Mr Justice Gross:
INTRODUCTION
1. This is an application by the Defendant for security for costs in the
amount of £500,000 or such other sum that the Court deems appropriate,
brought pursuant to CPR 25.13(1)(a) and (2)(a) and/or (c).
2. CPR 25.13 provides as follows:
"(1) The court may make an order for security for costs … if-
(a) it is satisfied, having regard to all the circumstances of the case, that
it is just to make such an order; and
(b) (i) one or more of the conditions in paragraph (2) applies…
(2) The conditions are-
(a) the claimant is-
(i) resident out of the jurisdiction; but
(ii) not resident in a Brussels Contracting State, a Lugano Contracting
State or a Regulation State, as defined in section 1(3) of the Civil
Jurisdiction and Judgments Act 1982;
….
(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….."
3. The application was opposed by Mr. Swaroop, who appeared for the
Claimant, on the following grounds:
i) The Claimant was resident within the jurisdiction;
ii) It had not been shown that the Claimant would be unable to pay the
Defendant's costs;
iii) As a matter of discretion, relying, inter alia, on Nasser v United Bank
of Kuwait [2001] EWCA Civ 556 [2002] 1 WLR 1868 (CA), no such order
should be made;
iv) If any order was to be made it should be in a minimal or reduced
amount.
4. For present purposes, the factual background is helpfully summarised
in the initial skeleton argument of Mr Wheeler, who appeared for the
Defendant:
" 5. The Defendant C. is a Scottish company which is in the business of
exploring for hydrocarbon reserves around the world. The Claimant T. is
a Hong Kong registered company which principally trades as 'importers,
exporters and marketing agents'. C. and T. together bid for oil exploration
rights in the part of the Caspian Sea within the territory of Turkmenistan.
The bid was unsuccessful and has given rise to T. claims against Cairn in
these proceedings.
6. …..T. originally claimed only US$550,000 by way of repayment of US
$1,000,000 which was drawn down by Cairn under a letter of credit issued
on behalf of T.. However, T. claim has been expanded by amendments
and, since the service of Further Information by T. on 22 August 2003, T.
claim for damages has been substantially higher, with the amount claimed
now exceeding US$121 million."
Without more ado, I turn directly to the principal issues.
(I) RESIDENCE
5. Realistically, the question here is simply whether the Claimant is
resident in Hong Kong, as submitted by the Defendant, or in England,
as contended for by the Claimant. The burden of proof rests on the
Defendant to show that the Claimant is resident out of the jurisdiction and
not in a relevant Contracting or Regulation State.
6. The meaning of "resident" in this context was dealt with by Lindsay J.,
in In re Little Olympian Ltd [1995] 1 WLR 560, esp. at pp. 566-569. The
inquiry is as to the location of the company's central management and
control or, put another way, as to where its real business is carried on.
The inquiry is factual; all the circumstances need to be taken into account
and given such weight as is appropriate.
7. Various factors here pointed to a Hong Kong residence. First, the
Claimant was incorporated there; secondly, its principal office was in
Hong Kong; thirdly, its accounts were prepared in Hong Kong dollars
and audited in Hong Kong. Conversely, the Claimant placed reliance, in
particular, on the residence in this country of Mr. and Mrs. A., directors
said to manage and control the working of the company.
8. On balance thus far, I would already have been inclined to prefer the
Defendant's argument that the Claimant was resident in Hong Kong.
However, there is, to my mind, a further matter which resolved this issue
plainly in favour of the Defendant. The Claimant has paid no corporation
tax here; on that footing, the only legitimate working assumption is that
the Claimant was not resident here. Had the Claimant been resident here,
it would have been liable to corporation tax: see, ss. 6, 8 and 11 of the
Income and Corporation Taxes Act 1988 and Halsbury's Laws of England
(4th ed., reissue), vol. 23(1), at paras. 835 and 836.
9. For my part, I can see no good reason why the working assumption
on which the Claimant's tax position is based should be displaced for
the purposes of this application. In the light of such considerations, Mr.
