Bestfort Developments LLP & Ors v Ras Al Khaimah Investment Authority & Ors

There is one appeal and one application for security for costs before the court.

The appeal, in Case No: A 3/2015/3642 (“the security appeal”), is a second appeal by the 1st to 6th, 8th and 10th to 14th Defendants (“the appellants” or “the appellants/defendants”), against the order of David Richards J dated 5 November 2015 dismissing the appellants' appeal against the order of Master Bowles dated 16 October 2015 whereby he refused to require the claimants, Ras Al Khaimah Investment Authority and others (“the respondents” or “the respondents/claimants”), all of which are incorporated and resident outside the jurisdiction and the EU, and whose only assets are in Ras Al-Khaimah (in the United Arab Emirates) and in Georgia, to provide security for the appellants’ costs of proceedings brought by the respondents/claimants against them and others under section 25 of the Civil Jurisdiction and Judgments Act 1982 (“the section 25 proceedings”).

Permission to appeal was granted by Patten LJ on 9 November 2015 on the basis that the security appeal raised an issue of principle suitable for a second appeal.

That issue of principle was said to be the correct evidential threshold for the grant of an order for security for costs under CPR r 23.13(2)(a). That provision permits an order for security to be made where the claimant is resident out of the jurisdiction but “not resident in a Brussels Contracting State, a State bound by the Lugano Convention or a Regulation State, as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982” (“a non-Convention state”). The issue is said to be whether an applicant for security must prove that it is more likely than not (i.e. on the balance of probabilities) that it will be difficult or impossible to enforce an English costs order against such a respondent or merely that there is a real risk that this will be the case.

It was common ground that the determination of that issue would involve consideration inter alia of this court’s decision in Nasser v United Bank of Kuwait [2002] 1 WLR 1868. That was a case where the court held that, in order to comply with Articles 6 and 14 of the European Convention on Human Rights (“the ECHR”) (preventing discrimination on the grounds of national origin with respect to access to the courts), the English court may only exercise its discretion to order security for costs in a manner that is not discriminatory.

Both the Master and David Richards J held that the appropriate test is one of likelihood, rather than some lower standard based on risk or possibility. They decided that, for an order for security to be granted, it was not sufficient that there was a real risk that enforcement of any costs order made in the appellants’ favour would prove impossible or impracticable or difficult in the relevant foreign jurisdictions.

The second matter before the court is an application by the appellants/defendants to this Court issued on 3 February 2016 under Case No: A3/2015/4051A, for an order requiring the respondents/claimants to provide security in the sum of £208,014.56 for the appellants/defendants’ costs of the respondents/claimants’ appeal against an order of Rose J dated 30 November 2015 dismissing the section 25 proceedings “or otherwise for a like order under CPR r 52.9 that such security be provided as a condition of allowing [the respondents/claimants’] appeal to proceed” (“the security for costs application”).

In this court Mr Philip Marshall QC, Miss Ruth den Besten and Mr James Mather appeared for the appellants/defendants; Mr Richard Millett QC and Mr Andrew Holden appeared for the respondents/claimants.

It is necessary for the purposes of this judgment to summarise the procedural background in some detail.

As David Richards J summarised in paragraphs 2 to 4 of his judgment, the section 25 proceedings were originally brought by the respondents/claimants under section 25 of the Civil Jurisdiction and Judgments Act 1982 for a worldwide freezing order and associated disclosure orders against the appellants/defendants and others and for the appointment of receivers (“proceedings”). These orders were sought in support of pending or intended proceedings by the respondents against a Mr Mikadze in Georgia and in Ras Al Khaimah in the United Arab Emirates. The respondents/claimants are entities associated with the government of Ras Al Khaimah and the claims are said to arise out of dealings between them and Mr Mikadze, a citizen of Georgia, in respect of property developments in Georgia. It is alleged that Mr Mikadze misappropriated large sums and the claim against him is said to be for US $42 million. The allegations are strongly denied. The respondents/claimants allege, among other things, that the appellants/defendants are beneficially owned or controlled by Mr Mikadze, and that it will be possible to enforce a judgment against Mr Mikadze against the appellants/defendants' assets. This allegation is denied by the appellants/defendants. The detail of the claims made or to be made in the foreign proceedings and in the present proceedings are not relevant for present purposes.

The section 25 proceedings were issued on 1 May 2015 and evidence of both fact and Georgian law was filed. At the time of the hearing before the judge, the application had been set down and was due to be heard in the Chancery Division with an estimate of three days starting on 9 November 2015.

The application for security for costs was made by all the defendants, except the 7^th and 9^th defendants who were not represented in the proceedings, by an application notice issued on 21 August 2015. Evidence of fact and expert evidence of Georgian law was filed on the application which was heard by Master Bowles on 7 October 2015. Towards the end of the hearing he invited further written submissions on a particular topic and submissions were supplied to him between 8 and 12 October 2015. The Master gave judgment on 16 October 2015 dismissing the application. He held that the court needed to be satisfied that there was likely to be an obstacle or burden to enforcement, purportedly basing himself on the terms of the judgment of Mance LJ in Nasser and on a subsequent decision by Hamblen J in Dumrul v Standard Chartered Bank [2010] EWHC 26 25 (Comm). In effect the Master proceeded on the basis that “likely” meant “more likely than not" or “likely on the balance of probabilities”.

The Master dealt with the issue in his judgment as follows:

“

25.

I turn therefore to the question of whether such grounds exist, and to the question as to the burden to be satisfied by an applicant for security where security is sought upon such grounds. As to the latter I find myself in complete agreement with Hamblen J in Dumrul v Standard Chartered Bank [2010] EWHC, 2625 (Comm); namely that, as a matter of both principle and authority (the authority being Nasser) the court needs to be satisfied that there is likely to be an obstacle, or burden, to enforcement, by which is meant, in accord with paragraph 62 of Nasser, that there is likely to be a substantial obstacle, or burden, to enforcement, and that a real possibility that such an obstacle or burden might exist is insufficient. The point of principle identified by Hamblen J. that a mere, or real, possibility that there might be a substantial obstacle or burden in respect of enforcement should not be sufficient to justify different treatment being applied to a resident outside the UK, EEA or EU, as compared with a person resident within those jurisdictions.

49.

However, in my judgment, that is not sufficient to enable a court to conclude in reliance on, or in respect of, Article 68(2)(e) that it is likely that there may be substantial difficulties in recognition or enforcement arising from the lack of a bilateral arrangement. It is undoubtedly possible, but not, on the evidence as I see it, likely.”

Thus, whilst the Master held that there was a real possibility that such an obstacle or burden might exist, he decided that he was not satisfied on the evidence before him that there was likely to be a substantial obstacle, or burden, in respect of enforcement.

The appellants/defendants then applied for permission to appeal against the dismissal of their application for security for their costs of the section 25 proceedings and, if permission were granted, for the order below to be set aside and for an order for security for costs to be made in their favour. The main ground on which they sought to appeal the Master’s order was the threshold test of the standard to which the court must be satisfied that there will be potential difficulties or burdens of enforcement in the relevant non-Convention state.

The hearing before David Richards J proceeded on the basis that, if he gave permission, he would also determine the appeal. Accordingly, he heard full argument from both sides on the substance of the appeal. On 5 November 2015 he gave judgment granting permission to appeal but dismissing the appeal itself, thereby refusing to require the respondents/claimants to give security for the costs of the section 25 proceedings. His judgment is available at [2015] EWHC 3197 (Ch). In effect he upheld the approach adopted by the Master.

The appellants/defendants duly paid the total sum of £76,000 in respect of the respondents/claimants’ costs of the former’s failed application for security.

