Show me the money: burdens of proof, respondent’s evidence, and other relevant factors in security for costs applications
6th April 2023
The High Court in Santina Ltd v Rare Art recently provided useful guidance on security for costs applications made under CPR 25.13(2)(c) in relation to the burden of proof where a claimant refuses to adduce sufficient evidence of funds, as well as the relevance of expedition to the date of the application, and the use of budgeted costs when determining the quantum of security.
In February 2013, the claimant purchased two French silver-guilt soup tureens from the defendant for £181,500. However, they subsequently claimed that the claimant had misrepresented the tureens’ provenance and value and, as a result sought recission of the contract.
The defendant applied for security for their costs under CPR 25.12. In particular, the defendant relied on the court’s discretionary power under CPR 25.13(2)(c) to award security for costs against a company or other incorporated body (whether English or foreign) where there is reason to believe that it will be unable to pay the applicant’s costs if ordered to do so.
The court considered the application in three stages: first, had the relevant gateway been met; second, should the court exercise its discretion; and third, quantum.
The gateway: impecuniosity
The claimant is an overseas company, as a result there were no filed accounts available before the court to assist its decision. Moreover, the claimant had been abject in its failure to provide any evidence in relation to its assets or liabilities. Instead, the claimant relied on four factors to suggest that it would be able to pay any adverse costs award: the claimant was still in possession of the tureens, themselves an asset; there were no historic costs defaults by the claimant; the claimant was able to pay its own legal fees satisfactorily; and, an offer of £65,000 had been made to the defendant by way of security already.
Regarding the purported value of the tureens, the Deputy Master Glover placed particular emphasis on the judgment of the Court of Appeal in SARPD Oil International Ltd v Addax Energy SA (paragraphs 17 and 19), in which Sales LJ considered the logical consequent of a company’s failure to adduce evidence of solvency as follows:
“If a company is given every opportunity to show that it can pay a defendant’s costs and deliberately refuses to do so, there is in our view every reason to believe that, if and when it is required to pay a defendant’s costs, it will be unable to do so.
…CPR Part 1.3 does not require a respondent voluntarily to fill gaps in an applicant’s evidence in order to assist an applicant to discharge a burden of proof. But even if deliberate reticence on the part of a respondent is not a breach of CPR Point 1.3, a court can and should take account of deliberate reticence as part of the overall picture. Any evaluation has to be made on the totality of the evidence before the court. Part of that totality is the absence of relevant evidence from the only party who is able to provide it. If, therefore, there were to be a practice of the Commercial Court (as to which we cannot express a view from our own experience) that security for costs will often be granted against a foreign company who is not obliged to publish accounts, has no discernible assets and declines to reveal anything about its financial position, our view is that the practice is a sound one and, as Lewison LJ noted, it is an important point of practice which should either be upheld or rejected at appellate level. We would uphold it.”
In a concrete example of the hypothetical practice of the Commercial Court discussed by Sales LJ, Deputy Master Glover found that there had been a lack of provision of the normal information in this case – of financial accounts, bank balances, and so on – and as a result concluded that the burden in proving the value of the tureens lay with the claimant.
However, other than the guide price given at the original auction of the tureens in 2013, the claimant was unable to adduce any evidence as to their present value. There was not even clear evidence as to the scrap value of the silver itself. The court held that the guide price, and indeed the actual price paid nine years previously, did not assist it in determining the objective value of the items. As a result, the court found the claimant had failed to discharge the burden of demonstrating the value of the tureens (at paragraphs 31 to 35).
The court perfunctorily dismissed the claimant’s remaining three defences – lack of previous default, payment of its own fees, and offer to settle – as providing little indication as to whether that company would ultimately be able to meet an adverse costs order following a trial (at paragraphs 36 to 39).
The court’s discretion
The claimant’s principal argument against the court exercising its discretion was that the defendant had delayed in issuing their application.
The underlying claim had been issued in July 2021, but the security for costs application was not made until May 2022, shortly after the claimant had applied to expedite the claim. The matter was listed for a three-day trial on the first open date after 11 November 2022.
In fact, the defendant had originally indicated their intention to make a Security application as early as August 2021. Despite some prevarication by the defendant, the application was eventually issued in advance of the case and costs management conference (CCMC) in the case. This, the Court found, was in line with the best practice guidance in the White Book (at paragraphs 50 and 51), although the application was not heard at the CCMC itself.
The fact that the case was expedited caused the majority of budgeted costs to be incurred prior to the hearing of the defendants application and the hearing itself to be close to the date of trial. However, Deputy Master Glover held that this should not weigh as a factor against the court exercising its discretion (at paragraph 54). As the claimant was the author of the chronology of the case, the court held that it would not be fair to hold the fact and consequences of the expedition against the defendant’s application (at paragraph 59).
Of particular note, Deputy Master Glover concluded at paragraph 62 that “delay alone is not enough. It has to be accompanied by some injustice or unfairness, for example a prejudice or detriment being caused to the responding party, in this case the claimant.” On the facts, the court found that there was no such evidence of injustice, and consequently granted the defendant’s application.
The court noted that the defendant’s Precedent H costs had already been considered and budgeted at the CCMC. As a result, the court had ‘real confidence’ in the defendant’s approved budgeted costs as to the potential level of costs the defendant may recover if successful.
This approach was analogous to that employed by the court when ordering interim payments on account of costs following trial under CPR 44.2(8). As a result, the court was satisfied that it could rely on these budgeted costs when assessing the amount of security to be ordered (at paragraph 73 and 74). On the facts of the case, that court awarded 85% of the total budget (less the ADR phase) (at paragraph 75).
This case is clear warning to recalcitrant claimants that they cannot simply evade a security for costs order by obstinate refusal to adduce the necessary evidence, and that in certain circumstances the claimant will bear the burden of proving their own affluence.
It also serves to demonstrate an important point that the value of chattels like antiques cannot simply be assumed based on historic information; the value of such antiques may change dramatically over time. The court requires contemporaneous evidence.
Finally, practitioners should note the ability to rely on budgeted costs when assessing the relevant sum to be awarded on a security for costs application.
The decision of Deputy Master Glover was upheld and endorsed for its “robust” approach on appeal by Marcus Smith J ( EWHC 807 (Ch).
This article first appeared in the Dispute Resolution column in Practical Law in March 2023.