High Court finds onus on non-resident respondent to application for security for costs to provide evidence of location, nature and value of assets

A recent High Court decision helpfully sheds light on the court's approach to exercising its discretion as to whether to order security for costs against a claimant on grounds of their residence outside the court's jurisdiction (and outside the states bound by the 2005 Hague Convention on Choice of Court Agreements): Ras Al Khaimah Investment Authority v Azima [2022] EWHC 1295 (Ch).

The purpose of an order for security for costs is to protect a defendant (who of course does not choose to initiate proceedings) against the risk that it will successfully defend the action but then be unable to enforce a costs order in its favour against the claimant, or face extra burdens in doing so - for example because the claimant is based in a jurisdiction that may not readily enforce an English court judgment.

The discretion to order security on grounds of residence outside the jurisdiction cannot be exercised in a discriminatory manner, and so must be based on a finding that there is a real risk of non-enforcement or of additional burdens in the way of enforcement. Where the risk is of non-enforcement, security will ordinarily be ordered by reference to the costs of the proceedings as a whole, but where the risk is limited to additional costs or delay, it will ordinarily be by reference merely to that extra burden of enforcement.

The present decision is of particular interest in suggesting that a non-resident claimant cannot argue that security should be provided merely by reference to the additional costs of enforcing a costs order in their place of residence (rather than the costs of the proceedings as a whole) unless they provide some evidence that they have substantial assets there. Where the claimant does not provide evidence as to the location, nature and value of their assets, the court may infer that there is a substantial risk of non-enforcement and order security on that basis.

The decision also considers a number of issues relating to disclosure, which we will consider in a separate post.

Background

The application for security arose in the context of a retrial of the defendant's (Mr Azima's) counterclaim against the original claimant, the Ras Al Khaimah Investment Authority (RAKIA). Following the original trial, the High Court gave judgment for RAKIA on its claims against Mr Azima for fraudulent misrepresentation and conspiracy, and dismissed Mr Azima's counterclaim that his email accounts had been unlawfully hacked by RAKIA and his data used against him in the case.

The Court of Appeal dismissed Mr Azima's appeal against RAKIA's claims but, based on new evidence in relation to the hacking claim, remitted the counterclaim to be tried by a different judge of the Chancery Division. The court gave permission to Mr Azima to join four additional defendants to the counterclaim and they, together with RAKIA, are referred to below as the defendants.

The defendants applied for an order that Mr Azima provide security for their costs of defending the counterclaim. They relied on the condition for granting security set out in CPR 25.13(2)(a), ie that Mr Azima was resident out of the jurisdiction but not resident in a State bound by the 2005 Hague Convention.

Mr Azima accepted that this condition was satisfied, as he was resident in Missouri, USA, but contested whether the court should exercise its discretion to order security and also the quantum of the security sought.

Decision

The High Court (Michael Green J) granted the application. It referred to the summary of relevant principles by Hamblen LJ (as he then was) in Danilina v Chernukhin [2019] 1 WLR 758, including the following:

• If the jurisdictional conditions are satisfied, the court has a discretion to order security for costs if it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order.
• The court must exercise its jurisdiction in a non-discriminatory manner for the purposes of Articles 6 and 14 of the ECHR. This is sometimes referred to as the Nasser condition after the Court of Appeal's decision in Nasser v United Bank of Kuwait [2002] 1 WLR 1868.
• There must be "objectively justified grounds" for the exercise of discretion, ie a real risk of substantial obstacles to enforcement or of an additional burden in terms of cost or delay.
• Where the risk is of non-enforcement, security should usually be ordered by reference to the costs of the proceedings. But where the risk is limited to additional costs or delay, security should usually be ordered by reference to that extra burden of enforcement.

It was accepted by the parties and the court that a non-resident individual claimant's impecuniosity cannot alone justify an order for security, as that would not be sufficient grounds for an order for security against a resident individual (in contrast to the position for companies), and would therefore be discriminatory.

However, the court rejected Mr Azima's argument that: (i) as the jurisdiction to make an order for security for costs arose out of his residence in a non-Convention state, the obstacles to enforcement must be in relation to his actual place of residence (ie Missouri); and (ii) he was not obliged to disclose the value, nature and location of his assets, as there is no such obligation on a resident individual and so it would contravene the Nasser condition.

The judge noted that, in Nasser itself, the inquiry was not limited to enforcement in the country of residence, but included wherever the claimant's assets might be, and the same point was clear from other cases. He held that, if a respondent to an application for security for costs wishes to argue that they should only be liable for the additional costs of enforcement in their place of residence, the onus is on them to provide some evidence as to the location, nature and value of their assets so that the court can assess whether a future costs order can effectively be enforced in the place of residence (or elsewhere). If that information is not provided, the court cannot conclude that the risk is limited to the additional costs of enforcement, and may infer that there is a real risk of substantial obstacles to enforcement.

In the present case, the judge said, the expert evidence as to the ease or otherwise of enforcement in Missouri "rather misses the point", as there was no evidence before the court as to whether Mr Azima had any valuable assets in Missouri to enforce against. In the circumstances, the court could not assume that Mr Azima had sufficient assets to meet a costs order, nor that any such assets were in Missouri.

It was also relevant to take into account the findings of dishonesty and fraud that had been made against Mr Azima in the context of RAKIA's claim against him, and upheld on appeal. On that basis, the court was satisfied that there was a real risk that Mr Azima would seek to diminish the assets available for the defendants to enforce against.

The court concluded that it would be just to make an order for security for costs against Mr Azima by reference to the costs of the proceedings as a whole. He therefore ordered security to be provided in a sum calculated as 60% of the defendants' current costs schedules.