[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Eminent Energy Ltd v Krässik Oü & Ors [2016] EWHC 2585 (Comm) (20 October 2016) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2016/2585.html Cite as: [2016] EWHC 2585 (Comm)

[New search] [Printable RTF version] [Help]

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice. Rolls Building Fetter Lane, London, EC4A 1NL
		20 October 2016

MR SALTER QC:

Introduction

1. This is an application for security for costs. It is made by the Claimant ("Eminent") and the Third Parties ("Berkeley" and "Mr Contomichalos"), and seeks security for the costs of the counterclaim which the Defendant, Krässik OÜ (which I shall call by its former name, "Daxin Baltic"), has made in this action against Eminent, Berkeley and Mr Contomichalos.
2. The application is supported by witness statements dated 8 September and 5 October 2016 made by the Applicants' solicitor, Mr Holland, and is opposed by a witness statement dated 28 September 2016 made by the Defendant's solicitor, Mr Weller. Mr Max Mallin appeared for Eminent, Berkeley, and Mr Contomichalos. Mr Fionn Pilbrow appeared for Daxin Baltic. I am grateful to both counsel for their clear and helpful submissions.

Background

3. The details of the claims and counterclaims made in this action are set out in detail in the Statements of Case which the parties have exchanged, and in the helpful Case Memorandum that they have prepared. The following summary is sufficient for the purposes of this application:

3.1 Eminent is a company incorporated in Cyprus, and is engaged in the business of trading and transporting petroleum products around the world. Berkeley is a private limited company registered in England, which at all material times acted as a service provider to Eminent. Mr Contomichalos is a Greek national who resides in London, and who is the sole director and owner of Berkeley.

3.2 Daxin Baltic is a company incorporated in Estonia. Its immediate parent is Daxin Northern Europe Holdings Limited ("Daxin Northern"), a company incorporated in Bermuda. Daxin Northern has shareholders in common with Daxin Petroleum Pte Limited ("Daxin Petroleum") and all three companies are part of the Daxin Group. Daxin Petroleum is incorporated in Singapore, and is engaged (inter alia) in the trading of petroleum and other related products.

3.3 In May 2015 Eminent and Daxin Baltic entered into a written joint venture agreement ("the JVA"), and thereafter until about January 2016 entered into a series of written agreements ("the Supply Agreements"), all relating to the sale of naphtha by Daxin Baltic to Eminent. Each of these agreements was expressed to be subject to English law, and contained provisions conferring jurisdiction upon the courts of England and Wales.

3.4 Pursuant (Eminent alleges) to the JVA, Eminent entered into a written Supply Agreement dated 15 January 2016 with Daxin Baltic under which Eminent prepaid Daxin Baltic approximately USD 4.7m. Amongst other cargoes, a quantity of naphtha (the "Disputed Naphtha") was delivered and transferred by Daxin Baltic to Eminent and now remains in storage at a terminal in Riga in Latvia. Eminent asserts that title to the Disputed Naphtha passed to Eminent under the JVA and/or the Supply Agreements and/or under a number of tri-partite In-Tank Transfer Acts ("the ITTAs") executed by Eminent, Daxin Baltic and the terminal on 22 February 2016.

3.5 By letter dated 23 February 2016, Daxin Baltic denied that Eminent had acquired title to the Disputed Naphtha. Daxin Baltic asserted that the director who had executed the ITTAs on Daxin Baltic's behalf, Ms Olga Kozlovskaja ("Ms Kozlovskaja"), had been removed from office in the preceding week, on 19 February 2016, and so had no authority to act on behalf of Daxin Baltic. On 9 March 2016, without notice to Eminent (and in proceedings to which Eminent was not a party), Daxin Baltic sought and obtained an injunction from the Riga City Northern District Court preventing the terminal from acting upon Eminent's instructions to move or dispose of the Disputed Naphtha.

3.6 On 18 March 2016 Eminent began the present action in London, seeking a declaration that it had acquired title to the Disputed Naphtha, payment of various sums owed to it by Daxin Baltic, and damages for breach of the Supply Agreements. On the same date, Eminent was granted an injunction preventing Daxin Baltic from disposing of, dealing with or diminishing the value of the Disputed Naphtha. That injunction was continued by consent on 30 March 2016, and still remains in force.

3.7 On 9 June 2016 Daxin Baltic filed a Defence to Eminent's claim, and a Counterclaim against Eminent, Berkeley, and Mr Contomichalos. That Statement of Case not merely relies on the removal from office of Ms Kozlovskaja, but also alleges that she and another employee of Daxin Baltic (called Anton Shafrostin) were throughout the relevant period engaged with Eminent, Berkeley, and Mr Contomichalos in an extensive fraud on Daxin Baltic, so as to render void or voidable the JVA, the Supply Agreements and the ITTAs, and to found claims for damages and/or equitable compensation.