As I have already said, on 9 November 2015 Patten LJ granted the appellants/defendants permission to appeal David Richards J’s decision. On that date he also adjourned the section 25 proceedings pending hearing of the security appeal. However, on 10 November 2015, the respondents/claimants applied to vary that order for an adjournment on the basis that their solicitors, Dechert LLP, gave an undertaking (“the Dechert undertaking”) to the court in the following terms:

“to pay any order for costs made against the respondents [i.e. the respondents/claimants] in relation to the Hearing [i.e. the hearing defined in the order as that “before Rose J listed to commence with a reading day on 9 November 2015 and a hearing from 10 November 2015”] to a maximum sum of £500,000, being the amount sought by the Appellants [i.e. the appellants/defendants] by way of security.”

That undertaking was provided on a voluntary basis and without any admission of liability.

In those circumstances, on 10 November 2015 Patten LJ set aside his previous order dated 9 November 2015 adjourning the section 25 hearing and ordered that the section 25 proceedings should proceed as listed on 10 November 2015.

The section 25 proceedings were heard by Rose J on 10, 11 and 12 November 2015. She gave judgment on 24 November 2015 dismissing the respondents/claimants’ application and refusing them permission to appeal. After receiving further submissions on costs, on 30 November 2015 she ordered the respondents to pay the appellants/defendants’ costs of the application on the standard basis in relation to the period prior to 6 November 2015, and on the indemnity basis thereafter, together with interest. She also required the respondents to make an interim payment on account of the appellants’ costs of the section 25 proceedings (claimed by the appellants at that stage to be £708,000) in the sum of £475,000 within 28 days. Her judgment is available at [2015] EWHC 3383 (Ch). I refer to her order as “the Rose order”.

On 4 December 2015 the respondents/claimants filed an appellant’s notice seeking permission to appeal against the Rose order dismissing the section 25 proceedings, for a stay of execution pending appeal and for continuation of certain injunctive relief pending appeal. That notice was supported by the 8^th witness statement of David Hughes, a partner in the firm of Dechert LLP, the respondents/claimants’ solicitors. On 18 December 2015, Patten LJ adjourned that application for permission to appeal to an oral hearing before a single Lord/Lady Justice of Appeal. He also ordered expedition of that application and stay of execution of the Rose order until after judgment on the application for permission to appeal. He also made an order for interim relief against the appellants/defendants in the terms of undertakings given by them in a previous order dated 18 June 2015, likewise until after judgment in the application for permission to appeal.

On 13 January 2016, the respondents/claimants issued an application in Case No: A 3/2015/3642A for security for costs in the sum of £90,000 in respect of the respondents’ costs of defending the security appeal, i.e. the appellants/defendants’ appeal against the order of David Richards J. That application was supported by the 9^th witness statement of Mr Hughes. On 28 January 2016, Lewison LJ refused that application on the papers on the grounds that it was made very late in relation to an appeal listed for hearing in under a fortnight and that, in any event, the respondents/claimants could set off their costs of the security appeal against their liability to pay costs under the Rose order, in the event that the appellants/defendants’ security appeal failed, that there has been no oral renewal of that application to this court.

Pursuant to the order of Patten LJ dated 18 December 2015, the respondents/claimants’ application for permission to appeal against Rose J’s dismissal of their section 25 proceedings (Case No: A 3/2015/4051), for a stay of execution pending appeal and for continuation of certain injunctive relief pending appeal, was heard before McCombe LJ on 1 February 2016.

Paragraph 23 of Mr Hughes’ 8^th witness statement, in relation to the application for a stay, referred to the fact that security had effectively already been provided by means of the Dechert undertaking “such that for all intents and purposes the interim payment has effectively been paid into court”.

In addition, McCombe LJ had before him the 6^th witness statement of Richard Clayman, an assistant solicitor employed by Peters & Peters, solicitors for the appellants/defendants, dated 22 December 2015, in opposition to the application for the stay of the interim payment of £475,000 and for the continuation of further injunctive relief. That witness statement stated that it was made in response to Mr Hughes’ 8th witness statement and also made:

“3.

…in support of the cross-application by the [appellants/defendants] for security for costs of the appeal and for certain conditions to be imposed if any permission to appeal were granted by the Court of Appeal to the [respondents/claimants]. |The condition is that further security be provided in respect of currently unsecured costs of the proceedings below.”

In response to paragraph 23 of Mr Hughes’ 8^th witness statement, Mr Clayman commented at paragraph 12 of his 6th witness statement that “a solicitors’ undertaking cannot be invested and there is no provision for interest to be added to the sums subject to such undertaking”, and that, accordingly the appellants/defendants would be prejudiced whilst actual payment was withheld. Further, at paragraphs 16 and 21, he said:

“16.

……the respondents [i.e. the appellants/defendants] do not accept that there is any basis for a stay of the payment on account ordered by Mrs Justice Rose. Alternatively, and only if required by the Court of Appeal, the respondents are prepared to accede to an arrangement under which the sum of £475,000 is held in an interest bearing account by my firm, pending the outcome of the Applicants’ [i.e. the respondents/claimants] permission application (and any subsequent appeal if permission is granted).

……

21... As described above, security for the respondents’ costs and the amount of £500,000 was provided in the form of an undertaking to the Court to pay any costs order up to that. It would be inconsistent now for the Applicants to resist providing further security in respect of their intended appeal. This is even more so where the Applicants’ above application for a stay of payment on account was sought partly on the basis that they have provided security in respect of the costs below.”

Although Mr Marshall QC was present at the hearing, the application was dealt with on the customary ex parte basis and he was not invited to address the court on behalf of the appellants/defendants. By his order of that date, McCombe LJ gave the respondents/claimants permission to appeal on grounds 1-6 and ground 9 of their grounds of appeal. He adjourned the application to appeal in respect of grounds 7 and 8 to the hearing of the actual appeal (“the section 25 appeal”), with the appeal on those two grounds to follow if permission were granted. He also continued the injunctions against the appellants/defendants made by Patten LJ in the terms of undertakings given by them in the previous order dated 18 June 2015 until the conclusion of the section 25 appeal, or further order in the meantime, with liberty to the appellants/defendants to apply to vary or discharge. Further, McCombe LJ ordered that the respondents/claimants should pay forthwith the sum of £475,000 into court, or alternatively into an interest bearing account in the joint names of the parties’ solicitors:

“as security in respect of the costs of the respondents [i.e. the appellants/defendants], such sum to be held subject to the court’s further directions.”

However, he did not continue the stay of execution granted by Patten LJ. Before us Mr Millett contended that this was an error and that the order should have so provided. (Subsequently McCombe LJ varied that order to provide for a stay of execution – see below.) That substantive appeal against Rose J’s dismissal of the section 25 proceedings remains listed to be heard in this court with a time estimate of two days. It was not before us.

After the hearing before us (and as a result of inquiry from the Court), we were informed that, following the hearing on 1 February 2016, Dechert LLP wrote to Messrs Peters & Peters LLP recording that they would, pursuant to the order of McCombe LJ, proceed to place the security which they had been holding for the previous Dechert undertaking given on 10 November 2015 for the appellants/defendants’ costs of the hearing before Rose J., up to an amount of £475,000, into an interest bearing account in the joint names of Dechert LLP and Peters & Peters LLP, and requesting details of three partners at Peters & Peters LLP who would sign the mandate.

