Security for costs: High Court rejects parent company guarantee in favour of payment into court

In the context of a claim by a Russian company against two banks for failing to pay sums due under on-demand bonds, the High Court has allowed the banks’ security for costs application and ordered the claimant to make a payment into court of £1.85 million: LLC EuroChem North-West-2 v Société Générale SA & Ors (2023).

Where the court orders a claimant to provide security for costs, it has a discretion to permit security to be provided other than by way of a payment into court. However, this decision acts as a reminder that the "baseline" is a payment into court, and other forms of security will be ordered only if either: (i) they are acceptable to the secured party; or (ii) the court is satisfied that they are equivalent to a payment into court.

Here the court was not persuaded that the Swiss parent company guarantee offered was equivalent, as it did not provide a readily realisable source of funds in the same way as a payment into court. Rather unusually, what was offered in this case was an undertaking addressed to the court, rather than the defendants, because the defendants' evidence was that they could not accept a parent company guarantee without arguably contravening relevant sanctions laws. Even assuming the parent company was good for the money, the court said, the undertaking offered appeared to provide at best a more complex and indirect alternative form of security which was less good than a payment into court, and on this ground alone the court said it would hold that there was no equivalency.

In any event, the parent company was likely to be affected by sanctions in due course, and so any form of guarantee to pay at some point in the future could not be said to be equivalent to a payment into court (even if direct to the defendant and even absent the jurisdictional issues present in this case).

For more information see this post on our Banking Litigation Notes blog.