Sarpd Oil International Ltd v Addax Energy SA and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Sales |
| Judgment Date | 03 March 2016 |
| Neutral Citation | [2016] EWCA Civ 120 |
| Docket Number | Case No: A3/2015/2927 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 March 2016 |
[2016] EWCA Civ 120
The Right Honourable Lord Justice Longmore
The Right Honourable Lord Justice Sales
and
The Honourable Mr Justice Baker
Case No: A3/2015/2927
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE ANDREW SMITH
20141019
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr David Lewis QC & Mr Oliver Caplin (instructed by Hill Dickinson LLP) for the Appellant
Mr Michael Nolan QC (instructed by Holman Fenwick Willan Switzerland LLP) for the Respondents
Hearing dates: 11 th February 2016
Lord Justice Sales delivering the judgment of the court:
Introduction
This is an appeal about security for costs in a comparatively ordinary international purchase contract case proceeding in the Commercial Court. The subject of the purchase and sale was a quantity of gas oil and there is a short string of 3 parties.
Rule 25 of the Civil Procedure Rules deals with, among other things, security for costs on an application by a defendant to civil proceedings. CPR Part 25.12 provides that "a defendant may apply for security for his costs" of proceedings and CPR Part 25.13 then sets out conditions to be satisfied on such applications:-
"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
i) One or more of the conditions in paragraph (2) apples, or
ii) An enactment permits the court to require security for costs.
2) The conditions are:-
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, a State bound by the 2005 Hague Convention 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;
d) the claimant has changed his address since the claim was commenced with a view to evading the consequences of the litigation;
e) the claimant failed to give his address in the claim form, or gave an incorrect address in that form;
f) the claimant is acting as a nominal claimant, other than as a representative claimant under Part 19, and there is reason to believe that he will be unable to pay the defendant's costs if ordered to do so;
g) the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him."
Rule 25.13.2(c) is the rule at the centre of the dispute.
The facts
The claimant ("Sarpd"), a company incorporated in the British Virgin Islands ("BVI"), bought a quantity of gas oil from the defendant ("Addax"), a company incorporated in Switzerland. Sarpd alleges that the gas oil did not meet the contractual specification and claims damages or an indemnity from Addax. There is a dispute about the exact terms of the contract but Addax denies that the oil did not meet the terms of the specification and says that, in any event, it was agreed that a certificate of quality in respect of samples taken from the mother (rather than the daughter ship) would be final and conclusive of the quality shipped. Addax also says that, if the gas oil did not meet the contractual specification, that is the fault of Glencore Energy UK Ltd ("Glencore") from whom it bought the oil on essentially back to back terms; it has, therefore, brought Part 20 proceedings against Glencore for damages or an indemnity in respect of Sarpd's claim.
The applications and the judgment
By an application dated 21 st May 2015 Addax sought an order that Sarpd give security for its costs of the proceedings by paying into court £896,161.27 because Sarpd was a company and "there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so": see CPR 25.13(2)(c). The application was supported by a witness statement of Mr Ralph Hicks of Hill Dickinson LLP, Addax's solicitors, who explained the basis on which security is sought. The sum should, he says, cover:-
1) costs incurred by Addax in defending the claim.
2) costs incurred by Addax in "passing the claim on to [Glencore], which is a natural and inevitable result of [Sarpd] bringing the claim".
3) costs incurred by Glencore in defending the part 20 claim. It is said that, insofar as Glencore obtains an order that its costs be paid by Addax, Addax should "be entitled to add the liability for [Glencore's] costs to its costs which are recoverable from [Sarpd]", and that the order for security should cover them.
Addax relies only on condition (c) in CPR 25.13(2). The evidence about whether the condition is satisfied is limited, because Sarpd has said nothing about its financial position and Addax has access to little information: it does not know whether and, if so, where Sarpd has any assets against which Addax could enforce an order, and no information about Sarpd's finances is publicly available. Addax's only information is in a letter of 15 th May 2015 from its BVI solicitors, Walkers Global, who say that under the applicable BVI legislation Sarpd would be obliged to keep financial records sufficient to show and explain its transactions and for its financial position at any time to be determined with reasonable accuracy. But the records do not have to be kept in the BVI or made publicly available. The publicly available records at the BVI companies register do not include any accounts or other financial records for Sarpd, and they only show that it was incorporated and registered in 2008, that at some stage it had to be "restored" to the register, that its "status description" is "active" (a status that is not explained in the evidence) and that from time to time it has had a "certificate of good standing" (the significance of which is not explained either).
Mr David Lewis QC for Addax submitted to the judge that, despite a number of requests from Hill Dickinson, Sarpd had failed to provide evidence of good financial standing or to put up security. Mr Michael Nolan QC for Sarpd pointed out that, when requesting security, Hill Dickinson did not exactly ask for information about Sarpd's financial standing, but Andrew Smith J held that Sarpd had been reticent about it, and that reticence was deliberate.
The judge held on that state of the evidence that there was no reason to believe that Sarpd would be unable to pay Addax's costs if ordered to do so. He said that the obvious explanation for Sarpd's reticence about its financial position was that it would benefit in settlement negotiations from Addax's doubt about whether it would recover its costs even if it defeated the claim. But that was no reason to suppose that they could not pay the costs if it lost. He added that he suspected it had become the practice of the Commercial Court to order security for costs in circumstances where a company had not filed publicly available accounts, had no discernible assets and declined to reveal its financial position; but, if such practice had developed, it was not justified and he would not follow it. Lewison LJ gave Addax permission to appeal since the appeal raised what he considered to be an important point of practice and had a real prospect of success.
The first question for us is whether the judge was justified in not following what he suspected was the practice of the Commercial Court.
There are then further questions which arise if security for costs is to be ordered, namely whether the sum for which security is to be given should include, on the basis that Sarpd's claim fails:-
1) Addax's own costs of suing Glencore; and
2) the costs which Addax will have to pay Glencore in respect of Glencore's own costs of defeating the Part 20 proceedings.
There is then a further point about the relevance, to the amount of security to be ordered, of the inclusion of already incurred costs in the costs budgets which had been approved by Blair J before the security for costs application.
Although the judge did not need to determine these questions he said that, if he had ordered security, he would have included Addax's costs of suing Glencore but excluded the costs for which it would be liable to Glencore. He would have also adhered to the amounts set out in the costs budget for Addax.
The law
The first question is not free from authority. In Re Unisoft Group Ltd (No. 2) [1993] BCLC 532 Sir Donald Nicholls V-C was considering an application against an English company in respect of which section 726(1) of the Companies Act 1985 empowered the court to order security for costs:-
"if it appears by credible testimony that there is reason to believe that the company will be unable to pay the defendant's costs if successful in his defence."
The question argued was whether the court had to be satisfied on a balance of probabilities that the claimant, if it lost, would be unable to pay the defendant's costs. Sir Donald pointed out that the relevant phrase was "will be unable" not "may be unable". He nevertheless held that the court merely has to have "reason to believe" that the company will be unable to pay so that there could be no basis for saying that the court had to be satisfied on a balance of probabilities that the claimant would not be able to pay.
In Jirehouse Capital v Beller [2009] 1 WLR 751 it was argued that Sir...
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