Security for costs: where claim and counterclaim raise same issues

A recent High Court judgment considers the principles that apply in security for costs applications where similar issues arise on both claim and counterclaim (Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm)). Following this judgment, if a defendant seeks security for costs in circumstances where the same issues arise on both claim and counterclaim, it is likely to have to commit to abandoning its counterclaim in the event that the security is not provided and the claim is not pursued as a result.

As a general rule, the courts will not order a claimant to provide security for the costs of its claim where the defendant is pursuing a counterclaim which requires examination of the same issues. This is referred to as the "Crabtree principle" after the Court of Appeal judgment in BJ Crabtree v GPT Communication Systems (1990) 59 BLR 43. Where however the claim raises substantial factual inquiries which are not the subject of the counterclaim, it may be appropriate for the court to order security, which will generally be limited to the costs of addressing these additional issues.

In the present case it was accepted by both parties that the claim did not raise substantial additional factual inquiries. However, the defendant bank sought to avoid the effect of the Crabtree principle and obtain an order for security for costs by undertaking not to pursue its counterclaim while the main claim was stayed. The court said this was not sufficient, as it left open the possibility of the counterclaim being pursued if the claim was struck out (not just stayed) as a result of the failure to provide security, and this could lead to real unfairness. It would not be appropriate to order security unless the bank undertook to consent to the dismissal of its counterclaim in the event of the claimant’s claims being dismissed for failure to put up security.