an order for costs against the claimant and that, in all the circumstances, it was just to make an order for security. In other words, she concluded that a test of "real risk" relating to enforceability provided rational and objective justification for the discrimination against non-Convention state residents inherent in CPR 25.13(2)(a). There was no need to demonstrate substantial obstacles to enforcement on a balance of probabilities.

As a further reason for her decision, Gloster LJ pointed out that, at an interlocutory stage, without the benefit of cross-examination and full enquiry, the judge may well not be in a position to resolve disputed issues arising on the evidence in order to be satisfied on the balance of probabilities that there would be substantial obstacles to enforcement. She was therefore against the "articulation of any hard-line, inflexible test in relation to an evidential test based on 'likelihood'".