3.8 Daxin Baltic's claim for damages against Eminent, Berkeley and Mr Contomichalos is pleaded on alternative bases, under English law and alternatively under Estonian law. The claim under English law is put on the basis of unlawful means conspiracy and/or of dishonest assistance in Ms Kozlovskaja's breach of fiduciary duty and/or of inducing, procuring or assisting a breach of contract. The alternative claim against Eminent, Berkeley and Mr Contomichalos under Estonian law in tort seeks compensation for unlawfully caused damage pursuant to Article 1043 of the Estonian Law of Obligations Act. By way of relief, Daxin Baltic seeks against Eminent a declaration that it had validly and effectively rescinded the JVA and all subsequent agreements signed between Daxin Baltic and Eminent, and claims damages and/or equitable compensation against each of Eminent, Berkeley, and Mr Contomichalos.

3.9 Eminent, Berkeley, and Mr Contomichalos, in a joint Reply and Defence to Counterclaim served on 19 July 2016, deny all of these allegations. They assert that Eminent's dealings with Daxin Baltic were at all times at arm's length, and say that, in any event, Eminent and the Third Parties had no notice of any alleged fraud perpetrated on Daxin Baltic by its former officers or employees.

4. At the CMC, the parties agreed directions intended to lead to an 8-day trial sometime in the autumn of 2017. They also filed costs budgets amounting to approximately £1.5m for Eminent, Berkeley, and Mr Contomichalos, but to only approximately £0.5m for Daxin Baltic. Those costs budgets were not agreed, so the parties instead agreed a direction for a half-day costs management hearing. That hearing is likely to take place before the end of 2016.
5. Against that background, I now turn to the basis of the application and to the matters which I have to decide.

The basis of the application

6. This application is bought under CPR 25.12. It is common ground that the applicable test laid down in CPR 25.13(1) is a twofold one. First, one or more of the conditions in CPR 25.13(2) must be satisfied. Second, the Court must be "satisfied, having regard to all the circumstances of the case, that it is just to make such an order".
7. It is also common ground that the condition in CPR 25.13(2)(c) is satisfied in the present case. Daxin Baltic is a company, and it is conceded that there is reason to believe that Daxin Baltic would be unable to pay the costs of the defence by Eminent, Berkeley, and Mr Contomichalos of Daxin Baltic's counterclaim.
8. Turning to the second element of the test, CPR 25.13(1)(a) requires the court to take into account, in deciding whether it is satisfied that is just to make an order for security for costs, all the circumstances of the case. The judgment of Lord Denning MR in the well-known case of Sir Lindsay Parkinson & Co Ltd v Triplan Ltd^[1] sets out some of the matters which the court might, in an appropriate case, take into account in deciding whether, and if so, how, to exercise its discretion:

.. Such as whether the company's claim is bona fide and not a sham, and whether the company has a reasonably good prospect of success .. whether there is an admission by the defendants on the pleadings or elsewhere that money is due .. whether the application for security was being used oppressively - so as to try to stifle a genuine claim .. whether the company's want of means has been brought about by any conduct by the defendants, such as delay in payment or delay in doing their part of the work ..

Some other potentially relevant factors are conveniently set out in the notes at paragraphs 25.12.7, 25.13.1, 25.13.1.1 and 25.13.13 in the current (2016) edition of Civil Procedure.

9. It is also common ground, as stated by Sir Robert Megarry V-C in Pearson v Naydler^[2], that

.. the inability of the plaintiff company to pay the defendants' costs is a matter which not only opens the jurisdiction, but also provides a substantial factor in the decision whether to exercise it.

It is inherent in the whole concept of the section that the court is to have power to order the company to do what it is likely to find difficulty in doing, namely to provide security for the costs which ex hypothesi it is likely to be unable to pay. At the same time, the court must not allow the power to be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company ..

The grounds of opposition

10. Mr Pilbrow, on behalf of Daxin Baltic, submits that the particular circumstances of this case mean that it would be unjust to make any order (or, at least, any substantial order) for security against his clients, despite their admitted inability to pay the costs of the counterclaim which they have brought.
11. First, he submits (on the basis of the evidence contained in paragraphs 21 to 29 of Mr Weller's Witness Statement) that Daxin Baltic's counterclaim is a bona fide claim with good prospects of success, that the effect of any substantial order for security would be to stifle its prosecution, and that the application is being used oppressively in circumstances where Daxin Baltic's want of means has been brought about by the very conduct of which it complains in its counterclaim.
12. Secondly, he relies upon the very substantial factual overlap between the Defence and the Counterclaim as showing that it would be unjust to make an order whose effect (he submits) would be to permit the claim to go forward, but to prevent Daxin Baltic from putting forward its counterclaim.

