Sarpd Oil International Ltd v Addax Energy S.A. & Anor, Court of Appeal - Commercial Court, August 14, 2015, [2015] EWHC 2426 (Comm)

Resolution Date:August 14, 2015
Issuing Organization:Commercial Court
Actores:Sarpd Oil International Ltd v Addax Energy S.A. & Anor

Case No: 2014-1019

Neutral Citation Number: [2015] EWHC 2426 (Comm)




Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 14/08/2015



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Michael Nolan QC

(instructed by Holman Fenwick Willan Switzerland LLP) for the Claimant

David Lewis QC and Oliver Caplin

(instructed by Hill Dickinson LLP) for the Defendant/Part 20 Claimant

Hearing date: 31 July 2015

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JudgmentMr Justice Andrew Smith:

  1. This application for security for costs raises four main questions:

    i) Whether on the evidence of this case (which I describe below and is broadly typical of many applications of this kind) the condition in CPR25.13(2)(c) is satisfied.

    ii) Whether the court can and should order security for defendant's costs in pursuing a CPR part 20 claim against the third party.

    iii) Whether the court can and should order security for the liability that the defendant might incur if ordered to pay the costs of the third party.

    iv) Whether, and if so how, approved or agreed costs budgets are relevant to the quantum of security for costs ordered.

  2. The litigation concerns a contract whereby in December 2011 the claimant, Sarpd Oil International Limited (``Sarpd''), agreed to buy gas oil from the defendant, Addax Energy SA (``Addax''). Sarpd alleges that the delivery did not meet the contractual specification, and it claims either (i) damages or (ii) an indemnity under a term that a party in breach of a contractual obligation should indemnify and hold the other harmless from all losses, damages, costs and expenses. In total the claims are for some $1.46 million, some €63,000 and an unspecified sum for inspection costs: roughly the equivalent of £1 million.

  3. Addax defends the claim and brings proceedings under CPR part 20 against Glencore Energy UK Ltd (``Glencore'') from whom, apparently, it bought the gas oil. Its case is that, if it was in breach of its contract with Sarpd, that is because Glencore supplied it with gasoil that did not comply with the contract between them. There is an issue between Addax and Sarpd about the terms of their contract, and whether Sarpd is estopped from contending the standing of a moth vessel certificate of quality. The relief claimed by Addax in the part 20 proceedings matches that claimed by Sarpd against it.

  4. By an application dated 21 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 is 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 CPR25.13(2)(c). The application was supported by a witness statement of Mr Ralph Hicks of Hill Dickinson LLP, Addax's solicitors, who explains the basis on which security of £896,161.27 is sought. The sum should, he says, cover:

    i) Costs incurred by Addax in defending the claim.

    ii) Costs incurred by Addax in ``passing the claim on to [Glencore], which are a natural and inevitable result of [Sarpd] bringing the claim''.

    iii) 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.

  5. CPR25.12(1) provides that ``A defendant to any claim may apply under this section of this part for security for his costs of the proceedings''. Mr Michael Nolan QC, who represented Sarpd, pointed out that the expression ``defendant'' does not refer only to a party labelled ``defendant'' in the proceedings, but includes any ``person against whom a claim is made'': CPR2.3(1). CPR25.13(1) provides that ``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) ... one or more of the conditions in paragraph (2) applies''. The conditions in paragraph (2) include these:

    i) At sub-paragraph (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 or a Regulation State''.

    ii) At sub-paragraph (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''.

  6. Sarpd is incorporated in the British Virgin Islands (``BVI''), but Addax's application is not brought under sub-paragraph (a). I infer that (as Mr Nolan submitted and Mr David Lewis QC, who represented Addax, did not dispute) this is because in Nasser v United Bank of Kuwait, [2001] EWCA Civ 556 the Court of Appeal considered the application of the European Convention on Human Rights, including article 14 concerning the prohibition of discrimination, to orders for security for costs, and held that, where subparagraph (a) is the only ground relied on, the court should not exercise its discretion to order security other than for any additional costs attributable to the burden of enforcement associated with the claimant's residence. Mance LJ said this (at para 62):

    ``The justification for the discretion under Part 25.13(2)(a) ... in relation to individuals and companies ordinarily resident abroad is that in some, it may well be many, cases there are likely to be substantial obstacles to or a substantial extra burden (e.g. of costs or delay) in enforcing an English judgment, significantly greater than there would be as regards a party resident in England or in a Brussels or Lugano state. In so far as impecuniosity may have a continuing relevance, it is not on the ground that the claimant lacks apparent means to satisfy any judgment, but on the ground (where this applies) that the effect of the impecuniosity would be either (i) to preclude or hinder or add to the burden of enforcement abroad against such assets as do exist abroad, or (ii) as a practical matter, to make it more likely that the claimant would take advantage of any available opportunity to avoid or hinder such enforcement abroad.''

    In this case the undisputed evidence of Ms Kathryn Martin, a solicitor with Holman Fenwick Willan Switzerland LLP, who act for Sarpd, is that ``any High Court money judgment'' can be enforced in the BVI under the Reciprocal Enforcement of Judgments Act, 1922.

  7. Addax therefore relies only on CPR25.13(2)(c) (``condition c''). The evidence about whether it 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 its finances is publically available. Addax's only information...

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