Anonymized Summary of Opinion — Application for Security for Costs
Factual and Procedural Background
This opinion records a decision on an application by the Claimants for security for costs in respect of an appeal. The Claimants brought two related actions (managed together): one issued in 2020 (the "2020 Action") and one in 2023 (the "2023 Action") concerning artefacts acquired from Company A which the Claimants allege are forgeries. The principal causes of action advanced were rescission of the purchase contracts and claims in deceit and conspiracy.
Company A (a company incorporated in The State) is the first appellant. Two individual appellants (here described as Individual Appellant A and Individual Appellant B) are residents of The State and The City respectively. On 9 December 2024 the Claimants applied for summary judgment and for orders striking out defences and debarment for non-compliance with disclosure orders.
By orders of Judge Garnham dated 11 April 2025 (and consequential orders dated 29 April 2025), the court, in relation to the 2023 Action, debarred the appellants from defending, struck out their defence and granted the Claimants summary judgment; and, in relation to the 2020 Action, granted summary judgment on fraud-related causes and stayed other claims. The appellants obtained limited permission to appeal from Judge Phillips on 25 July 2025. The permitted appeal principally raises whether Judge Garnham was correct to order summary judgment on the basis that allegations the appellants were precluded from defending were to be treated as admitted.
The Claimants issued the present application for security for costs on 8 August 2025. By the time of the hearing the Claimants sought approximately US$229,000, said to be 75% of anticipated costs of US$305,291.38 (approximate sterling equivalents were provided in the documents).
Legal Issues Presented
- Whether one or more of the statutory conditions in CPR 25.27(b) (residence abroad; company likely unable to pay; steps taken in relation to assets making enforcement difficult) are satisfied so as to permit an order for security for costs on appeal.
- If one or more of those conditions is satisfied, whether it is just in all the circumstances to order security for costs (the discretionary stage).
- If security is justified, what is an appropriate and proportionate quantum of security (and whether an award should exclude costs arising from the Claimants' respondent's notice).
- Secondary to the immediate application, the appeal raises whether summary judgment was properly entered on the basis of deemed admissions without consideration of substantive merits (this is the core point of the appeal, but the present judgment concerns only security for costs).
Arguments of the Parties
Appellants' Arguments (as represented by Attorney Jones)
- The appellants contended that, in respect of the 2020 Action (issued before 31 December 2020) the pre-Brexit version of the CPR governing security for costs applied; that argument relied on the 2019 Regulations and was said to be relevant to Company A and Individual Appellant A (both resident in The State).
- The appellants disputed that Company A will be unable to pay any costs order, pointing to the Claimants' own case that the appellants may be wealthier than they admit; and they argued that the equity disclosed by the Individual Appellants in properties in The City and The State provided adequate recoverable assets.
- Regarding residence abroad (condition (i)), Attorney Jones argued that ordering substantial security would be discriminatory and that, at most, a modest amount (CHF 10,000 was suggested) would be appropriate.
- More generally, the appellants resisted the Claimants' assertion that steps had been taken to put assets beyond reach and disputed the necessity and quantum of the security sought.
Claimants' Arguments (as represented by Attorney Emmett)
- The Claimants sought security for costs on three statutory grounds in CPR 25.27(b): (i) the appellants' residence abroad; (ii) that Company A will be unable to pay any costs order; and (vi) that the appellants have taken steps in relation to their assets making enforcement difficult.
- The Claimants relied on Company A's disclosed financial statements (year ended 31 December 2023), contemporaneous disclosure of much lower inventory values, witness statements indicating little ready cash, large sums due from a principal debtor (Company B) which itself is said to be in dire financial straits, and other indicia of insolvency or diminished recoverable assets.
- The Claimants relied on specific asset dealings by the Individual Appellants: (a) disposal by Individual Appellant A of interests in Company A and Company C for no consideration in 2023; (b) regular monthly payments from Company A to Individual Appellant A (CHF 30,000 per month) with no explanation as to destination; and (c) failures by the appellants to provide full disclosure of assets when required (including under a world-wide freezing order made by Judge Kerr and continued by Judge Garnham).
- On quantum, the Claimants sought approximately US$229,000 (c. 75% of anticipated costs), relying on their overall anticipated costs which included costs tied to a respondent's notice.
