Explosive Learning Solutions Ltd v Landmarc Support Services Ltd
| Jurisdiction | England & Wales |
| Judge | Peter MacDonald Eggers |
| Judgment Date | 26 May 2023 |
| Neutral Citation | [2023] EWHC 1263 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2021-000595 |
[2023] EWHC 1263 (Comm)
Peter MacDonald Eggers KC
(sitting as a Deputy Judge of the High Court)
Case No: CL-2021-000595
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lloyd Maynard (instructed by RWK Goodman LLP) for the Claimant
David Lascelles and Blathnaid Breslin (instructed by Weightmans LLP) for the Defendant
Hearing date: 3rd May 2023
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30 on Friday 26 th May 2023.
Peter MacDonald Eggers KC:
Introduction
The Defendant applies for security for costs in these proceedings instituted by the Claimant in respect of its claims under a contract between them. The Defendant counterclaims under the same contract. There is a very substantial overlap in respect of the facts underlying each of the claim and counterclaim.
The Defendant's application for security for costs is made pursuant to CPR rule 25.12 and CPR rules 25.13(1)(a) and (2)(c).
Facts
The Claimant provides independent learning and development services to UK and international businesses, with expertise in delivering services to military forces. The Claimant has been trading for 18 years and is wholly owned by Mr James Convery and Mrs Catherine Convery and has 27 employees. The Claimant has four principal areas of trade: provision of security clearances for companies, leadership, educational and specialist military training courses, consultancy services on matters of specialist military expertise, and end point assessment of certain OfQal approved standards in apprenticeships.
The Defendant manages the facilities for the training estate of the UK military.
The United Arab Emirates armed forces (“GHQ”) wished to implement a Military Qualifications Framework (“MQF”) and embed the UAE's National Qualifications Framework into the UAE Armed Forces (together the “Project”). This would allow the UAE's military personnel to obtain civilian qualifications during their regular military careers. GHQ contracted the task of establishing the Project to Rabdan Academy based in Abu Dhabi.
On 10th June 2018, Rabdan Academy and Landmarc Gulf (a company in the same group as the Defendant) entered into a contract for the establishment of the MQF Project (the “Prime Contract”).
On the same day, the Defendant entered into a sub-contract (“the Sub-Contract”) with the Claimant (as the sub-consultant). The Sub-Contract was a three-year contract. It provided for quarterly payments to be made to the Claimant for “ Services” including “ Deliverables” set out in annexures to the Sub-Contract, which were related to delivery of the Project. The Claimant received an advance payment at the start of the Sub-Contract and, subject to the terms of the Sub-Contract, was thereafter to receive quarterly payments upon submission of invoices.
During the Sub-Contract, the Claimant submitted invoices for its work done in September 2018, and January, April, June, September, and December 2019. The Defendant paid the September 2018 invoice in full but has not paid the other invoices in full or at all.
The Defendant alleges that, during the Sub-Contract, the Rabdan Academy made several complaints to Landmarc Gulf about the quality of the Deliverables provided by the Claimant to the Defendant under the Sub-Contract, and that the Academy refused to pay and threatened the imposition of penalties in respect of the same. The Rabdan Academy ultimately instructed the removal of the Claimant as sub-consultant.
On 17th December 2019, the Defendant provided one month's Notice of Termination of the Sub-Contract in accordance with its express right to terminate “ without cause at any time”.
In this action, commenced in October 2021, the Claimant claims approximately £3.5 million of alleged unpaid fees under the Sub-Contract. The Claimant alleges that it provided the Services under the Sub-Contract and is entitled to be paid in full for the unpaid invoices. The Claimant also contends that it is entitled to a retention of 10% of certain fees upon successful completion of the Project, as it was prevented from completing the Project by the Defendant's termination.