Swaroop ultimately did not press this point. In the event, I am amply
satisfied that the Claimant is resident in Hong Kong and therefore out of
the jurisdiction and not in a relevant Contracting or Regulation State. It
follows that threshold condition CPR 25.13(2)(a) is satisfied.
(II) INABILITY TO PAY
10. I come next to the question raised by CPR 25.13(2)(c), namely
whether there is reason to believe that the Claimant "will" be unable to
pay the Defendant's costs if ordered to do so. In the light of the decision
of Sir Donald Nicholls V-C (as he then was) in Re Unisoft Group Ltd (No.2)
[1993] BCLC 532, the test here was common ground: the burden was on
the Defendant to show that the Claimant will be unable to pay. For the
reasons given by Sir Donald Nicholls V-C, that test is not "watered down"
by the presence of the wording "reason to believe". I emphasise that the
inquiry is whether the Claimant "will be unable" to pay the Defendant's
costs if ordered to do so – not whether it might be unable to pay them.
11. For the Defendant, Mr Wheeler's argument, which sought to rely on
an investigation conducted by accountants Robson Rhodes, proceeded as
follows:
i) While they could not be ignored, not much weight could be given to the
unaudited management accounts of 31st March, 2004. Accordingly, the
audited accounts of 31st March, 2003 were critical.
ii) Having regard to the balance sheet, by far the most valuable asset was
an interest in and joint venture with an associated company CR., which in
turn owns a Moscow shopping mall or superstore. However, the Claimant's
auditors, P & Co., ("the auditors") themselves spoke of the "fundamental
uncertainty" in respect of the value of that interest by reason of it not
having been subject to any or any proper audit. Moreover, there was no
explanation for the dramatic upwards revaluation of the CR. interest in
the Claimant's books – a revaluation from some HK$12 million at cost to
HK$245 million in the balance sheet.
iii) As to other current assets, prepayments by the Claimants were
properly classified as such as assets – but, the moneys having been paid
away, would not be realisable to pay a substantial bill for costs.
iv) Having regard to current liabilities, the current bank balances and cash
were negative; they revealed a dependence on overdraft or borrowing
facilities.
v) What remained were trade and other receivables ("receivables") which,
in net terms on the balance sheet, amounted to some HK$30 million;
even if reduced further by the amount of the previous year's bad debts,
these came to some HK$20 million; but matters did not rest with the
balance sheet.
vi) While, given the audited accounts, it had to be assumed that the
receivables represented moneys likely to come in, there was no basis
for thinking that they would be available to meet a bill for costs. Having
regard to the profit and loss statement ("the P&L statement") and the
figures for cash flow from operating activities, it was apparent that, but
for the interest in CR., the Claimant was trading as a loss.
vii) Therefore in summary, the Claimant's ability to pay an order for costs
hinged on the receivables but there was no basis for thinking that those
would be available to discharge such an order, given that, the CR. interest
apart, the Claimant was trading at a loss. As no reliance could be placed
on the management accounts, there was nothing to correct this picture,
as presented by the 31st March, 2003 audited accounts.
12. For the Claimant, Mr. Swaroop responded as follows:
i) There was no basis for any conclusion that the Claimant would be
unable to pay the costs of the proceedings if ordered to do so.
ii) Though there was, he said, no need to do so, he was content to
exclude from consideration all amounts attributable to CR, prepayments
and bank balances.
iii) R. – unlike Mr. Wheeler – had not grappled with the receivables; the
points made by Mr. Wheeler in that regard were therefore unsupported by
accountancy evidence.
iv) In any event, there was no sound basis for Mr. Wheeler's approach;
as at the 31st March, 2003, the receivables constituted an asset
properly designated as such in the balance sheet; the figures from the
P&L statement and cash flow calculations had already been factored
in, serving to reduce the bank balances and cash figure; unless the
Defendant was to mount a challenge to the audited accounts (which it
had not done), there was no basis for concluding that the receivables did
not represent assets which would be available to satisfy an order for the
payment of the costs of the proceedings.
v) Further, there was no or no good reason to discount the 2004
management accounts; on that basis the Claimant's profitability had
improved; although, as Mr Wheeler had pointed out, the bank balance
remained negative, net current assets had (if anything) increased and
now showed a surplus of some HK$90 million; in essence, the Claimant
was financing itself on the basis of ongoing trading. At all events, nothing
in the 2004 management accounts suggested that the conclusions to be
drawn from the 2003 audited accounts no longer held good.
vi) In summary, therefore, neither on the basis of the 31st March, 2003
figures nor on the later figures could the Defendant make good its case
under sub-rule (c).