Stifling a bona fide claim

13. I now turn to the first of these contentions, which is that that an order for security for costs would stifle a bona fide claim.
14. In their evidence prepared for this application, both parties sought to demonstrate why they considered that they had much the better prospects of success than the other side. Fortunately, Mr Pilbrow and Mr Mallin were agreed at the hearing that neither side could clearly demonstrate, one way or another, that there was a high degree of probability of success or failure^[3]. In the circumstances, they were agreed that it was unnecessary for me to go into the merits of the case, or to form any view about who was likely to win.
15. I therefore accept the first limb of this aspect of Mr Pilbrow's argument, at least to this extent, that I am satisfied that Daxin Baltic's counterclaim is put forward in good faith and is not demonstrably unmeritorious.
16. As to the second limb, it is well-established that a party who wishes the Court to conclude that an order for security will have the effect of stifling a claim must put before the court full and frank evidence as to its means; and to that end:

.. That means that, in all but the most unusual cases, the burden lies on [the party resisting an order for security] to show, quite apart from the question of whether the company's own means are sufficient to meet an order for security, that there will be no prospect of funds being available or forthcoming from any outside source such as a creditor, principal shareholder or other party whose interests are affected ..^[4]

17. The evidence to support the argument that the effect of making an order for security against Daxin Baltic would be to prevent it from prosecuting its claim is contained in paragraphs 24 to 26 of Mr Weller's affidavit. According to Mr Weller:

.. Daxin Baltic has limited funds, all of which have been earmarked to pay its own legal costs in these proceedings, and also in the various proceedings underway in Estonia .. No further funds are available to Daxin Baltic, at least at the present time, therefore if a security for costs order was made against Daxin Baltic, it would be unable to satisfy that order.

That leaves the question as to whether, notwithstanding its own position, Daxin Baltic has reasonable access to alternative sources of funding which would allow it to meet an order for security for costs .. The answer to this is that Daxin Baltic does not.

.. [I]t is suggested that the Daxin Group would be able to provide the monies necessary for Daxin Baltic to comply with any order for security that the Court may make. This is not the case. The fraud that has been perpetrated on Daxin Baltic has also resulted in huge losses for Daxin Petroleum (and therefore, a potential claim by Daxin Petroleum against Daxin Baltic). In light of this, Daxin Baltic currently has no expectation that Daxin Baltic will obtain funds from either Daxin Petroleum or any company in the Daxin Group ..

18. In my judgment, that evidence fails to discharge the evidential burden on Daxin Baltic.

18.1 First of all, Daxin Baltic has failed to provide any satisfactory up-to-date evidence as to its own means. The most recent evidence before the court is contained in Daxin Baltic's Consolidated Annual Report for the accounting year ended 31 December 2014. No attempt has been made to put more up-to-date figures (perhaps in the form of Management Accounts) before the court. Mr Weller's vague assertion of "limited funds, all of which have been earmarked to pay its own legal costs in these proceedings, and also in the various proceedings underway in Estonia" does not even get close to providing the full and frank disclosure that is required in circumstances such as this.

18.2 Secondly, Daxin Baltic has failed to provide any sufficient evidence to establish that it has no realistic prospect of obtaining funds from any outside source.

18.3 The accounts contained within Daxin Baltic's Annual Report show that, as at 31 December 2014:

18.3.1 Daxin Baltic's current liabilities (€7,278,718) exceeded its current assets (€6,912,432);

18.3.2 Daxin Baltic's total liabilities (€7,340,530) exceeded its total assets (€7,129,893);

18.3.3 Daxin Baltic had, in effect, become financially dependent on the Daxin Group, receiving over €3.7m in short-term intra-group loans.

18.4 Despite this net deficiency of current and total assets, Daxin Baltic has nevertheless found the money to prosecute both its defence and counterclaim in the present action, and its litigation in Estonia against Ms Kozlovskaja and others.

18.5 Mr Weller does not explain the source of these funds. The natural inference, in the absence of any satisfactory explanation, is that those funds have been provided by those, whether creditors or shareholders, who stand to benefit from the present litigation.

