Brimko Holdings Ltd v Eastman Kodak Company

JurisdictionEngland & Wales
JudgeMR JUSTICE PARK
Judgment Date27 May 2004
Neutral Citation[2004] EWHC 1343 (Ch)
CourtChancery Division
Docket NumberIHC149/04
Date27 May 2004

[2004] EWHC 1343 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Before:

Mr Justice Park

IHC149/04

Brimko Holdings Ltd
(Claimant)
and
Eastman Kodak Company
(Defendant)

MR P MARSHALL QC (instructed by Morgan Lewis Bockius, London EC2) appeared on behalf of the CLAIMANT

MISS B DOHMANN QC AND MR R ANDERSON (instructed by DLA, Birmingham) appeared on behalf of the DEFENDANT

MR JUSTICE PARK

Overview

1

This is an application for security for costs. An element of security has been offered on behalf of the claimant and I will make an order providing for it. However, beyond what has been offered I decline to order any security except for a trivial sum of £15,000, which I explain later.

2

Security at the level applied for by the defendant would stifle the claim. In the course of the hearing Miss Dohmann QC on behalf of the defendant, the applicant for security, virtually accepted that that would be so, but she nevertheless invited me to order that security in a lower amount should be provided. For reasons which I will explain, I am not going to do that except to the extent of £15,000. Thus I will limit my order to the security which has been offered, plus £15,000.

The parties and the nature of the case

3

The claimant, BrimKo Holdings Ltd, is a Guernsey company indirectly owned by a Jersey settlement established by Mr Joe Brim. Mr Brim is the principal beneficiary under the settlement. He lives in England. The defendant is the well known United States corporation, the Eastman Kodak company ("Kodak"). The underlying dispute arises from the termination of a joint venture which had been started between Mr Brim and Kodak. Mr Brim's participation was to be through the claimant company, BrimKo Holdings Ltd ("BKH"). The purpose of the joint venture was to establish a franchising business offering high-quality business imaging services and products in Shanghai, China. It was to be undertaken by a joint venture company called BrimKo Franchising Ltd ("BKF"). BKF was established, and it, like BKH, was a Guernsey company. It was owned in 50/50 proportions by BKH and Kodak. BKH's shareholding represented the Brim interest.

4

There was a joint venture deed dated 18 April 2000. Clause 3.3 of the deed contained provisions under which, in certain circumstances, either party could serve a notice terminating the joint venture and requiring BKF to be wound up. In April 2001 Kodak served a notice, so the joint venture never got off the ground.

5

In this case BKH, the claimant, contends that Kodak was not entitled to serve the notice. It claims damages, partly for money already expended by it, but, more significantly, for what it says would have been the value of its 50 per cent shareholding in BKF if Kodak had not unilaterally terminated the joint venture. In the particulars of claim it estimates its loss as US$52 million. Kodak strenuously denies the claim. It says that it was fully entitled to serve the notice and it says that in any event the loss which BKH alleges is hugely exaggerated. It is neither necessary nor appropriate for me at this stage to express any views as to the strength and weakness of the respective contentions. All that I say is that each party firmly advances its own case.

6

The trial is listed to start this November, with a time estimate of 25 to 30 days. It will undoubtedly be a costly trial.

The application for security for costs

7

In those circumstances the defendant, Kodak, has applied for security for costs. The amount of security which it seeks by its application notice is £2.5 million. That is a very large sum, even for a case of this magnitude. It was supported by a schedule giving particulars of costs already incurred and estimates of further costs yet to be incurred. Mr Marshall QC, counsel for BKH, was critical of the level at which Kodak was incurring costs and intended to continue to incur them. Miss Dohmann defended the schedule of costs, pointing out the international nature of the case, the number of witnesses from whom statements were required, the elaborate nature of the expert evidence which would be required, and other similar matters. The estimated total of Kodak's costs still seems large to me, but I do not take the view that the estimate has been inflated for the purposes of this application.