13. Conclusions as to sub-rule (c): I readily confess to having doubts
about the Claimant's financial position. CR. by itself represents so
major an area of uncertainty, that I cannot avoid the suspicion that the
Claimant's position is not nearly as robust as a first blush view of the
financial statements would suggest. But, on the evidence as a whole,
I cannot properly go beyond saying that the Claimant might be unable
to pay an order made against them for the Defendant's costs; I could
not go further and say that the Claimant would be unable to pay, the
relevant test in accordance with Unisoft (supra). First, there has been
no suggestion that it would be appropriate to disregard or go behind the
March 2003 audited accounts. Secondly, it is not apparent to me that R.
addressed the question of the receivables, shown in the 2003 audited
accounts, properly or at all; in any event, I think that Mr. Swaroop is
correct in his approach to those receivables. Accordingly, even taking
the receivables on their own – and without having any regard to the
prepayments or CR. (thus an assumption favourable to the Defendant) –
there is on the evidence an asset prima facie available to the Claimant to
satisfy an order for the payment of the Defendant's costs. Thirdly, while
it is right to approach the 2004 management accounts with a degree of
scepticism, there has been no suggestion that they have been dishonestly
compiled; absent any such suggestion and even heavily discounted, the
management accounts do nothing to undermine the picture presented by
the 2003 audited accounts or otherwise to assist the Defendant's case; to
the contrary, given the apparent increase in net current assets, they lend
some further support to Mr Swaroop's contention that on the evidence
there would be assets available to satisfy any order for the payment of
costs. In the circumstances, notwithstanding the Defendant's readily
understandable concerns, I am unable to accept that the Defendant
makes good its case under sub-rule (c).
(III) DISCRETION
14. In the light of the conclusions thus far reached, I come to the
question of discretion, on the basis that the Defendant has satisfied the
threshold test of residence but not the threshold test of inability to pay.
15. As is clear on the authorities, the power to order security for costs
is discretionary and not automatic. Moreover, the power is now to be
exercised in a manner which is not discriminatory to claimants whose
residence is outside a relevant Contracting or Regulation State: see,
Nasser (supra), a decision of the Court of Appeal, by which I am bound. I
shall return to that decision presently.
16. Leaving what I may term Nasser considerations to one side, I would
have no hesitation in ordering security for costs in this case. With respect
to the various matters raised by Mr Swaroop, I think they lack substance.
The lateness of the present application is readily explicable in the light of
the Claimant's dramatic amendment – increasing its claim from some US
$550,000 to US$121 million. The fact that the Claimant's claim is or is to
be assumed as arguable is, in the circumstances, neither here nor there.
Moreover, though it cannot be said that the Claimant "will" be unable
to pay the Defendant's costs if ordered to do so (hence my conclusion
on sub-rule (c)), there is certainly a risk that the Claimant might not
be able to do so. The suggestion that, somehow, Mr. and Mrs. A. would
personally be liable for costs, turned out, upon analysis, to be no more
than a recognition that there might be arguments under s.51 Supreme
Court Act 1981 to make them so liable – arguments which if they ever
came to be advanced would doubtless be vigorously resisted; further
and despite being given an opportunity to do so, no offer of a personal
guarantee in a satisfactory form has been forthcoming.
17. Accordingly, it is necessary to revisit Nasser. Does Nasser preclude an
order for security or limit the amount of security which I can order?