Table of Precedents Cited
| Precedent (anonymized citation) |
Rule or Principle Cited For |
Application by the Court |
| Precedent A — [2012] EWHC 662 (TCC) |
Sets out threshold requirement that defendants must establish reason to believe claimants will be unable to meet any costs order; explains the required quality of evidence (not mere doubt) and burden on defendants. |
The court adopted the principles stated in this authority as the starting point for assessing condition (ii) (inability to pay) in respect of Company A. |
| Precedent B — [2009] 1 WLR 751 |
Clarifies that defendants need not prove inability to pay on balance of probabilities, but there must be evidence that the claimant "will be unable to pay". |
Cited to show the appropriate evidential standard for condition (ii); applied in evaluating the quality of the insolvency evidence. |
| Precedent C — [1993] BCLC 532 |
Explains that "will be unable to pay" is a demanding test and not watered down by the phrase "reason to believe". |
Used to reinforce the threshold test applied to Company A's disclosed finances and inventory valuation discrepancies. |
| Precedent D — [2004] EWHC 1102 |
Emphasises inquiry is whether the claimant "will be unable" to pay, not whether it "might" be unable. |
Cited in support of the standard applied when assessing Company A's ability to meet any costs order. |
| Precedent E — [2007] EWHC 968 |
Confirms burden is on the defendant to establish the threshold; not incumbent on claimant to prove means to pay. |
Referenced to allocate evidential burden correctly when considering Company A's financial position. |
| Precedent F — [2006] EWCA Civ 608 |
Where claimants provide unsatisfactory or no financial information, a court may infer there is reason to believe they are unable to pay. |
Applied to support an adverse inference from the appellants' incomplete disclosure of assets. |
| Precedent G — [1993] BCLC 307 |
Affirms that even where threshold is satisfied the court's power to award security is discretionary and must be exercised fairly. |
Used to introduce the discretionary second stage of the court's analysis. |
| Precedent H — [2010] Lloyd's Rep IR 190 |
Directs that the court's discretion must be exercised by reference to what is fair and just in all circumstances. |
Cited as part of the framework for the discretionary assessment in stage two. |
| Precedent I — [2011] EWHC 2183 (Ch) |
Summarises principles for condition (vi): requires objective demonstration that claimant's steps in relation to assets would make enforcement difficult; lists relevant factors and cautions. |
The court applied the principles from this authority to assess whether the appellants' past dealings and disclosure failures satisfied condition (vi). |
| Precedent J — [2001] CP Rep 103 |
Indicates that merely reprehensible conduct is insufficient for condition (vi) unless it has the effect of making enforcement difficult. |
Cited to show that allegations of dishonesty alone do not satisfy condition (vi) without evidence as to the effect on enforcement. |
| Precedent K — [2002] EWHC 29 |
Explains that the test for steps taken in relation to assets is objective and motive is not determinative. |
Applied to evaluate the effect of the appellants' asset dealings, rather than their motives. |
| Precedent L — [2011] EWCA Civ 761 |
If reasonable to infer undisclosed assets, that failure to disclose may support inference assets were put beyond creditors' reach. |
Used to support the inference from the appellants' incomplete disclosure obligations (including under the freezing order). |
| Precedent M — [2006] EWHC 630 |
Confirms there is no temporal limitation on when steps can have been taken to frustrate enforcement; motive and timing remain relevant to discretion. |
Referenced when considering the timing of the appellants' asset dealings relative to the proceedings. |
| Precedent N — [1973] QB 609 |
Court may consider whether impecuniosity has been brought about by conduct of the defendant. |
Noted as a factor potentially relevant to the exercise of discretion. |
| Precedent O — [2009] EWCA Civ 985 |
Affirms relevance of defendant conduct to claimant's financial position in discretionary assessment. |
Referenced among authorities addressing discretionary considerations. |
| Precedent P — [1995] 3 All ER 534 |
Stresses security should not be ordered if it would stifle a genuine claim and should not be set at a level known to be unaffordable. |
Applied to ensure the court did not order security that would effectively prevent a genuine appeal. |
| Precedent Q — [2006] CP Rep 47 |
Reiterates the "principle of affordability" — court must avoid ordering security the claimant cannot afford. |
Considered in assessing the appropriate quantum and proportionality of any security order. |
| Precedent R — [2004] EWHC 1343 (Ch) |
Addresses the evidential difficulty for a claimant of proving absence of third-party funders, and the court's approach to such evidence. |
Referenced when discussing whether appellants could raise funds from third parties to meet any security or costs order. |
| Precedent S — [2016] EWCA Civ 1099 |
Requires the court to exercise its discretion non-discriminatorily; discrimination may be justified only if there are objectively justified grounds related to obstacles or burden of enforcement. |
Used to analyse whether reliance on residence abroad could justify a tailored security order and to explain how discrimination must be objectively justified. |
| Precedent T — [2002] 1 WLR 1868 |
Explains tailoring security to reflect the nature and size of objectively justified enforcement risks. |
Cited to justify tailoring the amount of security to the realistic enforcement risk presented by the appellants' circumstances. |
Court's Reasoning and Analysis
The court conducted a two-stage inquiry as required by the relevant procedural rules. Stage one asked whether one or more of the conditions in CPR 25.27(b) were satisfied; stage two required assessment of whether it would be just in all the circumstances to order security for costs.
Stage 1 — Conditions in CPR 25.27(b)
Condition (i) — residence abroad: The court held this condition was plainly satisfied in respect of all three appellants on the wording of the current Part 25. The appellants' submission that the pre-Brexit rule should apply to the 2020 Action (because it was commenced before 31 December 2020) was rejected: the 2025 Rules had restated and amended Part 25 and contained no transitional provision preserving the pre-Brexit carve-out. The court saw no means of construing the 2025 Rules to resurrect that carve-out.
