Loosening up

The court has always applied a stringent test for a party applying for security for costs under the Civil Procedure Rules (CPR) 25.12. It may consider making an order for security for costs if it is wholly satisfied, having regard to all the circumstances, that it would be just and that one or more of the conditions set out in CPR 25.13(2) applies. These conditions include: '(g) the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him'.

A defendant will not obtain an order effortlessly from the court in relation to this condition. He must provide substantive evidence making reference to the actual steps taken by the claimant in relation to his assets. It is not enough for the defendant to show the potential steps taken by the claimant (Chandler v Brown [2001] All ER 302).

Moreover, in Compagnie Noga D'Importation Et D'Exportation SA v Australia & New Zealand Banking Group Ltd and others [2004] EWHC 2601 (Comm), the court would not entertain an application from the defendant as it knew nothing about the claimant's assets and, therefore, could not establish that the claimant had taken active steps in respect of its assets that would make the enforcement of a costs order complicated. The court was not able to conclude that the existence of assets and the steps taken by the defendant had been successfully established by the claimant.

Wider scope

With this in mind, it can be deduced that the court will plainly not make an order for security for costs unless it is satisfied that there is meaningful evidence of the claimant taking active steps in relation to his assets. However, a recent case, Dubai Islamic Bank PJSC v PSI Energy Holding Co BSC and Ors [2011] EWCA Civ 761, has somewhat widened the scope of this rule.

In this case, the claimant said it had been subject to a huge fraud committed by the second to fifth defendants. The claim included a demand against three personal guarantors for $440m, which included the fourth defendant, Mr Nil. The claimant obtained, on an ex parte application, a worldwide freezing order against all the defendants. On the return date, the judge continued the order and included a direction for service of the claim form upon Mr Nil by an alternative method.

Mr Nil, in due course, disclosed his assets pursuant to the order. The assets listed were somewhat modest and included a bank account and a share of a property that his mother lived in and which had a mortgage over it. The claimant asked for further particulars of Mr Nil's assets as he had listed very extravagant living and legal expenses (his living expenses being £6,000 per week). Mr Nil did not provide any substantiated evidence in relation to his living and legal expenses, merely saying they were met by family loans and third parties.

In the meantime, Mr Nil applied to set aside the direction for service by an alternative method. This was dismissed but he was given permission to appeal. At this point, the claimant applied for an order for security for costs of the appeal relying on three conditions set out in CPR 25.13(2), one of them being CPR 25.13(2)(g). Mr Nil argued that the court should not make such an order, relying on Chandler and Noga. Surprisingly, the court allowed the claimant's application and ordered security for costs of £50,000.

The Court of Appeal found that, if there is a reasonable inference based on all the evidence that a party does have undisclosed assets and fails to disclose them, this might lead to the inference that he had put them out of reach of its creditors. When a party provides evidence showing he has no real assets and yet is able to afford an expensive lifestyle, and to fund litigation through family and third parties, he must provide details of such loans and efforts he has made to obtain further monies from those parties. If details are not provided, the court can infer there are undisclosed assets and that these have been put out of the reach of creditors. The inference in this case was overwhelming. The court found Mr Nil had considerable assets organised in a way that would make it very difficult for the claimant to locate for the purpose of enforcing a costs order.

Contradiction

This case has been helpful as there are few cases in relation to the application of CPR 25.13(2)(g). However, it does seem to contradict the other two High Court cases. The claimant could not prove that Mr Nil had taken any meaningful steps in relation to his assets that would make it difficult for the claimant to enforce a costs order but the court still made the order for security for costs despite what is said in Chandler and Noga.

This judgment seems to indicate that the court is willing to take a more liberal approach to CPR 25.13 and make an order for security for costs in cases where a party leads an expensive lifestyle while suggesting that he has no actual assets and refuses to provide any details of such assets available to him.

The judgment illustrates that claimants will not always have to pinpoint specific assets that the defendant has put out of reach and effectively extends the situations in which CPR 25.13(2)(g) can be relied on to obtain an order for security for costs.