18. In Nasser, the leading judgment was given by Mance LJ., with whom
Simon Brown LJ. (as he then was) agreed. For present purposes, the key
passages in the judgment of Mance LJ were these:
"58. The exercise of the discretion conferred by rule 25.13(1) and (2)
(a)(i) and (b)(i) raises … different considerations. That discretion must
itself be exercised … in a manner which is not discriminatory. In this
context at least, I consider that all personal claimants … before the
English courts must be regarded as the relevant class. It would be both
discriminatory and unjustifiable if the mere fact of residence outside any
Brussels/Lugano member state could justify the exercise of discretion to
make orders for security for costs with the purpose or effect of protecting
defendants…against risks to which they would equally be subject, and in
relation to which they would have no protection, if the claim … were being
brought by a resident of a Brussels or Lugano state. Potential difficulties
or burdens of enforcement in states not party to the Brussels or Lugano
Convention are the rationale for the existence of any discretion. The
discretion should be exercised in a manner reflecting its rationale, not so
as to put residents outside the Brussels/Lugano sphere at a disadvantage
compared with residents within. The distinction in the rules based on
considerations of enforcement cannot be used to discriminate against
those whose national origin is outside any Brussels or Lugano state on
grounds unrelated to enforcement.
61. Returning to rules 25.15.1 and 25.13.1 and (2)(a) and (b), if the
discretion to order security is to be exercised it should therefore be 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 former principle was that, once the power to order
security arose because of foreign residence, impecuniosity became one
along with other material factors: …Thune…[1990] 1 WLR 562… This
principle cannot …survive in an era which no longer permits discrimination
in access to justice on grounds of national origin. Impecuniosity of an
individual claimant resident within the jurisdiction or in a Brussels or
Lugano state is not a basis for seeking security. Insolvent or impecunious
companies present a different situation, since the power under CPR r
25.13(2)(c) applies to companies wherever incorporated and resident and
is not discriminatory.
62. The justification for the discretion under rules 25.13(2)(a) and (b)
and 25.15.1 in relation to individuals and companies ordinarily resident
abroad is that in some – it may well be many – cases there are likely to
be substantial obstacles to, or a substantial extra burden (eg, of costs
or delay) in, enforcing an English judgment, significantly greater than
there would be as regards a party resident in England or in a Brussels or
Lugano state. In so far as impecuniosity may have a continuing relevance
it is not on the ground that the claimant lacks apparent means to satisfy
any judgment but on the ground (where this applies) that the effect of
the impecuniosity would be either (i) to preclude or hinder or add to the
burden of enforcement abroad against such assets as do exist abroad or
(ii) as a practical matter, to make it more likely that the claimant would
take advantage of any available opportunity to avoid or hinder such
enforcement abroad.
63. It also follows…that there can be no inflexible assumption that there
will in every case be substantial obstacles to enforcement against a
foreign resident claimant in his or her (or in the case of a company its)
country of foreign residence or wherever his, her or its assets may be. If
the discretion under rule 25.13(2)(a) or (b) … is to be exercised, there
must be a proper basis for considering that such obstacles may exist or
that enforcement may be encumbered by some extra burden (such as
costs or … simply delay).
64. The courts may and should, however, take notice of obvious realities
without formal evidence. There are some parts of the world where the
natural assumption would be without more that there would not just be
substantial obstacles but complete impossibility of enforcement; and there
are many cases where the natural assumption would be that enforcement
would be cumbersome and involve a substantial extra burden of costs or
delay. But in other cases … it may be incumbent on an applicant to show
some basis for concluding that enforcement would face any substantial
obstacle or extra burden meriting the protection of an order for security
for costs…..If, for example, there is likely at the end of the day to be no
obstacle to or difficulty about enforcement, but simply an extra burden
in the form of costs …or moderate delay, the appropriate course could
well be to limit the amount of the security ordered by reference to that
potential burden.
67. The risk against which the present defendants are entitled to
protection is thus not that the claimant will not have the assets to pay
the costs, and not that the law of her state of residence will not recognise
and enforce any judgment against her for costs. It is that the steps taken
to enforce any such judgment in the United States will involve an extra
burden in terms of costs and delay, compared with any equivalent steps
that could be taken here or in any other Brussels/Lugano state. Any order
for security … should be tailored in amount to reflect the nature and size
of the risk against which it is designed to protect."