As I have already mentioned in paragraph 7 above, on 3 February 2016 the appellants/defendants then made a further application for security for their prospective costs of the respondents/claimants’ section 25 appeal (i.e. what I have referred to above as the security for costs application) by application notice under Case No: A3/2015/4051A, supported by Mr Clayman’s 9^th witness statement and, further, by Mr Clayman’s previous 6^th witness statement. That application sought a further sum by way of security in an amount of £208,014.56 as security for the appellants/defendants’ prospective costs of resisting the respondents/claimants’ section 25 appeal or otherwise for a like order under CPR r52.9 that such security be provided as a condition of allowing that appeal to proceed. It was made on the assumption (which after the hearing before us the Court was informed was an agreed assumption) that the sum of £475,000 required by the order of McCombe LJ dated 1 February 2016 to be paid into court (but which was not in fact so paid) was pro tanto in satisfaction, or in place, of the undertaking given by Dechert on 10 November 2015 in relation to the costs of the section 25 proceedings before Rose J.

After the hearing before us (and as a result of inquiry from the Court), we were informed that, on 9 February 2016, Dechert LLP wrote to Peters & Peters explaining that the formalities required to set up a joint account would take 2-3 weeks and therefore agreement was reached to the effect that the £475,000 which was to be paid into court or into a joint account pursuant to the order of McCombe LJ would instead be held by Dechert “to the joint order of both Dechert LLP and Peters & Peters Solicitors LLP until deposit of such monies into the joint deposit account pursuant to the [order of McCombe LJ] or further order of the Court”. In the event, that interim undertaking (“the second Dechert undertaking”) remains in place because attempts to open an account with HSBC in the joint name of the parties’ solicitors proved difficult (owing to matters internal to HSBC).

On 6 February 2016, I gave directions that the appellants/defendants’ security for costs application in Case No: A3/2015/4051A should be heard together with the appellants/defendants’ security appeal in Case No: A 3/2015/3642.

At the start of the hearing, I raised with Mr Marshall my concerns that the security appeal itself was moot, given that, in the event, security had indeed been provided by the respondents/claimants (by means of the Dechert undertaking) and the section 25 proceedings had consequently gone ahead. The position, as Mr Marshall informed the court, was that, although he accepted that that was indeed the case, nonetheless:

After the hearing before us, and in response to inquiries from the Court as to the current status and extent of the Dechert undertaking, and as to whether it had been pro tanto replaced or satisfied by payment of the £475,000 into court or into a joint deposit account pursuant to the order of McCombe LJ, on 23 June 2016 the parties lodged further submissions informing the court that, by agreement between the parties, the Dechert undertaking given on 10 November 2015 had effectively been pro tanto replaced (to the extent of £475,000) by the subsequent undertaking by Dechert to hold that sum to the joint order of both Dechert and Peters & Peters.

Likewise, after the hearing, by letter dated 18 February 2016, Peters & Peters informed the Court that, on the basis of a revised schedule of the appellants/defendants’ prospective costs in relation to the section 25 appeal (estimated by them at the hearing to be in the region of £208,014.56), the appellants/defendants were now looking for security for costs in the reduced sum of £192,062.52.

Thus, in the event, the appellants/defendants’ position as to security for their costs is that:

Subject to one aspect, the judge correctly set out the statutory context, agreed factual background and principal ground of the defendants’ appeal at paragraphs 5 to 10 of his judgment. I adopt his summary of the position with the caveat that that part of the sentence which I have emphasised in bold below is the subject of dispute between the parties:

“5.

CPR 25.12 entitles a defendant to any claim to apply for security for its costs of the proceedings but the court may make an order for security for costs under CPR 25.13 only if (a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order, and (so far as relevant to the present application) one or more of the conditions in CPR 25.13(2) applies. The application was made only by reference to the condition specified in paragraph (2)(a) of CPR 25.13:

“the claimant is –

(i)

resident out of the jurisdiction; but

(ii)

not resident in a Brussels Contracting State, a State bound by the Lugano Convention or a Regulation State, as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982.”

6.

It is common ground that none of the claimants is either resident within the jurisdiction or resident in any of the states referred in paragraph (2)(a)(ii) (Convention states). It is not said that the claimants lack the means to meet an order for costs against them, but it is common ground that none of them has any assets in the UK or in any Convention state.

7.

It is also common ground that an application for security for costs against a claimant falling within paragraph 2(a) engages articles 6 and 14 of the European Convention on Human Rights. An order for security for costs against a claimant resident outside the United Kingdom or a Convention state is capable of amounting to discrimination under article 14 in the entitlement to effective access to the courts under article 6, on grounds of national origin where such an order could not be made against a person who was resident either in the United Kingdom or in a Convention state. (Footnote: ¹) This was established by the decision of the Court of Appeal in Nasser v United Bank of Kuwait [2001] EWCA Civ 556, [2002] 1 WLR 1868.

8.

There will be no breach of article 14 if the making of an order for security for costs is objectively justified. Potential difficulties or burdens of enforcement in the relevant state, which would not be encountered in enforcement in the United Kingdom or a Convention state, are capable of providing objective justification for these purposes. If that condition is met, the issue for the court is whether, having regard to all the circumstances of the case, it is satisfied that it would be just to make an order for security for costs.

9.

The first and principal ground of appeal is that the Master applied too high a test in determining whether the defendants would face potential difficulties or burdens in enforcing an order for costs against the claimants. The Master held that the court must be satisfied that the defendants would be likely to face such difficulties or burdens of enforcement, whereas the defendants submit that the test is the lower test of showing that there is a real, as opposed to a fanciful, risk of such difficulties or burdens. If the defendants are correct, the Master made an error of law. The defendants submit that, if the right test were applied, the evidence showed that they would face a real risk of being unable to enforce an order for costs. A further ground of appeal is that, in any event, the Master erred in failing to take account of relevant matters or took into account irrelevant matters.

10.

Some of the claimants are incorporated in Ras Al Khaimah while the others are incorporated in Georgia. Without conceding the point, the claimants did not seriously challenge before the Master the defendants’ case that there would be difficulties of enforcement in Ras Al Khaimah. Their case before the Master, and before me, is that they have assets in Georgia and the defendants could not show that there would be such difficulties of enforcement in Georgia as would justify the making of an order for security of costs.”

The judge then went on to explain how the Master reached his conclusion “that the court needs to be satisfied that there is likely to be an obstacle or burden to enforcement" and was entitled to reject the appellants’ further submissions in relation to the “threshold test”. The judge went on to conclude, however, that the threshold test point was an issue that could be raised on the appeal. Having considered the judgment of Mance LJ in Nasser v United Bank of Kuwait [2002] 1 WLR 1868 the judge concluded that the former was adopting a likelihood test, as opposed to a real risk test. He said:

“22.

Reading the judgment of Mance LJ as a whole, and in particular in the light of the passages cited above, it is clear to me that he was setting the bar at likelihood, rather than a lower test of a real risk. It is, however, fair to make these points. First, it does not appear from the judgment to have been the subject of argument between the parties. Secondly, the word “likely” will not necessarily mean more likely than not. Its meaning will depend on its context: see In Re Harris Simons Construction Ltd [1989] 1 WLR 368.”

The judge then went on to reject Mr Marshall’s submissions to the contrary, based on this Court’s decision in De Beer v Kanaar, [2003]1 WLR 38 and other authorities, that a real risk test was the correct approach. He said:

“23.

As earlier indicated, the lynchpin of the submissions on behalf of the defendants is the decision of the Court of Appeal in De Beer v Kanaar. Mr Marshall QC, who appeared as counsel in that case, submits that it makes clear that the relevant test for these purposes is one of a real risk. On analysis, I do not consider that the judgment of the court (Jonathan Parker LJ and Rimer J) will bear the weight placed on it by Mr Marshall.”

