High Court case delves into security for costs in charterparty dispute

Citation: [2023] EWHC 2995 (Comm)
Judgment on

Introduction

The High Court of Justice case Ceto Shipping Corporation v Savory Shipping Inc delves into the application for security for costs in the context of a charterparty dispute. This article analyses the judgment handed down by Charles Hollander KC, addressing fundamental legal principles such as the potential to stifle a genuine claim with a security order, the evidence required to demonstrate impecuniosity, and considerations relating to mirrored claims and counterclaims in litigation.

Key Facts

Ceto Shipping Corporation (Ceto) sought declaratory relief against Savory Shipping Inc (Savory), claiming ownership of the proceeds from the sale of a vessel (MV VICTOR 1), which had been previously bareboat chartered to Ceto. Savory counterclaimed, asserting ongoing ownership and no obligation to transfer title to Ceto. Savory applied for security for costs against Ceto due to concerns about potential non-payment of an adverse costs order. Ceto claimed impecuniosity and argued that an order for security would stifle its claim. The hearing date was set for 16 November 2023.

The court outlined several principles during the analysis:

Security for Costs and Stifling Principle

The court leaned on cases such as Keary Developments Ltd v Tarmac Construction Ltd [1995], M V Yorke Motors v Edwards [1982], and Goldtrail Travel Limited v Onur Air Tasimacilik AS [2017] when determining the conditions under which security for costs should be ordered. The considerations included:

  • The fairness of providing security when a claimant is unable to pay an adverse costs order.
  • Whether an order for security would stifle a genuine claim due to the claimant’s inability to pay.
  • The burden on the claimant to show it cannot raise funds from any source to provide security.
  • The requirement for clear and unequivocal evidence of impecuniosity and inability to raise security from any source.

Consideration of Counterclaims

In relation to counterclaims, the ‘Crabtree principle’ from BJ Crabtree (Insulation) Ltd v GPT Communication Systems and the principle noted by Moore-Bick LJ in Anglo Irish Asset Finance Plc v Flood [2011] were applied. The court should normally not order security when the counterclaim mirrors the claim. However, discretion remains where the party refusing the undertaking could pursue the counterclaim without the original claim.

Exercise of Discretion

The judgment recognized that a court has discretion whether to order security for costs. In Dumrul v Standard Chartered Bank [2010], it was established that a defendant may need to provide an undertaking to dismiss a counterclaim if the claimant’s claim is dismissed due to failure to provide security, to prevent litigation from continuing on substantially the same facts.

Outcomes

The court was not convinced by Ceto’s evidence of impecuniosity and the threat of stifling, noting multiple proceedings had been commenced and paid for, which was inconsistent with claimed impecuniosity. Consequently, the court held that a good faith apprehension of stifling was not established by Ceto.

However, with regard to the mirrored counterclaim from Savory, the court refused to order security for costs, as Savory did not provide a ‘Dumrul undertaking’ which would dismiss its counterclaim in the event the claim was struck out for non-provision of security. Nevertheless, the court ordered Ceto to provide security for the costs specifically associated with its damages claim for an amount to be determined.

Conclusion

The judgment in Ceto Shipping Corporation v Savory Shipping Inc showcases the High Court’s meticulous approach to applications for security for costs. Where claimants are unable to prove absolute impecuniosity and thus risk of stifling, security may be ordered. However, this must be balanced against the potential injustice of mirrored claims and counterclaims. In such cases, counterclaims should be subject to the same fate as claims to prevent unilateral continuation, as emphasized by the refusal to order security in the absence of a ‘Dumrul undertaking.’ This case reaffirms established principles while demonstrating their practical application within the finely balanced scales of justice.

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