It will be appreciated that though CPR 25.13 has since been amended, for
present purposes at least, its substance remains the same.
19. Mr Swaroop said that either Nasser tells against the making of any
order for security, alternatively, that it limits the amount of security to be
ordered to a minimal amount. In his submission, the decision in Nasser
means that security cannot be ordered beyond such if any extra burden of
costs and delay attributable to enforcement of an order for costs in Hong
Kong rather than here; the Court is therefore bound to limit any order for
security for costs by reference to that additional burden. In the present
case, there would not be any real obstacle to enforcement. A judgment or
order of this court could be enforced in Hong Kong, by action. Only limited
defences would be available. The consequence is or ought to be a nil or
minimal order.
20. When the hearing was first before me, it became plain that the
Defendant was not in a position to deal with the matter adequately
on the footing that Nasser was applicable. In the interests of justice it
seemed right to adjourn the hearing, to give Mr Wheeler the opportunity
of addressing me further on the ramifications of Nasser and the quantum
of security if Nasser served to limit the amount of security to be awarded.
In the event, both parties have taken advantage of that opportunity to
introduce further evidence and to develop their arguments – though, in
essence, Mr. Swaroop's remained as already summarised.
21. At the resumed hearing, Mr Wheeler's submissions as to Nasser may
be summarised as follows:
i) Given the extra burden of enforcement abroad, Nasser did not tell
against security being ordered as a matter of the court's discretion. In
particular, Mr Wheeler emphasised the need to enforce any order by
action, the fact that the Claimant's assets might well not be in Hong Kong
but elsewhere (for example, CR. was in Russia); further, the Claimant's
impecuniosity was likely to make such enforcement more difficult and
result in the Claimant doing its best to resist enforcement of any order.
Additionally, all this would of course produce delay.
ii) Nasser was only relevant to the exercise of discretion to order security,
not to the quantum of security to be ordered once the decision has
been taken to exercise the court's discretion; for this proposition, Mr.
Wheeler relied on the observations of Clarke LJ in the unreported case of
Hammond Suddard v Agrichem [2001] EWCA Civ 2065, at [26].
iii) Alternatively, the starting point for any order remained the costs of the
action (put by the Defendant at some £500,000). While it may be that,
if Nasser was applicable, any order must be related to the extra burden
of enforcement abroad, Nasser did not require the order to be limited to
the extra costs of enforcing abroad. Accordingly, the correct approach to
the quantum of security was to award such proportion of the costs of the
action as was necessary to protect the Defendant against the difficulties
of enforcement elsewhere.
iv) On any view, a substantial award of security was appropriate to
provide the necessary protection to the Defendant, given the likely
difficulties of enforcement.
22. I should add that, at the resumed hearing, both the Claimant and the
Defendant refined their submissions as to the relevance of the location of
the assets against which a judgment could be enforced. The Defendant's
submission was that the location was relevant; reliance was placed on the
unreported judgment of Mr. Gabriel Moss QC, sitting as a Deputy Judge
of the High Court, in Aims Asset Management v Kazakhstan Investment
Fund, Ch./2002/App/0198, 22nd May, 2002, esp. at pp. 4-9 of the
transcript. The Claimant retorted that the location of the assets was
irrelevant and that it would be discriminatory to have regard to them;
reliance was placed on the unreported judgment of Jacob J. (as he then
was) in Somerset-Leeke v Kay Trustees [2003] EWHC 1243 (Ch), 1st May,
2003, esp. at [6] – [11].
23. In my judgment, having regard to Nasser, together with the other
authorities to which I was referred, the following approach is warranted –
given the range of the argument before me, I have set the matter out at
somewhat greater length than would otherwise have been the case:
i) In the light of the Human Rights jurisprudence and, in particular, Art. 14
of the European Convention on Human Rights, discrimination in access to
justice is not permitted on grounds of national origin.
ii) As is common ground, the Court does not have power, without more,
to order security for costs against a claimant (individual or corporate),
resident within the jurisdiction or relevant Contracting or Regulation
States ("the zone").
iii) Accordingly, where the only threshold condition satisfied for ordering
security for costs is CPR 25.13(2)(a), i.e., residence outside the zone,
the Court's discretion cannot be exercised so as to discriminate between
claimants (individual or corporate), who reside within or outside the zone.