He referred with approval to the decision of Hamblen J in Dumrul v Standard Chartered Bank [2010] EWHC 2625, who concluded, after full argument on the relevant test and consideration of Mance LJ’s judgment in Nasser, that:

“25.

In my judgment as a matter of both principle and authority the court needs to be satisfied that there is likely to be an obstacle or burden. A mere possibility of this should not justify treating a party resident outside a Brussels or Lugano state differently. This is particularly so given that all that needs to be shown is an "obstacle" to enforcement. This is also supported by a number of passages in Mance LJ’s judgment.”

The judge then rejected Mr Marshall’s submission that reliance should not be placed on the judgment of Hamblen J in Dumrul or certain other authorities of this Court, apparently to similar effect (namely Allen v Bloomsbury Publishing Ltd [2011] EWCA Civ 943 and Star Reefers Pool Inc v JFC Group [2011] EWCA Civ 1065), on the grounds that in none of those cases did it appear that the decision of the Court of Appeal in De Beer v Kanaar was cited. The judge concluded in relation to the first ground of appeal before him:

“42.

…… Having regard to the view which I have formed of the judgment in that case, as explained above, I do not consider that the lack of citation of De Beer affects the authority of the judgments and observations in those three cases.

43.

The position is therefore that the judgment of Mance LJ in Nasser is expressed in terms which, in my judgment, provide for a threshold test of likelihood. That was the view taken by Hamblen J after argument in Dumrul. I should follow that decision unless I am convinced that it is wrong. I am far from convinced that it is wrong. On the contrary, it is in my judgment entirely consistent with the judgment of Mance LJ in Nasser. The judgment of Hamblen J in Dumrul has been approved and applied by Tomlinson LJ in Star Reefers.

44.

In those circumstances I am clear that I should follow the judgment of Hamblen J and reject the submission made on behalf of the defendants in the present case that the Master applied the wrong threshold test.”

The judge went on to reject the other arguments presented by Mr Marshall in relation to factual matters which Mr Marshall submitted the Master had failed to take into account or had wrongly taken into account. Accordingly, the judge dismissed the appeal, thereby refusing to grant security to the appellants/defendants. Having decided that the Master had applied the correct threshold test, he himself did not consider the evidence in any detail.

In summary, in support of his contention that the relevant test was whether there was a real risk that it would be difficult or impossible to enforce an English cost order against a respondent, Mr Marshall, on behalf of the appellants/defendants, submitted that:

Mr Marshall submitted that, in applying the relevant test as articulated above, the evidence demonstrated the existence of a real risk, or, alternatively likelihood, that any costs order against the respondents/claimants as residents of Ras Al Khaimah and/or Georgia would be unenforceable. Accordingly, he submitted that security for the section 25 appeal should be provided and that the appellants should have their costs of the proceedings below.

Mr Millett, on behalf of the respondents/claimants, submitted as follows:

Mr Millett accepted, on behalf of the respondents/claimants, that if the threshold test was one based on risk prospect or possibility, then, on the basis of the Master’s own assessment of the evidence, the threshold had been crossed. That was because the Master held that the evidence established that the existence of additional obstacles or burdens to enforcement was possible but not, on the evidence as he saw it, likely.

The relevant evidence relating to the difficulties of enforcement in Ras Al Khaimah and Georgia of any order of the English court in relation to costs may be summarised by reference to the account set out in the appellants' skeleton argument in this court from which Mr Millett did not demur. There was, not surprisingly, given the interlocutory nature of the application, no cross-examination of the experts on what were relatively short reports.

As I have already said, the Master held that the evidence established that the existence of additional obstacles or burdens to enforcement in Georgia was possible but not, on the evidence as he saw it, likely.

I should further note that there was no suggestion whatsoever that the provision of security would in any way stifle the section 25 proceedings or the appeal against their dismissal. The respondents were well able to afford the amount required as security and indeed provided £500,000 in the form of a solicitors’ undertaking without any apparent difficulty.

At times during the course of this two-day hearing, during which extensive European and English authority was cited to support every facet of counsel’s arguments, it appeared to me that the court was being asked to dance on a semantic pinhead and apply an unnecessarily restricted approach to what should have been a simple question for any master or judge hearing an application for security on what, necessarily and proportionately, will be limited evidence. My concern was underlined by what, in the context of this litigation, was the relatively small amount of money involved. So I approach the question raised by this appeal on the basis that the principles and approach should be simple and clear and that any application should not be over-burdened by technical and semantic arguments relating to the construction of the “threshold” test for the making of an order or its application.

For convenience I set out the relevant provisions of Article 14 (as set out in schedule 1 to the Human Rights Act 1998) and CPR r 25.13 in their current form:

“Article 14

The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.”

“CPR r 25.13

Conditions to be satisfied

25.13

(1)

The court may make an order for security for costs under rule 25.12 if –

(a)

it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and

(b)

(i)

one or more of the conditions in paragraph (2) applies, or

(ii)

an enactment permits the court to require security for costs.

(2)

The conditions are –

(a)

the claimant is –

(i)

resident out of the jurisdiction; but

(ii)

not resident in a Brussels Contracting State, a State bound by the Lugano Convention, a State bound by the 2005 Hague Convention or a Regulation State, as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982 (Footnote: ²); ……

(c)

the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so;

(d)

the claimant has changed his address since the claim was commenced with a view to evading the consequences of the litigation;

(e)

the claimant failed to give his address in the claim form, or gave an incorrect address in that form;

(f)

the claimant is acting as a nominal claimant, other than as a representative claimant under Part 19, and there is reason to believe that he will be unable to pay the defendant’s costs if ordered to do so;

(g)

the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him.

(Rule 3.4 allows the court to strike out a statement of case and Part 24 for it to give summary judgment).”

The first point to make is that, in my judgment, there was no doubt that, on the agreed evidence, one or more of the jurisdictional conditions set out in rule 25.13 (2) was satisfied; as per sub-paragraph (2)(a) the respondents/claimants were resident out of the jurisdiction, but not resident in a Convention state. Contrary to Mr Millett’s submission, the issue as to whether the rule is being applied in a discriminatory fashion, so as to fall foul of Article 14, does not arise at the stage of consideration as to whether one of the jurisdictional conditions in rule 25.13 (2) has been satisfied; it arises at the stage when the court comes to exercise its discretion under paragraph (1) (a) of rule 25.13, namely when it comes to address the question whether it is satisfied, having regard to all the circumstances of the case, that it is just to make an order for security.

That is not only obvious from the structure of CPR r 25.13 itself, but also from paragraphs 58 and 61-63 of Mance LJ’s judgment in Nasser. In order for the court to be satisfied that it is exercising its discretion in a just manner - i.e. a manner which is not discriminatory for the purposes of Article 14 - it has to conclude that it is doing so on “objectively justified grounds relating to obstacles to or the burden of enforcement in the context of the particular foreign claimant or country concerned”; see paragraph 61 of Nasser. That is part of the exercise of the discretion under paragraph (1) (a) of rule 25.13; it has nothing to do with determining whether one of the conditions stipulated in sub-paragraph (2)(a) applies to the claimant. Accordingly, I reject Mr Millett’s submissions under this head.

The second point to make is that, as was common ground, where an order for security for costs is sought against a claimant resident in a non-Convention state, the issue is whether such an order is capable of amounting to discrimination in relation to the enjoyment of its rights under Article 6 to effective access to the courts.

The next issue is whether potentially the circumstances give rise to any discrimination at all. Contrary to Mr Marshall’s submission under this head, in my view CPR r 25.13(2)(a) is prima facie discriminatory against claimants or potential claimants who are not resident in the UK or in another Convention state. It appears to me to be a circular argument to say, as Mr Marshall submitted, that there was no discrimination for the purposes of Article 14 as the two categories of claimants were not in an analogous situation - because the existence of a real risk of an unenforceable costs order against the respondents/claimants as residents in a non-Convention state was sufficient to distinguish such claimants from a claimant resident in a Convention state.