8

The statute law relating to security for costs is found in the Civil Procedure Rules, rule 25.12 and 25.13. It is alternatively found in the Companies Act 1985 section 726. The Civil Procedure Rules rule 25.13(1) provides:

"(1) The court may make an order for security for costs under rule 25.12 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."

One of the conditions in rule 25.13(2) is condition (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".

Section 726(1) of the Companies Act is to the same effect and I need not quote the section. In this judgment I will focus on the Civil Procedure Rules. The content of the judgment would be the same if I had focused instead on section 726.

9

Reverting to the Civil Procedure Rules, the condition in rule 25.13(2)(c) is clearly satisfied. The claimant, BKH, is a company and there is reason to believe that it will be unable to pay Kodak's costs if ordered to do so. Indeed, it is conceded that it will be unable to pay Kodak's costs, at least if it (BKH) is considered by itself. BKH was a special purpose company established to hold the 50 per cent shareholding in the joint venture company BKF. When the joint venture did not proceed, the 50 per cent shareholding was worthless and therefore BKH also became worthless. Accordingly the case depends on rule 25.13(1)(a): is the court satisfied, having regard to all the circumstances of the case, that it is just to make an order for security for costs? The principles which should guide the court's discretion are well established by authority. The cases have been referred to and discussed in various reported judgments, several of which have been considered in paragraph 25.13.13 of the current edition of the White Book. I will not review them again in this judgment. There is no effective dispute between the parties about the principles which fall to be applied.

10

It is sufficient for me to say that, so far as the present case is concerned, a particularly important principle is that an order for security for costs should not ordinarily be made if it would probably have the effect of "stifling a genuine claim". In Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534 at 550, Peter Gibson LJ put it in this way:

"The court will properly be concerned not to allow the power to order security to be used as an instrument of oppression such as by stifling a genuine claim by an indigent company against a more prosperous company …. ."

11

That basic proposition needs to be considered together with two other propositions. First, the burden of establishing that a claim would be stifled by an order for security rests on the claimant. He or it must put evidence before the court of his or its means and must satisfy the court, not to a standard of certainty but at least to a standard of probability, that the claim would be stifled if security was ordered. Second, the court should not restrict its evaluation of the ability of a claimant to provide security to the means of the claimant itself. If the claimant cannot provide the security from its own resources, the court will be likely to consider whether it can reasonably be expected to provide it from third parties such as, in the case of a corporate claimant, shareholders or associated companies or, in the case of an individual claimant, friends and relatives. If the case moves to the stage of considering whether security should be regarded as being available from third parties, the burden still rests on the claimant. He or it has to show that, realistically, there do not exist third parties who can reasonably be expected to put up security for the defendant's costs.

12

At the same time the court should not press too far the proposition that the burden rests on the claimant. It should be recalled that when the claimant has to establish that third parties do not exist from whom security can reasonably expected and obtained, that is to place on the claimant the burden of proving a negative. That is always difficult to do, and the court should, in my judgment, evaluate the evidence with a degree of sympathy for the difficulty which a claimant faces. I would venture, if I may, to draw attention to a paragraph in a judgment which I wrote sitting in the Court of Appeal in Anglo-Eastern Trust Ltd v Kermanshahchi [2002] EWCA Civ 198. The relevant paragraph is paragraph 55. I will not prolong this judgment by reading it out, but I draw attention to what I have said.

The present case: analysis and discussions

13

In this case BKH says that if it was ordered to provide security at the sort of level for which Kodak applies, the claim would certainly be stifled. It adds that the security which it has offered, or which has been offered on its behalf (which I will describe later), is the most that can realistically and reasonably be provided. It submits that, except to the extent of that offer, Kodak's application should be dismissed.

14

There are three matters which are not controversial and which I can mention now.

(1) In the Keary Developments case (supra) Peter Gibson LJ...

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