In consequence, the mere fact of such residence outside the zone cannot
by itself justify an order for security for costs; that would amount (directly
or indirectly) to discrimination on grounds of national origin unrelated to
enforcement.
iv) In passing, it may be noted that no such concerns arise in connection
with threshold condition CPR 25.13(2)(c), i.e., inability to pay, as this
provision applies equally to companies resident within and outside the
zone.
v) The surviving rationale for exercising the discretion under CPR 25.13(2)
(a), to make an order for security for costs against a claimant resident
outside the zone, is that enforcement of a judgment or order outside the
zone may involve extra obstacles or extra burdens in terms of costs and
delay, compared with enforcement within the zone. The word "may" is
to be noted; there can be no "inflexible assumption" that enforcement
outside the zone will carry with it any such extra obstacles or burdens:
Nasser, at [63].
vi) As a matter of the "obvious realities" (Nasser, at [64]), in some
jurisdictions outside the zone, it may be effectively impossible to enforce
an order for the payment of costs. In such cases, there would be objective
justification for the court exercising its discretion to make an order
for payment of the full amount of costs likely to be ordered against a
claimant if unsuccessful in the litigation.
vii) In other jurisdictions, the additional obstacles and burdens standing
in the way of enforcement may be less substantial or even minimal. For
example, in certain jurisdictions, of which it is common ground that Hong
Kong is one, a judgment of an English Court for the payment of costs is
enforceable by action and can only be resisted on the familiar and narrow
grounds available at common law. In respect of such jurisdictions, the
risk against which the applicant for security is to be protected is the extra
burden of enforcement (such as it may be) compared to that which would
have been encountered had enforcement taken place within the zone.
viii) The relevant comparison is between enforcement within the zone and
enforcement in the country where enforcement will or may realistically be
pursued, whether that is the country of residence of the claimant or the
country where his, her or its assets may be: Nasser, at [63]. Of course, in
an appropriate case, enforcement may take place both in the country of
residence and in the country (or countries) where a claimant's assets are
located. Given the focus on enforcement, the location of the claimant's
assets is relevant and it is not discriminatory to take it into account;
alternatively its relevance is objectively justified on grounds related to
enforcement. I cannot accept Mr. Swaroop's submission that Nasser
requires (as it were) a line to be drawn at the country of residence. The
demands of practical justice point the other way; for example, it would
be absurd to refuse an order for security for costs against a company
claimant, resident outside the zone, on the ground that the obstacles to
enforcement are minimal in its country of residence when its assets are
situated in another country where it is well-known that enforcement is
impossible. In this regard, I respectfully agree with Mr. Gabriel Moss QC
when he said, in Aims Asset Management (supra), at pp. 6-7:
" The relevant risk relates to the question of enforcing judgment.... that
risk in relation to enforcement must, in order to give the question of
risk a practical content, relate to enforcement where the assets of the
[..claimant..] are or are likely to be..."
I do not, with great respect, read the judgment of Jacob J., in Somerset-
Leeke (supra) as containing any disagreement with this proposition as
such.
ix) As to the applicant for security demonstrating the risk (Nasser, at
[67]) of additional obstacles to or burdens of enforcement in a country
outside the zone, evidential requirements will necessarily depend on
the facts of the individual case: Nasser, at [64]. Satellite litigation is
undesirable so that in some cases the Court will no doubt be content
to take notice of obvious realities or to draw commonsense inferences,
without formal evidence. But, ordinarily, even if the Court is minded to
take a broad brush, commonsense approach, it will be necessary for the
applicant at least to show some evidential basis for the conclusion that
there would be a realistic risk of additional obstacles or burdens in the
way of enforcement in a country outside the zone; it will be recollected
that Nasser, at [63], precludes the Court from making any inflexible,
generalised assumption.