In my judgment Mr Marshall gets no support for such an argument either from the House of Lords’ decision in R. (on the application of Carson) v Secretary of State for Work and Pensions [2006] 1 A.C. 173 or from the decision of the European Court of Human Rights (“ECHR”) in the same case - Carson v United Kingdom (2010) 51 E.H.R.R. 13. In Carson, the ECHR held that UK pensioners resident abroad, who complained of being treated differently from UK resident pensioners, were not in a relevantly similar situation to those resident at home. The court noted, among other things, that, given that the pension system was primarily designed to serve the needs of those resident in the UK, it was hard to draw any genuine comparison with the position of pensioners living elsewhere, because of the range of economic and social variables which varied from country to country. In particular, it referred to the fact that, as non-residents, the applicants did not contribute to the UK economy and in particular paid no UK tax to offset the cost of any increase in the pension. But the factual scenario in Carson was very different from that in the present case.

In contrast, a litigant resident in a non-Convention state, who wishes to bring proceedings in England and Wales, is clearly in a comparable position to a claimant resident in the UK or a Convention state. A non-resident claimant who chooses to litigate here has to engage with the court system as fully as a resident claimant; the former is subject to the same obligations as the resident - for example it has to pay court fees and give disclosure; likewise, it is entitled to the same remedies as the resident claimant – for example, where the circumstances justify it, worldwide freezing orders and other interlocutory relief. I see no reason to disagree with the statement of Mance LJ at paragraph 58 of Nasser to the effect that he considered “that all personal claimants (or appellants) before the English courts must be regarded as the relevant class" either as a matter of analysis or in the light of the subsequent case of Carson (or indeed any of the other authorities to which Mr Marshall referred in this context). Whilst Mance LJ referred to “personal” claimants (no doubt because the claimant in that case was an individual) that is an immaterial distinction for present purposes.

Accordingly, given that the two categories of claimants are in an analogous situation, sub-paragraph (2)(a) of rule 25.13 gives rise to prima facie discrimination against claimants or appellants who are residents in a non-Convention state, in the enjoyment of their Article 6 rights.

It therefore becomes necessary to consider, as the next issue, whether such prima facie discrimination in CPR r 25.13 (2) (a) is based on grounds of nationality (as Mr Millett contends), or on grounds of residence (as Mr Marshall contends). The ground of the discrimination is relevant as it predicates, according to English and European authority, whether “very weighty reasons” are required to justify the discrimination (the requirement in cases of discrimination on grounds of race, gender, illegitimacy, religion, nationality and sexual orientation etc (Footnote: ³)), or whether merely “some rational justification” (or the even less stringent test of “manifestly without reasonable foundation”) for the discrimination can be shown (the tests applied in cases of discrimination on less serious grounds). The relevance of the appropriate criterion is that both counsel submitted that the level of the justification informed the issue as to what was the correct threshold test the court should apply for deciding whether a case for security had been made out on the evidence.

It would appear that Mance LJ in Nasser approached the issue - as to what was required to entitle a defendant (or respondent to an appeal) to an order for security for costs - on the basis that the absence of sufficient justification would be discriminatory on the grounds of nationality, rather than residence; see for example paragraphs 55, 58 and 61 of his judgment. He did so, in effect, by reference to Community jurisprudence in relation to indirect discrimination on grounds of nationality, as articulated in Mund & Fester v Hatrex International Transport [1994] ECR-I 467 and applied in Fitzgerald v Williams [1996] QB 657. However, Mance LJ did not have the benefit of the subsequent and developing ECHR jurisprudence to which I refer below. Nor did the point appear to be an issue before him. As Mr Marshall submitted, there is a distinction to be drawn between discrimination in the context of article 6 of the EC Treaty (which is concerned with the operation of the single market and which has been addressed by the express exclusion of persons resident in Brussels Convention and EU Judgments Regulation States), and discrimination on human rights grounds in the context of the ECHR. It is the latter with which both Nasser and this case are concerned and the relevant jurisprudence is that contained in the ECHR authorities, as applied by the English court. For these reasons I do not consider that this court is bound to follow Mance LJ’s view that CPR r 25.13 (2) (a) is prima facie discriminatory on grounds of nationality.

Despite the views expressed in Nasser and the line of authority culminating in Fitzgerald v Williams (Footnote: ⁴), I have no doubt that, as submitted by Mr Marshall, any inherent discrimination in CPR r 25.13 (2) (a) is on the grounds of residence, not of nationality. The threshold condition under sub-paragraph (2)(a) for the exercise of the discretion conferred by paragraph (1)(a) is expressly stated to be residence in a non-Convention state. Thus a British national resident in the United States would meet the condition, but a US national resident in the UK would not. Moreover, in this day and age, where, certainly in the context of Commercial Court litigation, more litigants are of foreign than of UK nationality, it seems unreal to characterise the provision as one discriminating in favour of UK/EU nationals and against non-Convention state nationals. Likewise, in the modern globalised market place, where companies may be resident in many jurisdictions, the notion that residence is somehow a proxy for “nationality” seems outdated. The distinction in CPR r 25.13 (2) (a) is based on the amenity of the relevant claimant to the court’s jurisdiction, by reference to his residence. Thus, in my judgment, no question of covert or indirect discrimination on the grounds of nationality arises, even if such a doctrine were available in the context of ECHR jurisprudence, which seems unlikely (Footnote: ⁵). I thus reject Mr Millett’s suggestion that the residence requirement in sub-paragraph (2)(a) is somehow a proxy for discrimination on grounds of nationality.

Obviously, whether a statute directly or indirectly discriminates on grounds of nationality, even though residence is said to be the qualifying condition, is an issue which has to be determined in its context. This approach is supported by the ECHR’s decision in LB v Austria, no. 39802/98, judgment of 18 April 2002, where the court rejected a complaint on the basis of Article 14 made by an Austrian national of Hungarian origin (and previously of Hungarian citizenship), who complained that in refusing to allow him to pay social security contributions for the time that he had been in school and studied in Hungary the Austrian legislation discriminated against him on grounds of nationality. The ECHR rejected the argument that his differential treatment was based on nationality, noting that nationality was not the criterion mentioned by the relevant Austrian legislation. Moreover, to give differential treatment based on differences of residence was, in the particular circumstances, neither unreasonable nor arbitrary. The court said:

“As regards compliance with Article 14, the Court recalls that a difference in treatment is discriminatory for the purposes of this provision if it “has no objective and reasonable justification”, that is if it does not pursue a “legitimate aim” or if there is not a “reasonable relationship of proportionality between the means employed and the aim sought to be realised” (Petrovic v. Austria judgment of 27 March 1998, Reports 1998-II, § 30). Moreover the Contracting States enjoy a certain margin of appreciation in assessing whether and to what extent differences in otherwise similar situations justify different treatment (Gaygusuz v. Austria judgment of 16 September 1996, Reports 1996-IV, § 42).

The Court is not persuaded by the applicant’s argument that the difference in treatment at issue is based on his national origin. In the first place the criterion mentioned in Section 227 § 1 of the Social Security Act is not the nationality of the person seeking to make voluntary payments (see, however, the above quoted Gaygusus v. Austria judgment, op. cit., § 50). Moreover, to make participation in the scheme dependent on employment in a specific country and to accept payments for alternative periods only on the basis that these periods are passed in the same country does not appear unreasonable or arbitrary (No. 14128, R.W. v. Austria, Dec. 12.2.1990, unpublished).”

