Security for costs – incorporation in a low-disclosure jurisdiction does not prevent an order

Yesterday’s Court of Appeal decision in Sarpd Oil International Ltd v Addax Energy SA [2016] EWCA Civ 120 is not strictly a decision on jurisdiction or conflicts of law.   It may well still be of significant interest to those involved in international litigation.  It will be welcomed by defendants who wish to secure security for costs against claimant companies incorporated in low disclosure jurisdictions.  The successful appellant was represented by two members of 20 Essex Street, David Lewis QC and Oliver Caplin.

One of the conditions which may justify an order for security for costs being made against a claimant is that “the claimant is a company or other body … and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so;” (CPR 25(2)(c)).

Defendants often wish to invoke this ground against claimant companies which have no discernible assets and are incorporated in jurisdictions which do not permit public access to filed accounts.  In such cases it is common for defendants ask such claimants to provide information about their assets.

This was the situation in which Addax found itself.  It had been sued by Sarpd, a company incorporated in the British Virgin Islands (BVI) and had asked Sarpd to provide information about its assets.  Sarpd had declined to provide any substantial information merely stating that “under the applicable BVI legislation Sarpd would be obliged to keep financial records sufficient to show and explain its transactions …”

The question for the courts was: if a claimant incorporated in a jurisdiction like the BVI refuses to provide any information about its assets, is there is sufficient basis for the court to order security for costs under CPR 25(2)(c)?

Overturning the Commercial Court’s decision ([2015] EWHC 2426 (Comm)), the Court of Appeal (Longmore LJ, Sales LJ and Baker J) held that there was:

“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.”

This is a decision which makes good practical and commercial sense and avoids defendants being put to the expense of extensive investigations into a point which could easily be resolved by a constructive response from the claimant.

The case also decides a range of other points on security for costs although none with a jurisdictional flavour.  If you would like to read more about it, please see the case note prepared by David Lewis QC and Oliver Caplin.