18.6 The suggestion that Daxin Petroleum's ability to assist Daxin Baltic with this litigation has been impaired as a result of the "huge losses" resulting from the fraud is undermined by Daxin Petroleum's own most recent accounts, filed on 19 July 2016. These show total current assets of approximately USD 296m, retained earnings of about USD 62 million and share capital of USD 20 million.

18.7 Daxin Petroleum therefore could, if it chose, provide the necessary funds. As to whether it would be likely to do so, the Defence and Counterclaim reveals a very close relationship between Daxin Petroleum and Daxin Baltic. Daxin Baltic was not formed as a trading company in its own right. According to paragraph 8 of the Defence and Counterclaim, its purpose was to provide services to Daxin Petroleum. Moreover, paragraph 12 of the Defence and Counterclaim asserts that Daxin Baltic needed the permission of Daxin Petroleum to have its own credit lines so as to be able to trade on its own account. Indeed, it is an essential part of Daxin Baltic's conspiracy claim that it needed (but did not have) Daxin Petroleum's authority to carry out the trades in question, even though Daxin Baltic was carrying out those trades on its own account and claims damages by reference to its own position (and not that of Daxin Petroleum).

18.8 Against that background, Mr Weller does not provide any satisfactory explanation of why the Daxin Group (and in particular, Daxin Petroleum) will not support Daxin Baltic. His suggestion of "a potential claim by Daxin Petroleum against Daxin Baltic", and his statement that "Daxin Baltic currently has no expectation" of receiving funds from the Daxin Group, do not provide the Court with the necessary information. He does not even suggest that Daxin Baltic has asked for support, much less exhibit any relevant correspondence or other documentation.

19. In the circumstances, I am unable to conclude that the making of a reasonable order for security would in fact prevent Daxin Baltic from prosecuting its counterclaim.
20. As for the suggestion that this application is being used oppressively in circumstances where Daxin Baltic's want of means has been brought about by the very conduct of which it complains in its counterclaim, Mr Pilbrow realistically did not press the second part of this submission.
21. Mr Weller gives evidence about a debt of approximately USD 220,000, which he asserts that Daxin Baltic believes that it is owed from Vitex, and which Vitex has said that it cannot pay until it is paid by Eminent. However, that is all wrapped up in the transactions which are the subject of the claim and counterclaim, and I cannot (and have not been invited to) form a view as to who is in the right.
22. With regard to the suggestion that the application is being used oppressively, it is correct that the cost budgets filed by Eminent, Berkeley, and Mr Contomichalos (and which form the basis of the claim for security) are three times the amount of the costs budget filed by Daxin Baltic. However, that is a circumstance that can properly be dealt with both in considering the appropriate amount of any order for security, and at the stage of costs budgeting.

The overlap between the claim and counterclaim

23. That brings me to Mr Pilbrow's second set of contentions, which are based upon the undoubted overlap between the claim and counterclaim.
24. Mr Pilbrow's submissions have an attractive simplicity to them. He argues that:

24.1 The right to apply for security for costs is a right given to a defendant, and only to a defendant^[5].

24.2 It is a right given to a defendant only as a defendant, and can extend only to the costs which he is likely to incur in defending himself.

24.3 It follows that a claimant who is defendant to a counterclaim is entitled to seek protection only in respect of his costs of defending himself, and not in respect of any part of the costs of prosecuting his claim.

24.4 Where therefore, as in the present case, the claimant would have to deal with and to overcome all of the factual assertions and legal arguments on which the counterclaim is based in order to make out his claim (even if there had been no counterclaim), the costs to him of doing so cannot properly form the subject of an order for security for costs.

25. In support of his contentions, Mr Pilbrow drew my attention to a number of decided cases. The first of these was BJ Crabtree (Insulation) Ltd v GPT Communication Systems Ltd^[6]. That was a case involving a claim and counterclaim in relation to a building dispute. The counterclaiming defendants sought security for the costs of the claim: and Bingham LJ, giving the first judgment in the Court of Appeal, said as follows:

It is .. necessary, as I think, to consider what the effect of an order for security in this case would be if security were not given. It would have the effect, as the defendants acknowledge, of preventing the plaintiffs pursuing their claim. It would, however, leave the defendants free to pursue their counterclaim. The plaintiffs could then defend themselves against the counterclaim although their own claim was stayed. It seems quite clear and, indeed, was not I think in controversy, that in the course of defending the counterclaim all the same matters would be canvassed as would be canvassed if the plaintiffs were to pursue their claim, but on that basis they would defend the claim and advance their own in a somewhat hobbled manner, and would be conducting the litigation (to change the metaphor) with one hand tied behind their back. I have to say that that does not appeal to me on the facts of this case as a just or attractive way to oblige a party to conduct its litigation ..