In R. (on the application of Carson) v Secretary of State for Work and Pensions [2006] 1 A.C. 173 the House of Lords held, applying ECHR jurisprudence, that a distinction was to be drawn between, on the one hand, grounds of discrimination under article 14, which prima facie appeared to offend respect due to the individual, as in the case of sex or race, where severe scrutiny was called for as to whether the discrimination was justified; and, on the other hand, those grounds which merely required some rational justification. Importantly for present purposes, the House of Lords also held that discrimination on the grounds of residence fell into the latter category, where only some rational justification (as opposed to severe scrutiny) was required. Lord Hoffmann, with whom Lord Nicholls and Lord Rogers expressly agreed (Footnote: ⁶), said as follows:

“What is discrimination?

To similar effect, Lord Walker, with whom likewise Lord Nicholls and Lord Rodger agreed, said as follows:

“ ‘Suspect’ grounds of discrimination

Similarly, in Carson v United Kingdom (2010) 51 E.H.R.R. 13, the ECHR held that, in the circumstances of that case, ordinary residence was to be seen as an aspect of personal status (i.e. included in the phrase “other status” in article 14) and that place of residence, applied as a criterion for the differential treatment of citizens in the grant of state pensions, was a ground falling within the scope of article 14. However, in that case, the ECHR concluded that there had been no violation at all because the two groups of pensioners (i.e. those residing in the UK and those residing abroad) were not in relevantly similar positions.

The approach of the English courts to cases where discrimination under article 14 is alleged in relation to the right to access to justice under article 6 is instructive. Thus, for example, in Public Law Project v Lord Chancellor [2015] EWCA Civ 1193, the Court of Appeal had to consider a statutory instrument introducing a proposed residence test which would qualify the provision of civil legal aid in the ordinary course. The Divisional Court had declared the relevant order unlawful on the grounds inter alia that it was unjustifiably discriminatory under article 14. In the Court of Appeal, Laws LJ (with whom Kitchin and Christopher Clarke LJJ agreed) rejected an argument that, in the context of access to justice, the provision was discriminatory. Laws LJ held that, in the context of the expenditure of state funds on civil legal aid, the appropriate test for justification of the alleged discrimination was whether it was “manifestly without reasonable foundation”. In allowing the appeal, he said:

“31.

It is common ground that the residence test is discriminatory within the meaning of ECHR Article 14 read with Article 6. I need not set out these provisions; the only question on this part of the case is whether the residence test, being discriminatory, can be justified as a proportionate measure for the achievement of a legitimate aim. The relevant aim is the saving of public expenditure; that is plainly legitimate. But it is necessary to decide by what criterion or criteria the issue of justification should be determined. 

"Manifestly Without Reasonable Foundation"

Mr Millett pointed to paragraphs 39 and 44 of Laws LJ’s judgment to support his argument that the relevant context in the present case was the State's duty to ensure fair and impartial procedures and to avoid undue legal obstacles to access to the courts, rather than residence or a putative duty to fund legal representation. He submitted that, accordingly, the highest level of scrutiny and justification for the exercise of the discretion under CPR r 25.13(2)(a) was required.

I disagree with that submission. Of course the present context is not one, such as that in Public Law Project v Lord Chancellor, or indeed the pension cases, where the issue involves the decision of the State as to what it will, or will not, fund by way of public expenditure. But, as Baroness Hale said: "The scope of this margin will vary according to the circumstances, the subject-matter and the background”. The imposition of conditions, such as the provision of security for costs, by reference to a residence test, which some non-resident claimants/appellants have to satisfy, in order to litigate here, necessarily involves the State conducting a balancing exercise between the former’s interests in having access to the courts on the one hand, and the wider interests of defendants/respondents, on the other, who may be left out of pocket if a claimant/ appellant disengages with the process. It is for the State to strike that balance, which it has done with the enactment of CPR r 25.13(2)(a); and for the court, in exercising the discretion, to do so based on objectively justifiable reasons relating to difficulties of enforcement in the particular case.

But, in an application for security for costs under CPR r 25.13, the court is not dealing with a case in which the right to respect for the individuality of a human being (or the nationality of a company or its shareholders) is at stake, and where, consequently “very weighty reasons” are required to justify the discrimination. Nor, on proper analysis, is it dealing with a provision that obviously discriminates against foreign (i.e. non-Convention state) incorporated companies. It is merely dealing with a question of general economic strategy impacting upon the “other status” (i.e. residence) of a person, whether individual or corporate, as described in article 14. It is a provision which balances the entitlement of non-resident claimants to have access to the English courts, against the interests of those litigants who may be defendants or respondents to such process (who, in turn, may well be non-resident themselves). In such circumstances, a wide margin of appreciation is allowed, reflecting the consideration that the national authority in principle is best placed to appreciate what is in the public interest on social or economic grounds: see e.g. Runkee v United Kingdom [2007] ECHR 42989/98 at paragraphs 35-36. What is required, as the ECHR made clear in Carson at paragraph 62, is some rational justification for the system which treats certain categories of litigants differently from others, in the sense of imposing conditions to which their access to justice is subject.

There can be no doubt that there is indeed, objectively, a rational justification for a system, such as that contained in CPR r 25.13, which gives the court a discretionary power to require a non-Convention state resident claimant or appellant to provide security, whilst not making it mandatory for the court to make such an order to do so. Indeed, certain of the features are referred to by Mance LJ in paragraphs 62 and 64 of Nasser. Another rationale is the point which I have already mentioned, namely that a litigant who is resident in a non-Convention state is not, in the absence of assets within the jurisdiction, amenable to the UK court’s powers, if, having started proceedings here, it subsequently decides to disengage from the UK process.

But the existence of an objectively rational justification for the system obviously does not permit the court which comes to exercise the discretion to do so in what is, in fact, a discriminatory manner. The court, for example, is not entitled without more to assume, that just because a litigant is a company incorporated in a Caribbean island, but resident in Ruritania, that justifies the imposition of an order for security; that would be prima facie discriminatory on grounds of “other status”. It has to exercise the discretion on objectively rational grounds by reference to the difficulties of enforcement or some other attribute of the litigant that objectively renders enforcement problematic. But, in my judgment, that exercise is not subject to the “severe scrutiny” justification. All that is required is some objectively justifiable rationale for the exercise of the jurisdiction. And that leads onto the next and - principal - issue which has to be addressed in this case, namely, what is the threshold test which the evidence has to satisfy, in order to prevent the exercise of the court’s discretion falling foul of article 14? It is to this issue which I now turn.

My starting point is the wide wording of CPR r 25.13 (1)(a), viz:

“The court may make an order for security for costs under rule 25.12 if –

(a)

it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order.”

In other words, the discretion is very widely expressed and does not easily lend itself to the notion that it is to be circumscribed by inflexible semantic tests as to what the evidence has to show. Likewise, I do not consider that the requirement to demonstrate that there are rational and objectively justifiable reasons for treating a non-Convention state resident differently from a Convention state resident requires the application of a strict inflexible test.

I accept Mr Marshall’s submission that traditionally the purpose of ordering security for costs has always been regarded as to protect against the risk that a defendant may be unable to recover the costs of proceedings brought against him; see for example the notes at CPR r25.12.2:

“Security For Costs

25.12.2

The purpose of an order for security for costs is to protect a party in whose favour it is made against the risk of being unable to enforce any costs order they [sic] may later obtain. The order, if complied with, will provide the party in whose favour it is made with a fund normally held by the court against which he can enforce any award of costs they [sic] may later obtain.”