x) Inescapably, Nasser is concerned both with the exercise of the Court's
discretion and the quantum of security to be ordered. As to Mr. Wheeler's
argument to the contrary, both the logic and language of Nasser are
against him: see, for example, at [64]. For completeness, I am unable to
accept that the observations of Clarke LJ in Hammond Suddard (supra),
relied on by Mr. Wheeler, suggest otherwise. Clarke LJ said this:
" 26. It is not in dispute that the court has jurisdiction to make such an
order under rr 25.13(2)(b) and 25.15(1). It is also conceded that it is
appropriate for the court to make an order on the facts of this case. It
follows that it is not necessary to consider the principles applicable to
security for costs which are discussed in detail in....Nasser. In the instant
case the only issues between the parties under this head are in what
amount security should be ordered and when. "
With respect, it seems plain that the Court of Appeal in Hammond
Suddard was proceeding in the light of a concession there made
(understandably, in the light of the application for a stay) and that Clarke
LJ, had he intended a statement of principle as to the limits of Nasser,
would not have confined himself to the observations in question.
xi) Nasser, where applicable, clearly points to relating the quantum of
security to the extra burden of enforcement outside the zone, rather than
to the likely costs of the case – though in jurisdictions where enforcement
is effectively impossible, the two may be indistinguishable. It is neither
here nor there that Nasser does not in all cases serve to limit the security
to the amount of the extra burden; in certain situations, it may be
wholly impractical to seek to do so. For the avoidance of doubt, save
exceptionally, the Court is still likely to wish to have evidence of the likely
costs of the case, (1) for reasons of proportionality, (2) as a cross-check
and (3) because in some cases, as already discussed, it may remain
appropriate to order security by reference to that sum.
24. On the facts of this case, I am satisfied that, in the exercise of my
discretion, it is appropriate to make an order for security for costs. As
already foreshadowed, Nasser apart, that is plainly so. Having now
taken Nasser into account, I remain of the view that security is to be
ordered – but by reference to the realistic risk of an additional burden
of enforcement outside the zone rather than the likely costs of the
proceedings. My reasons follow.
25. First, as is common ground, enforcement in Hong Kong is by way of
action and can only be resisted on familiar and limited grounds. Hong
Kong is not therefore one of those jurisdictions where enforcement
is effectively impossible. That said, I do think that, realistically, there
is the likelihood of a relatively substantial extra burden arising from
enforcement in Hong Kong rather than within the zone. I decline to
make the assumption for which Mr. Swaroop contended, namely, that
the matter should be assessed on the basis that there would be an
uncontested summary judgment for costs. No doubt if there are no good
defences, it would make sense for the Claimant not to resist enforcement
of a judgment for costs. Faced, however, with a judgment for costs in
the region of (say) £400,000, short term considerations of putting off
the evil day may govern the Claimant's thinking. Accordingly, the risk
against which the Defendant should be protected is that of the extra
burden arising from the Claimant engaging in determined resistance
to enforcement. I should add that the Defendant, in support of its
submissions on this part of the case, invited me to have regard to conduct
of the Claimant in some other proceedings some time ago. I am not sure
that that is in any way persuasive; but, over and above the inherent
risk of resistance to enforcement, I do have regard to the fact that in
these proceedings the Claimant saw fit to contend (see above) that it was
resident within this jurisdiction even though it had not paid corporation
tax here – and it maintained this submission until beating a cautious
retreat in argument.
26. Secondly, in my view, the "impecuniosity" of the Claimant remains
material. I am unable to accept Mr. Swaroop's submission that no regard
is to be had to the Claimant's financial position once the Defendant has
failed to make good the criterion of inability to pay. For the reasons
already given, I have concluded that there is a risk that the Claimant
might not be able to pay the costs of the Defendant if ordered to do so. In
that sense, "impecuniosity" remains relevant. As contemplated by Nasser
(at [62]), impecuniosity may both add to the burdens of enforcement
and encourage the Claimant to seek to resist enforcement. This factor too
supports my conclusion as to the extra burden of enforcement in Hong
Kong.