Parker LJ also observed, to similar effect:

.. Here the situation is that, if the money is not paid into court and the plaintiff's claim is therefore stayed, the defendant will still raise issues on the counterclaim which are precisely the same as the issues which he would raise on the claim. In the result, findings might be made on the counterclaim which clearly showed that the plaintiff's claim which had been stayed was a good and sound claim. The result would then be that the stay would be lifted and there would then be judgement for the plaintiff on the claim (notwithstanding the fact that he had not paid the money into court) with appropriate orders as to costs. This being the situation, it appears to me that the only effect of the application for security will be that, if the money is not paid in, the defendant has the right to begin rather than the plaintiff. That seems to me to be nothing less than the use of the rule to obtain some tactical advantage rather than to obtain protection ..

26. Mr Pilbrow also invited my attention to some further observations of Bingham LJ in the case of Hutchison Telephone (UK) Ltd v Ultimate Response Ltd^[7]:

.. The trend of authority makes it plain that, even though a counterclaiming defendant may technically be ordered to give security for the costs of the plaintiff against whom he counterclaims, such an order should not ordinarily be made if all the defendant is doing, in substance, is to defend himself. Such an approach is consistent with the general rule that security may not be ordered against a defendant. So the question may arise, as a question of substance, not formality or pleading: is the defendant simply defending himself, or is he going beyond mere self-defence and launching a cross-claim with an independent vitality of its own? ..

27. Finally, Mr Pilbrow drew my attention to the discussion of "Cross-Proceedings" in the judgment of Park J in Anglo Petroleum Ltd v TFB (Mortgages) Ltd^[8]:

[30] It sometimes happens that a single underlying dispute between two persons gives rise to 2 actions: each sues the other. There might be a claim and counterclaim within one legal action; there might be two separate actions. Suppose that A is in dispute with B about some underlying issue or other. A sues B; B defends A's claim. B also sues A and A defends B's claim. Essentially, each says the same thing in each case. So the ground on which B defends A's claim is also the ground on which B sues A; and the ground on which A sues B is also the ground on which A defends B's claim.

[31] Now let me add the further assumption that A is impecunious but B is wealthy. B applies to the courts to order A to provide security for B's costs of defending A's claim against him. If the court ordered A to provide that security, A could not provide it. But, quite apart from arguments about whether the court should make an order which would stifle A's claim, it would not make much sense for the court to make that order. Suppose that the court did make the order and A failed to provide the security. The court would stay A's claim against B. But B's claim against A is still on foot, and when B brings it to trial, A can defend it. The court has no power to order a defendant to provide security for costs.

[32] In my example A could, and presumably would, defend B's claims by advancing essentially the same arguments as those which he, A, wanted to advance in his own claim. It would, in my view, be largely pointless for the court to have ordered A to provide security for the costs of his own claim. Suppose that A's defence of B's claim succeeds. In that situation it must be expected that the court would lift the stay on A's claim against B so that the claim would proceed after all, notwithstanding A's original [in]ability to provide security for the costs of it.

[33] In general, the courts recognise that, where there are cross-proceedings, the position is as I have described, and the courts do not order a person in the position of A to provide security for costs of the claim which he is making himself .. Another application of the same underlying policy is the proposition that, if the defendant advances a counterclaim but the counterclaim is in substance a defence to the original claim, the counter-claimant will not normally be ordered to provide security for costs of his counterclaim ..

28. Mr Pilbrow submitted that the circumstances of the present case are on all fours with the observations in these cases. Were the counterclaim in the present action to be stayed because security had not been provided, it would (he submitted) be open to Daxin Baltic to deploy all of the facts and arguments on which it founds its counterclaim by way of defence.
29. Mr Pilbrow also invited me to consider, in this connection, what there is that could properly be described as the costs of the counterclaim. In his submission, the only elements giving rise to costs which arise solely on the counterclaim, and not also on the claim, are: (a) the expert evidence as to Estonian law, which is necessary to found the alternative legal basis for the counterclaim, and (b) that aspect of the expert evidence on oil trading which arises solely on the counterclaim.
30. Mr Pilbrow, in substance (though he did not specifically refer to the case) invited me to adopt the approach to identifying the costs of the counterclaim laid down by the House of Lords in Medway Oil and Storage Co Ltd v Continental Contractors Ltd^[9]. That case was concerned with the question of how costs of a claim and counterclaim should be taxed, where both claim and counterclaim failed and the defendant was awarded his costs of the claim and the plaintiff his costs of the counterclaim. The House of Lords held that, in those circumstances, the counterclaim should bear only the amount by which the costs of the proceedings had been increased by the counterclaim.
31. Mr Mallin, in response to these submissions, drew my attention to the decision of Gloster J (as she then was) in Jones v Environcom Ltd^[10], in which the authorities relied on by Mr Pilbrow were considered.
32. In that case, insurers had claimed a declaration that they had validly avoided certain policies. The insured then counterclaimed in the same proceedings for a declaration that they were entitled to be indemnified. The claimant insurers sought security for costs of the counterclaim, and the parties invited Gloster J to decide 2 preliminary issues: first, whether the counterclaim was to be regarded as having "an independent vitality of its own" within the meaning of the concept as used in the Hutchison case^[11]; and, secondly, whether the costs of the counterclaim for the purposes of an application for security for the costs of the counterclaim are, as a matter of law, confined to those costs that are exclusively referable to the counterclaim, or whether such costs can include, as a matter of law, costs relating to issues which are common to both the claim and the counterclaim.
33. In paragraph [17] of her judgment, Gloster J expressed her reservations as to the way in which these preliminary issues had been drafted. In her view:

.. [T]he real issue is not whether the counterclaim in the present case falls within the straitjacket definition of having "an independent vitality of its own" .. or whether, as a matter of law, the security should be confined to the additional costs caused by the counterclaim, but rather, whether, returning to the wording of CPR 25.13(2)(a) it is just, having regard to all the circumstances, to make an order that the defendant should provide security for the costs of the counterclaim, and, if so, in what amount ..

..

[19] So the approach which I adopt, for the purposes of my determination of the preliminary issues, is to ask myself the question whether, leaving aside all the defendant's other arguments and potential arguments as to oppression, access, strength of case et cetera, and on the assumption that the condition set out in CPR 25.13(2)(c) is satisfied, it will be just in the circumstances here to require the defendants to provide security for the cost of their counterclaim

34. Gloster J went on to determine that, on the facts of the case before her, it was a matter of chance which party had issued proceedings first, and that the counterclaim therefore did have an "independent vitality of its own".
35. With regard to the second preliminary issue, Gloster J held that it was clear from the wording of the rule that there was nothing to prevent the court, in an appropriate case, from awarding security in respect of the entire costs of the counterclaim, notwithstanding that there are common, or related, issues that arise on both claim and counterclaim. At paragraph [25] of her judgment, she observed that:

.. [I]n a case such as the present, where it is a matter of chance which party starts the proceedings, and both claim and counterclaim arise out of the same facts, there is no justification for confining the claimant's costs .. to the 'additional' costs of the counterclaim. The claimant in such a case is entitled to be secured in respect of costs no less fully than if he were merely the defendant of the claim advanced in the counterclaim, and not also claimant in the action ..