The Defendant contends that the sums invoiced are not payable because (i) the Claimant was not entitled to payment unless it duly provided the relevant services, which it did not; (ii) the Claimant was required when submitting invoices to provide signed certificates of completion to confirm that the services had been provided, which it did not; (iii) specific provisions of the Sub-Contract entitled the Defendant to withhold payment and deduct from sums that might otherwise be due to the Claimant; (iv) the Defendant exercised its “Step-In” rights under the Sub-Contract and the Claimant was not entitled to any fees in respect of the Services removed from the scope of the Sub-Contract.
The Defendant also brings a counterclaim for £2 million, claiming (i) an indemnity against losses suffered by the Defendant and Landmarc Gulf as a result of the Claimant's deficient services in breach of contract and the Defendant's exercise of its “Step-In” rights under the Sub-Contract, (ii) 10% of the Fees otherwise payable, due to the Claimant's failure to comply with the timeframes specified in the Sub-Contract, and/or (iii) damages for breach of the Sub-Contract.
The Court's jurisdiction to make an order for security for costs
The Defendant's application for security for costs is made pursuant to CPR rule 25.12 and CPR rule 25.13(1)(a) and (2)(c). CPR rule 25.13 provides that:
“ (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 …
(2) The conditions are –
(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 …”
The Court's jurisdiction on this ground depends on the Defendant establishing that there is reason to believe that the Claimant (a company) will be unable to pay the Defendant's costs if ordered to do so.
The parties were not in dispute, at least not substantially, as to the principles underlying this ground of jurisdiction to order security for costs.
First, the basis of the jurisdiction being that there is a “ reason to believe” that the Claimant will be unable to comply with a costs order, if made, signifies that the Defendant does not have to prove that there is a likelihood or probability that the Claimant will be unable to pay ( Jirehouse Capital v Beller [2008] EWCA Civ 908; [2009] 1 WLR 751, para. 26–35). That said, the Defendant must establish that there is reason to believe that the Claimant will not be able to pay the ordered costs. Furthermore, there must be justification for the reason for that belief and evidence for that justification. It is not sufficient if there is no more than a doubt that the Claimant is able to pay or if it is established that the Claimant might be unable to pay ( Phaestos Ltd v Ho [2012] EWHC 662 (TCC), para. 71; Abbotswood Shipping Corporation v Air Pacific Limited [2019] EWHC 1641 (Comm), para. 17).
Second, the burden of proof rests on the Defendant applicant for security for costs. The Court's inquiry is not to be addressed as to the Claimant's current inability to pay a costs order (unless the costs order is imminent), but an order requiring costs to be made at some future time, often after the trial of the action ( Guest Supplies Intl Limited v South Place Hotel Limited [2020] EWHC 3307 (QB), para. 65). If, however, the Defendant establishes legitimate concerns about the Claimant's financial position, and if the Claimant provides no evidence to override those concerns, the Court may be justified in concluding that the Claimant will be unable to pay the costs order which might be made. The Court therefore will take into account the totality of the evidence, including the absence of relevant evidence from the Claimant (considering that the Claimant is in most cases in the best position to provide such evidence) and the lack of any adequate explanation for any discrepancies between accounting documents ( Abbotswood Shipping Corporation v Air Pacific Limited [2019] EWHC 1641 (Comm), para. 17; Guest Supplies Intl Limited v South Place Hotel Limited [2020] EWHC 3307 (QB), para. 95). However, the Court will not ordinarily assess the merits of the Claimant's claim in deciding whether to grant security for costs ( Keary Developments Ltd v Tarmac Constructions Ltd [1995] 3 All ER 534, 540; Commercial Court Guide at Appendix 10, para. 4).
Third, if it is established that there is reason to believe that the Claimant will be unable to pay the Defendant's costs, if ordered to do so, the Court may make an order for security for costs only if it is also satisfied that it is just to make an order for security for costs ( CPR rule 25.13(1)(a)). However, it has been said that once it is established that there is reason to believe that the Claimant will not be able to comply with a future costs order, it will ordinarily be just to grant security for costs ( World Challenge Expeditions Limited v Zurich Insurance Plc [2022] EWHC 1365 (Comm), para. 10). This is because the jurisdiction is founded on inability to pay and so such an inability must have been envisaged as entitling a defendant in many cases to an order...
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