Dumrul (Ali Burak) v Standard Chartered Bank
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen |
| Judgment Date | 20 October 2010 |
| Neutral Citation | [2010] EWHC 2625 (Comm) |
| Date | 20 October 2010 |
| Docket Number | Case No: 2009-FOLIO 1204 |
| Court | Queen's Bench Division (Commercial Court) |
[2010] EWHC 2625 (Comm)
Before : Mr Justice Hamblen
Case No: 2009-FOLIO 1204
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Alain Choo Choy QC and Mr Sebastian Isaac (instructed by Gibson & Co.) for the Claimant
Mr Neil Kitchener QC (instructed by Clifford Chance) for the Defendant
Hearing dates: 15 th September 2010
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
THE HONOURABLE MR JUSTICE HAMBLEN
Mr Justice Hamblen :
INTRODUCTION
The Defendant bank (“the Bank”) applies for security for costs under CPR 25.12 and 25.13(2)(a) on the basis that the Claimant, Mr Dumrul, is resident in Turkey.
Mr Dumrul was a customer on the Bank's Collateralised Trading Programme Desk, purchasing foreign exchange options and trading in currencies (Turkish Lira and US Dollar). Following a period of marked volatility in the Lira/Dollar exchange rate, the Bank made a margin call on Mr Dumrul in early October 2008, which he failed to pay. The Bank closed out Mr Dumrul's positions on or around 8 October 2008 and demanded payment of US$ 20,021,619. Mr Dumrul refused to pay this (or any) amount, alleging that the Bank was in breach of contract and/or duty, amongst other things. Mr Dumrul started proceedings in September 2009 claiming approximately of US$ 53 million from the Bank, based on the allegation that the Bank's credit risk management system (the GIFT system) failed properly to value Mr Dumrul's foreign exchange options amongst other things. The Bank has counterclaimed US$ 20,021,619, being the amount allegedly owing to it following the close-out.
THE RULES
The provisions of the CPR relevant to this application are as follows:
(1) CPR r. 25.12(1): “A defendant to any claim may apply under this section of this Part for security of his costs of the proceedings.”
(2) CPR r. 25.13: “(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…(2)(a) the claimant is (i) resident out of the jurisdiction; but (ii) not resident in a Brussels Contracting State, a State bound by the Lugano Convention or a Regulation State, as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982.”
THE ISSUES
There are two main issues raised by the Bank's application:
(1) Whether it is an appropriate exercise of the court's discretion to make an order for security for costs in circumstances where the claim and counterclaim and the defences thereto raise the same issues; and
(2) Whether the Bank faces such obstacles or costs of enforcing any costs order in Turkey as to justify an order for security.
Issue (1) Whether it is an appropriate exercise of the court's discretion to make an order for security for costs in circumstances where the claim and counterclaim and the defences thereto raise the same issues.
The law in relation to co-extensive claims
As a general rule, the Court will not exercise its discretion under CPR Part 25 to make an order for security of the costs of a claim if the same issues arise on the claim and counterclaim and the costs incurred in defending that claim would also be incurred in prosecuting the counterclaim—see BJ Crabtree v GPT Communication Systems (1990) 59 BLR 43 (“the Crabtree principle”).
In the Crabtree case, the claimant was a building contractor which claimed £78,000 for additional works which it said it was instructed to undertake by the defendant. The defendant denied the claim on the basis that it had not authorised the variation to the programme of works, and also (additionally) counterclaimed damages of £105,000 for the cost of rectifying defective work and completing uncompleted work. In that case, Bingham LJ said (at p6–7):
“It is, however, necessary as I think, to consider what the effect of an order for security in this case would be if security were not given. It would have the effect, as the defendants acknowledge, of preventing the plaintiffs pursuing their claim. It would, however, leave the defendants free to pursue their counterclaim. The plaintiffs could then defend themselves against the counterclaim although their own claim was stayed. It seems quite clear and, indeed, was not I think in controversy—that in the course of defending the counterclaim all the same matters as would be canvassed if the plaintiffs were to pursue their claim, but on that basis they would defend the claim and advance their own in a somewhat hobbled manner, and would be conducting the litigation (to change the metaphor) with one hand tied behind their back. I have to say that that does not appeal to me on the facts of this case as a just or attractive way to oblige a party to conduct its litigation.