36. Mr Mallin submitted that the principles enunciated by Gloster J in this authority applied directly to the facts of the present case. He submitted that the present case was also one in which it was a matter of mere happenstance which party sued first. Indeed, taking a broad view of the dispute between the parties, Daxin Baltic had in fact sued first (albeit not in this jurisdiction), by seeking and obtaining an injunction from the Riga City Northern District Court preventing the terminal from acting upon Eminent's instructions^[12]. Daxin Baltic had also begun its own proceedings in Estonia against Ms Kozlovskaja and others. Moreover, Daxin Baltic had brought in Berkeley and Mr Contomichalos as additional defendants to its counterclaim in the present proceedings.
37. These circumstances (Mr Mallin submitted) clearly showed that this was not a case where Daxin Baltic were "incidentally asking for damages arising out of the same transaction", but rather one in which they were "putting forward a substantive cross-claim which will stand on its own and goes beyond being a mere defence, which has lost the essentially defensive character of a mere defence"^[13]. This was, in Mr Mallin's submission, a counterclaim which plainly had "an independent vitality of its own", and which justified a full order for security.
38. In my judgment, the authorities cited to me by both sides demonstrate that there is no rule of thumb or single touchstone by which applications such as the present can be decided, beyond (perhaps) the general principle that security will not normally be ordered in circumstances where the counterclaim is in substance merely a defence to the original claim. Where that principle does not provide the answer, the Court must simply apply the test in CPR 25.13(1)(a) and ask itself whether, looking at all the circumstances of the case, it is just to make any and, if so, what order for security. In answering that question, a consideration of the practical result of the making of an order for security (such as is suggested in the Crabtree, Hutchison and Anglo Petroleum cases) is always likely to be illuminating, and may (but will not always) be decisive.
39. Attractively though Mr Pilbrow put his submissions, I am satisfied that this is a case in which it is just to make an order for security. The circumstances put forward by Mr Mallin - the taking of proceedings in Riga and in Estonia, and the bringing in of additional defendants to the counterclaim - seem to me to demonstrate that this is a counterclaim which goes well beyond the purely defensive, and which might well have been brought independently of the claim. Indeed, since the JVA, the ITTAs and the other relevant written agreements on their face favour Eminent, it will be Daxin Baltic which in practice will bear the burden of seeking to set those written agreements aside.
40. It is correct, as Mr Pilbrow submitted, that if the counterclaim does not go ahead, the result of the claim will effectively determine the counterclaim. On the present pleadings, the decision on the claim will determine the title to the Disputed Naphtha, and will also determine the various factual bases of claim on which the claims to rescission and damages in the counterclaim are founded. The same would be true were the counterclaim to go ahead and the claim to be stayed. A decision on the counterclaim would effectively determine title to the Disputed Naphtha, and would decide one way or another all of the remaining claims.
41. However, what that practical analysis shows is that (contrary to Mr Pilbrow's submissions) the claim and counterclaim are each independent claims. Their connection arises from the matters raised by Daxin Baltic by way of defence: and, in that respect, they cover almost identical factual and legal ground. However, each claim could stand without the other: and each side (at least as between Eminent and Daxin Baltic) would have a commercial interest in putting forward its claim, even if the opposing claim were withdrawn. In that respect, the present case is a fortiori the situation considered by Gloster J in Jones, where the claimant insurers would have no interest in pursuing their claim to avoid if the insured were to withdraw its claim under the policy.
42. The position of Berkeley and Mr Contomichalos as additional defendants must also be considered. It is not suggested that there is anything other than a commercial connection between Eminent, on the one hand, and Berkeley and Mr Contomichalos, on the other. Berkeley and Mr Contomichalos have made no claim against Daxin Baltic. In the circumstances, it can be no answer to their application for security for costs that there is a considerable overlap between the facts of the counterclaim brought against them, and the facts of the claim brought by Eminent.

Conclusion

43. For the reasons set out above, and taking all the circumstances of the case into account, as required by CPR 25.13(1), I am satisfied that it is just in this particular case to make an order against Daxin Baltic for security for costs in respect of the costs of the counterclaim.

Amount and mechanics

44. Because this is a case in which, as I have explained above, it is mere happenstance which party sued first, it is in my judgment right that Eminent, Berkeley and Mr Contomichalos should have security for the full cost of defending the counterclaim, to the extent that that cost is proportionate, reasonably incurred and reasonable in amount (so as prima facie to be recoverable on a detailed assessment of costs). The costs of defending the counterclaim cannot, of course include (for example) the costs solely referable to the Claim Form, Particulars of Claim and the Injunction Proceedings. I shall take that factor into account in dealing with the amount of security to be provided, though I shall also take into account the possibility of overlap.
45. With regard to the costs claimed by Berkeley and Mr Contomichalos, Mr Pilbrow took the point that, since they were instructing the same solicitors, their involvement had little or no effect in increasing the costs of defending the counterclaim. However, as Mr Mallin pointed out, paragraph 45 of Mr Holland's second witness statement makes it clear that each of Mr Holland's clients is liable to pay his firm an agreed proportion of the total costs, and is invoiced separately. Agreements of that kind cannot, of course, bind the court. However, in the absence of any challenge to the bona fides or any reasoned argument questioning the appropriateness of the apportionment, it seems to me that it would be wrong in principle for the Court to seek to go to behind it. Even so, in estimating the amounts likely to be recoverable on a detailed assessment and in considering the just amount of security to award, I must look at the totality of the costs claimed.
46. The pending Costs Management hearing is a practical complication, since nothing I say in the context of this application can bind the judge who deals at that hearing with issues of cost management. It would also be undesirable (to say the least) were I to make an order for security in an amount greater than the costs budget settled for the relevant part of the litigation.
47. The right way for me to deal with this, in my judgment, is therefore for me to make an order in three stages. I propose to make a lump sum order for security up to the completion of Disclosure. That is due to take place by 18 November 2016, so those costs are almost all likely to have been incurred prior to the Costs Management hearing. They will therefore not be the subject of costs management at that hearing.
48. Eminent, Berkeley and Mr Contomichalos have each put in figures showing substantial costs incurred in this period. These figures are commented on by Mr Weller in his Witness Statement, and some of his comments (particularly as to charging rates and the number of senior partner hours) seem to me prima facie to have force. Doing the best I can to exclude (in the case of Eminent) any costs solely referable to the Claim, and to ensure that the sum ordered by way of security does not exceed the amount likely to be recovered on a detailed assessment, I propose to make orders for security in amounts in round figures that represent very roughly 40% (in the case of Eminent) and 50% (in the case of Berkeley and Mr Contomichalos) of the amounts claimed.
49. I then propose to make orders for security to cover, first the period up to the PTR, and thereafter the trial period. Those orders will be for a percentage of the costs budget for the action for that period, including any allowance in that budget for ADR/Settlement discussions (which ought to take place in every case) but excluding any part of that budget relating to other "Contingent Costs". That seems to me to be the fairest way of dealing with costs that may never be incurred. If any of those contingencies in fact comes about, and makes a really significant difference to the level of their costs, it would always be open to Eminent. Berkeley and Mr Contomichalos to make an application to increase the amount of security on the grounds of a material change of circumstances.
50. Doing the best I can, it seems to me that a 20% discount from the costs budget (as so defined) will make sufficient allowance for those elements of costs which are exclusively referable to the claim. The figure is inevitably a broad brush one, and there may be higher percentages of such elements in one period and lower percentages in the other. However, in my judgment, a figure of 80% of the overall cost budget will provide substantial justice to both sides.
51. In relation to the first order that I intend to make, I propose to give Daxin Baltic approximately 21 days in which to provide the security which I have ordered. Daxin Baltic has sought a significantly longer period: but it has had notice of this application for security for a long time. In accordance with the usual practice of the Commercial Court, I do not propose to specify the consequences if security is not provided. However, if security is not provided in good time, it will of course be open to Eminent, Berkeley and Mr Contomichalos to make such consequential applications as they may be advised to make.
52. The orders which I propose to make are therefore these:

52.1 That Daxin Baltic provide security for costs of the counterclaim, for the period up to and including the completion of Disclosure, by 4 pm on Friday 11 November 2016:

52.1.1 To Eminent, in the sum of £250,000;

52.1.2 To Berkeley, in the sum of £100,000;

52.1.3 To Mr Contomichalos, in the sum of £16,500.

52.2 That Daxin Baltic provide security for costs of the counterclaim to each of Eminent, Berkeley and Mr Contomichalos, for the period up to the completion of the PTR by 4 pm on Friday 27 January 2017 in the sum of 80% of the relevant cost budgets (as defined in paragraph 49 above) referable exclusively to that period.

52.3 That Daxin Baltic provide security for costs of the counterclaim to each of Eminent, Berkeley and Mr Contomichalos, for the period from the completion of the PTR until the conclusion of the trial by 4 pm 21 days prior to the date fixed for the PTR in the sum of 80% of the relevant costs budget (as so defined) referable exclusively to that period.

53. As to the form of security, it should be by payment into court, by provision of a guarantee from a UK branch of a first-class bank, insurance company or other financial institution, or by any other method reasonably acceptable to Eminent, Berkeley and Mr Contomichalos.
54. Permission to apply is implicit in all orders of this Court. However I will expressly give the parties permission to apply in the event of any dispute about the form of security or any material change of circumstances not better dealt with by a revision to the relevant costs budget.
55. I invite counsel to agree a Minute of Order giving effect to this judgment. If consequential orders can also be agreed, I will dispense with attendance on the handing down.

Note 1    [1973] QB 609 at 626    [Back]

Note 2    [1977] 1 WLR 899 at 906.    [Back]

Note 3    See Porzelack KG v Porzelack (UK) Ltd [1987] 1 WLR 420 at 423, per Sir Nicholas Browne-Wilkinson V-C.    [Back]

Note 4    Kufaan Publishing Elements v Al-Warrack Publishing Ltd [2000] WL 491488 at [34], per Potter LJ; cited in Hearst Holdings Inc v AVELA Inc [2015] EWCA (Civ) 470 at [24], per Rimer LJ. See also Keary Developments Ltd v Tarmac Constructions Ltd [1995] 3 All ER 534.    [Back]

Note 5    That point was common ground. See eg CT Bowring & Co (Insurance) Ltd v Corsi Partners Ltd [1994] 1 Lloyd’s Rep 567.    [Back]

Note 6    (1990) 59 BLR 43.    [Back]

Note 7    [1993] BCLC 307.     [Back]

Note 8    [2003] EWHC 1177 (Ch).    [Back]

Note 9    [1929] AC 88.    [Back]

Note 10    [2009] EWHC 16 (Comm), [2010] LLRIR 190.    [Back]

Note 11    See paragraph 26 above.    [Back]

Note 12    See paragraph 3.5 above.    [Back]

Note 13    Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307 at 314, per Dillon LJ.    [Back]