The tests propounded by the respective parties theoretically had two elements: first, what has to be shown by an applicant for security, i.e. real risk of an obstacle or burden to enforcement, or alternatively likelihood of such an obstacle or burden: and, second, the evidential standard by which real risk or likelihood had to be established to the satisfaction of the court. In practice, however, the two elements were understandably elided in counsel’s submissions and we think that is the right approach.

Contrary to Mr Millett's submissions, I do not accept there is any need for the evidence to demonstrate “very cogent evidence of substantial difficulty in enforcing a judgment" (Footnote: ⁸) either in the non-Convention state where a claimant is resident, or where his assets are located. Nor do I accept that the ECHR jurisprudence in relation to discrimination, or indeed this Court’s decision in Nasser, predicate an evidential test which requires satisfaction “on the balance of probabilities", or demonstrating “a more than 50% likelihood”, that there will be, or are, obstacles or burdens to enforcement. Such a high test as that propounded by Mr Millett derives from the mistaken assumption that the human rights jurisprudence requires the exercise of a discretion under a potentially discriminatory provision such as that contained in CPR r 25.13 (2) (a) to be justified by “very weighty reasons". As I have endeavoured to explain above, that is not the approach of the ECHR to discriminatory aspects of legislation which relate to non-sensitive, as opposed to sensitive, aspects of a person’s status.

I quite accept that, as Mance LJ stated in Nasser at paragraph 61, if the court is to exercise its discretion to order security it should be “on objectively justified grounds relating to obstacles to or the burden of enforcement”, either as regards the country where enforcement is to take place or as regards the non-resident claimant. I also accept (see Nasser at paragraph 63) that, for the discretion to be exercised “there must be a proper basis for considering that such obstacles may exist or that enforcement may be encumbered by some extra burden”. In most cases, no doubt, such difficulties will satisfy the description of “substantial”. However, I do not consider that, properly analysed, any of the relevant passages in his judgment in Nasser can be read as mandating an applicant for security to prove a “likelihood” on the balance of probabilities, i.e. above 50%, that there will in fact be substantial obstacles to enforcement; or as excluding an applicant who merely establishes “real risk” of substantial obstacles to enforcement. Indeed, it is clear that in Nasser the Court of Appeal was not addressing arguments in relation to a threshold test (the point had not been argued), the focus being rather upon the point that there could be no presumption of unenforceability simply through residence abroad. Contrary to the view taken by Hamblen J in Dumrul (Footnote: ⁹), I do not consider that Mance LJ was suggesting, let alone deciding, that an applicant had to show hard-line likelihood, as opposed to real risk, of substantial obstacles to enforcement. He certainly was not suggesting an evidential threshold which required the demonstration of likelihood on the balance of probabilities.

The relevant paragraphs of Mance LJ’s judgment upon which the judge and Hamblen J in Dumrul appear to have relied in reaching their conclusions are the following:

In my judgment, none of the above paragraphs support the conclusion reached by Hamblen J at paragraphs 24 and 25 of Dumrul that it is not sufficient for an applicant to show a real risk of an obstacle or burden to enforcement, but rather “the court has to be satisfied that there is likely to be an obstacle or burden”. Of course, in one sense, what such a test requires is dependent on what is meant by the word “likelihood” - a word which can have a different shade of meaning depending on its particular context; see Re Harris Simons Construction Limited [1989] 1 WLR 368 at 370. But, with respect to Hamblen J, if and to the extent that he was suggesting that his semantic analysis of Mance LJ’s comments excluded a test based on risk, I cannot agree. For example:

In my judgment, it is sufficient for an applicant for security for costs simply to adduce evidence to show that “on objectively justified grounds relating to obstacles to or the burden of enforcement” (Footnote: ¹¹), there is a real risk that it will not be in a position to enforce an order for costs against the claimant/appellant and that, in all the circumstances, it is just to make an order for security. Obviously there must be “a proper basis for considering that such obstacles may exist or that enforcement may be encumbered by some extra burden” (Footnote: ¹²) but whether the evidence is sufficient in any particular case to satisfy the judge that there is a real risk of serious obstacles to enforcement, will depend on the circumstances of the case. In other words, I consider that the judge was wrong to uphold the Master’s approach that the appropriate test was one of “likelihood”, which involved demonstrating that it was “more likely than not” (i.e. an over 50% likelihood), or “likely on the balance of probabilities”, that there would be substantial obstacles to enforcement, rather than some lower standard based on risk or possibility. A test of real risk of enforceability provides rational and objective justification for discrimination against non-Convention state residents. Accordingly, I reject Mr Millett’s submission in this respect.

In addition to the reasons which I have set out above (i.e. the approach of the ECHR to justification in respect of “non-sensitive" areas of discrimination, the width and purpose of the discretion contained in CPR r 25.13(1)(a), and the proper analysis of Nasser), I reach this conclusion for the following reasons.

Necessarily, at an interlocutory stage, in the absence of cross-examination and full enquiry, it may well be that the court cannot be satisfied at that time that an applicant for security has demonstrated on the balance of probabilities, that there will be substantial obstacles to enforcement, or even, in some cases, that there is a real risk of such obstacles. The judge at that stage may well not be in a position to resolve disputed issues arising on the evidence. For that reason, I am against the articulation of any hard-line, inflexible test in relation to an evidential standard based on “likelihood”. Moreover, as the arguments in this case demonstrated, “likelihood” is a protean word which takes its meaning from its context. That in itself can lead to uncertainty.

An instructive discussion as to the difference between the evidence required at an interlocutory stage to assess risk and that required at the final stage of proceedings is that contained in the speech of Lord Nicholls (Footnote: ¹³) in In re H (Minors) (sexual abuse: standard of proof] [1996] AC 364, at 589. Lord Nicholls was contrasting the evidence required at an interlocutory stage of care proceedings to make an interim care order or an interim supervision order under section 38 of the Children Act 1989 (where the relevant test was “reasonable grounds for believing” that the relevant conditions set out in section 31(2) of the Act were satisfied), with that required at the final stage where the court, before making a care order, had to be satisfied as a threshold condition “that the child… is suffering , or is likely to suffer, significant harm”. He said:

“A conclusion based on facts

Two examples were referred to in the course of argument which underlined the difficulty which utilisation of Mr Millett’s test of likelihood could lead: the first reflected the circumstances of this case: namely a situation where, on very limited evidence of the law of the foreign country, two experts disagreed as to whether any obstacles to enforcement existed at all; the second was a hypothetical scenario where the evidence showed that one in 20, or one in 100, foreign nationals ran the risk of kidnap, or ransom demands, if they attempted to enforce an English judgment. How, submitted the appellants, could it be said that in those circumstances they had established an over 50% likelihood that there were obstacles to enforcement? At best, all that could be shown was a “proper basis for considering that such obstacles may exist” - i.e. a real risk. The inherent uncertainty with which the court is having to deal in the context of an interlocutory application for security for costs - a future risk, or a potential difficulty - supports a risk-based, rather than a likelihood-based, approach.

