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Security for Costs Post-Judgment: Jurisdiction and Enforcement

Introduction

Security for costs is ordinarily sought against Claimants in the course of proceedings by way of an interim application where the defendant has reason to believe that the Claimant may be unable to satisfy a costs order that may be made against him. It may also be sought against a party analogous to a Claimant such a Defendant who makes a counter-claim or an Appellant to an appeal.

The Court has discretion to decide whether to make such an order if it considers it just to do so and such order will state the amount of the security, the date by which it has to be paid and the form it is to take – the most common being a payment into court. Further applications for security for costs can be made during the course of proceedings particularly if it seems that the costs will be higher than anticipated as the case progresses.

Does the Court have jurisdiction?

The question of whether the Court has jurisdiction to make an order for security post-trial has been quite controversial. Assuming the answer is affirmative, a related question which naturally follows is what sort of sanction does the Court have for enforcing such an order?

The High Court has cast some light on these issues in the recent case of Republic of Djibouti and others v Abdourahman Boreh and others [2016] EWHC 1035 (Comm), the judgement of which was handed down by Mr Justice Flaux earlier this year, on 2 March 2016. The case was one of civil fraud and related to allegations of dishonesty that were made against Mr Boreh, a well-known businessman, including taking bribes and secret payments in respect of port development projects he had been involved in. Mr Justice Flaux dismissed all claims in their entirety concluding that these allegations formed part of a politically motivated campaign against Mr Boreh, with the Djibouti Government and President being at the forefront. In addition, the judge could not ignore that the Claimant and its legal advisors deliberately misled the Court, when granting a freezing order over Mr Boreh’s assets in March 2015. It is important to note the conduct of the Claimant throughout the course of proceedings for the purpose of addressing the issue of jurisdiction and enforcement of post-judgement security.

The Defendant, Mr Boreh, had secured £9.3 million in security pre-trial. However, given the above circumstances surrounding the Claimant’s conduct, costs ended up being assessed on the indemnity basis with interest payable. There was also a contractual success fee that was payable to the Defendant’s solicitors only if the Defendant successfully defended all claims against him and therefore security had not been sought for this. As a result, there was a substantial shortfall between the amount secured and the actual costs, causing the Defendant to apply for further security to cover this shortfall but also the costs of the detailed assessment.

Unsurprisingly, the Claimant put forward the argument that the Court does not have jurisdiction to grant additional security for the purposes of covering the shortfall. The Claimant’s counsel attempted to rely on the White Book’s explanatory notes which stipulate that ‘the purpose of an order for security for costs is to protect a party in whose favour it is made against the risk of being unable to enforce any costs order which they may later obtain’ arguing that this can only be achieved when security is ordered pre-trial. In response, the Defendant’s counsel argued that an enforceable costs order had not yet been made at this point as the detailed assessment was still pending and as such there was no order to enforce in principle meaning that the Court did have jurisdiction. Another argument put forward by Mr Boreh’s counsel was that it would be almost impossible for the Defendant to enforce a costs order against the Claimant without security provided.

Exercise of Discretion

Mr Justice Flaux pointed out that the Court did have jurisdiction pursuant to CPR Rule 25.12 in such situations. He explained that the ultimate factor for the Court in exercising its discretion is the extent to which Defendants could show a change of circumstance which would mean that they could recover substantially more than originally anticipated.

Mr Boreh’s counsel referred to an earlier High Court decision in Excalibur Ventures v Gulf Keystone [2013] EWHC 4278 (Comm). This was also a case where costs were assessed on the indemnity basis with interest payable as a result of the Claimant’s conduct. In that case, Mr Justice Clarke as he then was, went even stipulating that there is no need to show that these changes in circumstance were unforeseeable when the initial application for security was made. Mr Justice Flaux followed Excalibur in this regard, as this was particularly relevant in relation to the success fee, which was foreseeable in the sense that it was agreed between the parties at an early stage.

Conclusion

These important High Court decisions have transformed the legal position in relation to security for costs. An additional feature of the Excalibur decision is that onerous duties were imposed on third party funders such that if the Claimant failed to provide the additional security, the Defendant could then seek through a non-party costs order against the funders. This point has been appealed with the judgement expected to be handed before the end of this year.

The issue of enforcement of a post-judgement security for costs order also needs to be resolved as the Court has to be able to impose some sort of sanction if the order is breached. A recommendation put forward in Djibouti was to exclude the Claimant from participating in the inquiry into damages or detailed assessment. In relation to appeals another option is that the Defendant may apply to obtain an order preventing the Claimant from proceeding with the permission to appeal application until all costs orders are complied with, as was done in Hansen v Great Future International Ltd [2003] EWCA Civ 1646.

It may well be that post-judgment security is only relevant when an indemnity costs order is made and there will be a significant shortfall. The Court of Appeal may cast some light on the position in the forthcoming judgment of the Excalibur appeal.

 

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ELS Legal is a legal firm based in the City of London. We are located in the historic and traditional street of Ely Place near Holborn. Established in 1290, Ely Place is today the home of many modern and forward looking legal firms.

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