27. Thirdly, it is probable that enforcement efforts will be centred on Hong
Kong. As already concluded, the Claimant's receivables constitute the
asset prima facie available to satisfy a judgment that the Claimant should
pay the Defendant's costs of the action. At the resumed hearing there
was some debate as to what this would entail in terms of enforcement.
The Defendant submitted that garnishee proceedings internationally
against trade debtors were to be contemplated. The Claimant relied on
(new) evidence that, given its trade finance arrangements, the proceeds
of its commodity transactions would be paid into three identified bank
accounts, in Hong Kong, Switzerland and London as and when received.
I cannot help thinking that if the English and Swiss accounts had been
sufficient to fund the payment of any order for costs by themselves,
that would have been stressed from the outset; I do not therefore think
that the evidence as to the existence of those accounts tells against the
making of any order for security. Moreover, accounts and their locations
can be changed. But, having regard to the evidence of receivables as a
whole, including the presence of an account in Hong Kong, I think it more
likely that enforcement would focus on attaching the balances in those
accounts, concentrating in particular on the Claimant's Hong Kong base –
rather than on an international trawl for trade creditors.
28. Fourthly, I cannot however exclude the risk that the Defendant might
have to look further afield or take more expensive and time consuming
steps to enforce any order for the payment of its costs. I assess this
risk as low but realistic and not so low that it can be discounted. Should
the risk materialise, the obstacles to and the burdens of enforcement
would rise dramatically. This risk would materialise should, for example,
a serious downturn in trade result in the banks' prior claims (of which
there is evidence, having regard to the negative bank balances) rendering
enforcement against the receivables impossible or impractical. If so, then
the Defendant would likewise face real difficulties in seeking to enforce
against the Claimant's rental stream from its CR. interest, said to be
paid into its Hong Kong bank account. In this situation, the Defendant
might be driven to placing the Claimant into liquidation with a view,
thereafter, to realising the value of the Claimant's interest in CR.. On
the essentially undisputed evidence before me, if the need arose for the
taking of any such enforcement measures centred on Russia, they would
be difficult, time consuming and expensive. Even the initiation of any such
steps would add a significant burden of cost and delay. In my judgment,
the likelihood of this risk materialising is not such as to warrant my
ordering security in the amount of the likely costs of the action; but the
consequences of this risk, should it materialise, are sufficiently grave as to
warrant a significant sum featuring in my order so as to guard against it.
(IV) QUANTUM
29. Having set out the relevant principles and my proposed approach at
some length, I can take the question of quantum shortly.
30. The Defendant's estimated costs of the action were said to be some
£500,000. On the view which I take of the matter, it is unnecessary to
consider this claim in detail. Suffice to say that, had it been material,
I would have been inclined to favour a lower figure in the region of
£400,000.
31. As to the extra burden of enforcement in Hong Kong, the evidence
before me was that the costs of proceeding in Hong Kong by way of an
action to enforce a judgment would be in the region of £64,000. This
sum should be reduced to allow for the costs which would in any event
have been incurred had enforcement taken place within the zone. In the
result, I assess the extra costs of proceeding in Hong Kong as £50,000.
Having allowed that sum, I do not think it right to add any additional sum
in respect of delay.
32. As to the risk of enforcement becoming more complex or the
Defendant having to proceed further afield, this is necessarily difficult
to quantify. Provided only that I am correct in thinking that this risk
is not to be dismissed, I am satisfied – as a matter of obvious reality
or commonsense inference – that I will not be doing the Claimant any
injustice by allowing an additional £50,000 in respect thereof. I do not
award any larger sum given, as already explained, the low order of this
risk.
CONCLUSION
33. In the result, in the exercise of my discretion, I conclude that an order
should be made against the Claimant for security for the Defendant's
costs of the action in the amount of £100,000.
34. For completeness, I mention that there has been no suggestion of an
order for security serving to stifle the proceedings.
35. I will be grateful for the assistance of counsel as to the mode
of security, the time within which it should be paid or provided, the
consequences of a failure to do so and, generally, in the drawing up of the
order and with regard to all questions of costs.