…
It may in some cases be fair and just to make such an order even though the defendant is himself counterclaiming, but I am persuaded that it would be wrong to do so here because the costs that these defendants are incurring to defend themselves may equally, and perhaps preferably, be regarded as costs necessary to prosecute their counterclaim.”
As stated by Park J in Anglo Petroleum v TFB [2003] EWHC 1177, where the issues before the court would be substantially unaffected by the trial of the counterclaim without the respondent's claim, an order for security will generally be inappropriate. In that case, the judge said, at §32–33, that where:
“… A [the respondent] could, and presumably would, defend B's [the applicant's] claim by advancing essentially the same arguments as those which he, A, wanted to advance in his own claim. It would in my view be largely pointless for the court to have ordered A to provide security for the costs of his own claim.
In general, the courts recognise that, where there are cross-proceedings, the position is as I have described, and the courts do not order a person in the position of A to provide security for the costs of the claim he is making himself.”
Not every case in which there is a claim and counterclaim falls within the Crabtree principle. In particular:
(1) Where the claim raises substantial factual inquiries which are not the subject of the counterclaim, an order for security may be appropriate notwithstanding the fact that the claim provides a defence to the counterclaim: see Shaw-Lloyd v ASM Shipping [2006] EWHC 1958; Newman v Wenden [2007] EWHC 336. In those circumstances, an order for security will normally be limited to the costs of addressing additional issues raised only by the claim.
(2) In cases where the claim and counterclaim raise additional issues, it may also be relevant to consider whether the quantum of the claim in respect of which security is sought is substantially greater than the applicant's claim: see Newman v Wenden; Hutchison Telephone v Ultimate Response [1993] BCLC 307.
Discussion
The first issue which arises is whether Mr Dumrul's claim raises substantial additional factual inquiries (and therefore costs) not arising on the Bank's claim. I am satisfied that it does not, and the Bank did not contend otherwise.
Analysis of the essential issues between the parties shows that they arise on both claim and counterclaim. In particular:
(1) The pleaded contents of the Bank's counterclaim incorporate all the facts and matters stated in its defence [Defence and Counterclaim (“DCC”) §120].
(2) It is the Bank's pleaded case that either all or at least some of the losses which Mr Dumrul claims under his own claim, “are in fact monies that he owes to the Bank and has not paid” [DCC §109(a)].
(3) On the Bank's counterclaim it claims that it was entitled to close out Mr Dumrul's positions on 8 October 2008, and that it was so entitled because of Mr Dumrul's failure to meet margin calls made between 6 and 8 October 2008 [DCC §121]. As regards that claim:
(a) This entails the assertion that the margin calls made by the Bank were proper margin calls within the terms of the facility, and that they were calculated in accordance with the terms of the facility.
(b) The Bank has confirmed that the calculations by which it determined Mr Dumrul's Required Margin (the basis on which made its margin calls) were performed by the GIFT system [Bank's First Further Information (“Bank FI 1”) §13].
(c) This assertion necessarily engages the central issues of the purpose, and the fitness for purpose, of the GIFT system and the Bank's calculation of its account metrics.
(d) Mr Dumrul's defence of this claim denies that the Bank was entitled to rely on the margining or close-out provisions of the facility in circumstances where the exposures on his account were caused by the Bank's own breaches of duty (contractual, tortious or regulatory) as detailed in his claim [Reply and Defence to Counterclaim (“RDCC”) §57.1].
(e) Mr Dumrul's defence also relies upon the fact that the allegedly wrongful close-out (which is the heart of the Bank's claim) caused him losses following the Close Out Date [RDCC §57.3].
(4) The Bank's claim on close-out is from the balance on Mr Dumrul's positions as they were closed out by the Bank, in the sum of US$20,021,619. As regards that claim:
(a) The claim is premised upon the Bank's margin calls and close-out of Mr Dumrul's facility being valid: see e.g. RDCC §58.1.
(b) It entails the assertion that the sum was properly accrued and calculated by the Bank in the close-out of his positions, so that it is due and owing from Mr Dumrul. It is, therefore, sought to be answered in part by Mr Dumrul's claims regarding the wrongful manner in which the Bank conducted the...
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