High Court Case Explores Security for Costs, Counterclaims, and Pre-Litigation Expenses in TCC

Introduction

The High Court case of Bend Weld Engineering Sdn Bhd v FMC Technologies Limited presents an exploration of the principles surrounding security for costs within the context of the Technology and Construction Court (TCC), addressing the strategic use of counterclaims in litigation, and the circumstances that justify a security for costs order. This analysis aims to distill the key legal principles applied by Deputy High Court Judge Mr. Roger ter Haar KC, and their implications for similar future cases.

Key Facts

Bend Weld Engineering Sdn Bhd (BWE), a Malaysian-based fabricator and supplier, accused FMC Technologies Limited (FMC), an industrial manufacturing specialist, of wrongful termination of purchase orders and unpaid invoices. BWE initiated legal action seeking damages. In response, FMC, foreseeing substantial legal expenses, sought security for costs, anticipating that BWE might not be able to satisfy a potential costs order against them.

During the pre-trial correspondence, both parties accepted in principle that BWE should provide security for costs, with the disagreement centering on the quantum. Of particular controversy was the inclusion of costs for FMC’s counterclaim and costs incurred before the commencement of proceedings.

Legal Principles

Security for Costs and the Civil Procedure Rules

The court referred to CPR 25.12 and 25.13, setting out the criteria for granting security for costs. As per the principles articulated in previous judgments (notably Explosive Learning Solutions Ltd v Landmarc Support Services Ltd), FMC did not need to prove a likelihood that BWE would be unable to pay but merely needed to establish there was reason to believe this could be the case.

The Impact of Counterclaims

The judgment explored how counterclaims intersect with applications for security for costs. The so-called ‘default principle’ (referenced in Anglo Irish Asset Finance Plc v Flood) states that if both the claim and counterclaim share substantially the same facts, it might not be just to award security for costs to the defendant. However, if the counterclaim is substantially a form of defense, and the claimant dismisses its claim if unable to provide security, an order for security for costs can be appropriate.

Costs Incurred Before Proceedings

A differentiation was made between costs incurred by FMC before and after proceedings commenced. The analysis questioned the fairness of awarding security for “sunk” costs, which are not necessarily tied to the defense against the claimant’s action and may reflect proactive measures by a defendant anticipating a potential claim.

Outcomes

Applying the legal principles to the case facts, the court ordered BWE to provide security for FMC’s costs up to the conclusion of the CMC stage in the amount of £70,800. This figure reflected the “Issue/statements of case” and “CMC” estimated costs as per FMC’s Precedent H, while rejecting BWE’s proposed apportionment for costs related to the counterclaim. The court declined to award security for costs incurred before the commencement of proceedings, as these costs were not directly tied to the defense of BWE’s claim.

Conclusion

The adjudication of Bend Weld Engineering Sdn Bhd v FMC Technologies Limited underscores the nuanced approach needed when considering applications for security for costs in the presence of counterclaims and pre-proceeding expenses. Practitioners must carefully evaluate both the financial standing of the claimant and the substantive relationship between their claim and any counterclaims advanced by defendants. The decision delineates the boundaries of defense costs that can be secured and cautions against blanket security orders that encompass pre-litigation expenses. The outcome affirms the court’s commitment to ensuring fairness and proportionality in security for costs orders, which remains a critical consideration for litigators in the UK.