In my judgment, and as Mr Marshall submitted, an analogy can be drawn with the test applied by the court in the context of freezing injunctions. In that context the jurisdiction arises where:

“the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied.”

see Ninemia Maritime Corp v Trave Schiffahrts GmbH & Co KG (The Niedersachsen) [1983] 1 WLR 1412, 1422E-H per Kerr LJ. A claimant has to adduce “solid evidence of risk of dissipation by the defendant” to support his assertion that there is a real risk that the judgment or award will go unsatisfied. (Footnote: ¹⁴) As the authors go on to state, “since each case depends on its own facts it is impossible to lay down any general guidelines on satisfying this evidential burden”, although they then outline some of the factors which may be relevant. Likewise, in the context of an application for security for costs, I consider that a similar – and necessarily flexible - test is appropriate for the purposes of deciding whether an order for security should be made. The analogy with the freezing order jurisdiction is particularly apt, in my view, because it reflects the test which a claimant has to satisfy in order to obtain protection for satisfaction of any judgment which it might obtain against a defendant. An application by a defendant for an order for security for his costs is the converse side of the coin (Footnote: ¹⁵). There should, it seems to me, be an appropriate symmetry between the two tests that respectively entitle a claimant to a freezing order to satisfy any judgment, and a defendant (or appellant) to security for its costs. There are further similarities. On the making of a freezing order, the court makes an interim finding on the merits (the existence of a good arguable case) which is later tested at trial; on the issue of risk of dissipation, however, it makes a determination on an issue that is never tested at trial, namely: is there, on the whole of the evidence then before the court, a real risk of dissipation? As Mr Marshall submitted, that approach reflects the perceived justice of protecting the applicant against the risk of his being unable to enforce any judgment he may later obtain because of unjustified dissipation, when a trial on the risk of dissipation is not practicable or proportionate. It is directly comparable to the security for costs jurisdiction which protects against “the risk of being unable to enforce any costs order they may later obtain”. It follows that the tests should be similar.

However, I am not persuaded by Mr Marshall’s submissions that, had Hamblen J been referred to the Court of Appeal decision in De Beer v Kanaar, supra, when applying Nasser in Dumrul, it would have led to a different conclusion on his part as to the formulation of the relevant test. It seems to me that the relevant argument in De Beer v Kanaar was centred on what the evidence showed in relation to the seriousness of the risk, rather than on any distinction between a threshold test based on risk and one based on likelihood. But what De Beer does indeed show is the Court of Appeal, having considered Nasser in detail as well as the earlier authorities, applying a traditional test of real risk; see in particular the judgment at paragraphs 84 and 90. To that limited extent it supports Mr Marshall’s arguments.

Mr Marshall referred to other cases where the court ordered security in circumstances where there was a real risk of a costs order proving to be unenforceable but where it could not be shown that it was more likely than not that enforcement would prove impossible or difficult. None of these cases were considered by Hamblen J in Dumrul. Mr Marshall underlined two cases as being of particular importance. The first, Aim Asset Management Sdn. Bhd & Anor v Kazakhstan Investment Fund Ltd (unreported, 22 May 2002), was a decision of Mr Gabriel Moss QC sitting as a deputy judge of the Chancery Division. In that case, there was an absence of evidence about difficulties of enforcement in Kazakhstan where the claimant’s assets were likely to be located. The position was unknown and there was an even chance of successful and unsuccessful enforcement. It could not be shown that it was more likely than not that enforcement would prove impossible or difficult. The court concluded in these circumstances that:

“… in terms of the risk in relation to enforcement against the defendant, there is a very substantial risk which cannot presently be quantified but nevertheless a very substantial risk that enforcement of an English judgment for costs in Kazakhstan would, even if not impossible, be extremely difficult and expensive. It seems to me that is a risk against which the claimants are entitled to be protected…”

It was thus clear that Mr Moss QC considered that a real but unquantifiable risk was a sufficient basis upon which to order the provision of security.

In the second case, Texuna, Gross J. considered the relevant consideration to be one of real risk, having given detailed consideration to the decision in Nasser. He held that:

“…23(ix) As to the applicant for security demonstrating the risk (Nasser, at [67]) of additional obstacles to or burdens of enforcement in a country outside the zone, evidential requirements will necessarily depend on the facts of the individual case: Nasser, at [64]. Satellite litigation is undesirable so that in some cases the Court will no doubt be content to take notice of obvious realities or to draw commonsense inferences, without formal evidence. But, ordinarily, even if the Court is minded to take a broad brush, commonsense approach, it will be necessary for the applicant at least to show some evidential basis for the conclusion that there would be a realistic risk of additional obstacles or burdens in the way of enforcement in a country outside the zone; it will be recollected that Nasser, at [63], precludes the Court from making any inflexible, generalised assumption”.

Further at paragraph 24, he said:

“Having now taken account of Nasser, I remain of the view that security is to be ordered – but by reference to the realistic risk of an additional burden of enforcement outside the zone rather than the likely costs of the proceedings.”

Gross J’s approach appears to me to be one that is eminently sensible and reflects what in my experience is the approach habitually taken by judges and masters in this area.

For all the above reasons it follows that, in my judgment, if and to the extent that Hamblen J in Dumrul was departing from that traditional approach, as articulated in Texuna and requiring an applicant for security to show more than a “real risk" of an obstacle to enforcement, namely a “likelihood” in the sense of a probability, I cannot agree with him. It is in fact somewhat unclear from paragraphs 24 and 25 of his judgment, read together, precisely what he was saying was the appropriate test; but the better view is that he was excluding both “real risk” and “mere possibility” as justifying an order for security. As I have already said, I do not consider that the judgment of Mance LJ in Nasser on proper analysis requires or points to such a result and, moreover, there was in any event no need for Hamblen J to engage in a debate as to the correct threshold test, since, in any event, the bank’s evidence in Dumrul did not demonstrate even a real risk of obstacles to enforcement. What actually suffices to justify the making of an order will depend on the evidence adduced; “mere possibility” of obstacles to enforcement in my view will usually be insufficient to justify an order for security; but (depending on the evidence) “real risk” will usually, but not invariably, suffice.

In those circumstances I consider that both the Master and David Richards J adopted the wrong approach in this case. Moreover they appeared to take Hamblen J’s approach one stage further and construe “likelihood” as requiring the defendant to establish on the balance of probabilities at an interlocutory stage that there were obstacles to enforcement. I should also mention that, in his judgment, David Richards J referred to the judgment of Tomlinson LJ in Star Reefers Pool Inc. v JFC Group [2011] EWCA Civ 1065 where the judgment in Dumrul was described as “helpful and useful” (at paragraph 3). However, in my judgment, neither that case, nor references in certain other cases to Dumrul, take the matter any further in the sense of upholding or validating Hamblen J’s rejection of a “real risk” test. In Star Reefers, for example, Tomlinson LJ’s observation was made without hearing any argument on the issue which arises in this case and in circumstances where the case for security was overwhelmingly made out. A consideration of Dumrul was not necessary for the determination of the case and in those circumstances very little significance can be attached to the remark.

Accordingly, in my judgment David Richards J should have allowed the appeal against the Master’s refusal to make an order for security in favour of the appellants, on the basis that the Master applied the wrong test. The evidence which I have summarised above clearly showed, notwithstanding the respondents’ expert evidence to the contrary, a real and serious risk that an order for costs might not be enforced in Georgia. Indeed, Mr Millett correctly accepted as much before this court and properly conceded that, if the test was one of real risk, then an order for security should have been made. Accordingly, at that stage, before the provision of the first Dechert undertaking, David Richards J should have re-exercised the discretion under CPR r25.13(1)(a) and made an order requiring the respondents/claimants to provide security for the costs of the section 25 proceedings. It follows that I would allow the security appeal and, subject to any further argument from counsel, order that the appellants should have their costs of the proceedings before both the Master and the judge. This is a case where in my view it was obvious on the evidence that an order for security was justified.

It also follows in my judgment that, on the evidence before it, this court should exercise its discretion and make an order on the security for costs application requiring the respondents/claimants to provide security in respect of the costs of their section 25 appeal against the decision of Rose J. I would award security to the appellants/defendants in the sum of £192,062.52, reflecting the appropriate reductions made to the sum originally claimed.

I agree.

I also agree.