Condition (ii) — reason to believe Company A will be unable to pay: The court adopted the threshold principles from the authorities summarised by the court in Precedent A and related cases. The most recent disclosed accounts (year ended 31 December 2023) showed net current assets and net assets on paper, but the accounts relied on a large inventory valuation (CHF 5,476,221). Contemporaneous disclosure and witness evidence indicated the inventory realisable value was far lower (inventory disclosed at just over CHF 183,000; witness evidence that Company A carried very little stock). These discrepancies alone were sufficient to render Company A heavily insolvent. In addition, Company A's largest debtor was Company B, which owed Company A a very large sum (CHF 22,826,013) but which the appellants contend is in dire financial difficulty such that recoverability was unlikely; even offsetting other inter-company indebtedness would leave a substantial likely irrecoverable shortfall. Company A's lack of ready cash and difficulties in banking relations supported the inference that its financial position had worsened since the accounting date. On this basis the court concluded there was reason to believe Company A would be unable to satisfy a costs order.
Condition (vi) — steps in relation to assets: The court applied the objective test set out in Precedent I and related authorities. The Claimants relied on three specific matters: (1) disposal by Individual Appellant A of interests in Company A and Company C in 2023 for no consideration (with uncertainty about the whereabouts of bearer shares in Company C); (2) Company A paying CHF 30,000 per month to Individual Appellant A without explanation as to destination; and (3) failures to provide full disclosure of assets when required (including under the world-wide freezing order). The court found that some general assertions (history of dishonesty, risk of dissipation) fell short of what is required, but the three specific matters, and in particular the failures to provide proper disclosure coupled with the other dealings, justified the inference that enforcement of a costs order would be rendered more difficult. The court also considered the Individual Appellants' disclosed equity in properties in The City and The State but noted those equities were heavily encumbered by local creditors (including a very large judgment against Individual Appellant B and claims by local authorities against Individual Appellant A) such that those properties provided at best precarious recoverable equity.
Stage 2 — Whether it is just to order security
Having concluded that conditions (i) and (vi) were satisfied in respect of all appellants, and condition (ii) in respect of Company A, the court considered the discretionary stage. The court identified several relevant factors that justified ordering security for at least part of the Claimants' anticipated costs: (a) the established risk that appellants might take steps to dissipate assets (evidenced in the freezing order context), (b) the appellants' track record of failing to provide full disclosure, and (c) their prior practice of paying costs orders late or only when necessary to allow proceedings to continue. The court accepted that imposing security would not stifle the appeal.
The appellants submitted that reliance on residence abroad would amount to discrimination and that only a very modest sum should be ordered. The court analysed the non-discrimination requirement (drawing on Precedent S) and concluded that discrimination against foreign-resident appellants is permissible where objectively justified by attributes of the litigant that render enforcement problematic. In this case the objectively justified grounds were the appellants' particular circumstances — lack of available assets, vulnerable equities in properties due to local enforcement risks, failures of disclosure, and the real risk of steps to prevent enforcement — which together provided rational justification for ordering security in reliance on condition (i) or, in any event, on conditions (ii) and (vi).
Quantum
The court concluded that the Claimants' overall anticipated costs (about £225,000) were disproportionate for an appeal concerning a relatively short point of law. The court also observed a conceptual limitation: the Claimants could not properly seek security for costs in respect of an application for summary judgment which they could not have obtained security for at first instance. The Claimants had filed a respondent's notice seeking to uphold the judge's order on the merits; the court held that security should be limited to costs of responding to the appeal itself, excluding costs linked to the respondent's notice. Because the Claimants had not separated costs by task, the court took a broad-brush approach and fixed a reasonable and proportionate sum at £70,000 to reflect the Claimants' costs of responding to the appeal. The application was otherwise allowed only to that reduced extent.
Holding and Implications
Holding:
SECURITY FOR COSTS ORDERED: £70,000
The court allowed the Claimants' application for security for costs but limited the order to the sum of £70,000. The court found that statutory conditions justifying an order were met (residence abroad for all appellants; inability to pay in respect of Company A; and steps taken in relation to assets by the appellants that would make enforcement difficult). The court exercised its discretion to order a reduced and proportionate quantum of security limited to the costs of responding to the appeal, excluding costs attributable to the Claimants' respondent's notice.
Implications:
- The appellants are required to provide security for the Claimants' costs of the appeal in the sum of £70,000.
- The decision directly affects only the parties: it secures a portion of the Claimants' anticipated appeal costs against the risk that the appellants cannot or will not satisfy a costs order. The court explicitly limited the award to avoid stifling the appeal and to ensure proportionality.
- The judgment tailored quantum to the enforcement and financial risks particular to these appellants; the court did not state or purport to create a general new legal test beyond applying established authorities on the threshold and discretionary stages for security for costs.
Additional note: Judge Males agreed with the reasons and outcome set out by Judge Zacaroli.