Maroil Trading Inc v Cally Ship Holdings Inc  EWHC 3041 (Comm)
Thomas Grant QC and Thomas Fletcher were instructed by Grosvenor Law on behalf of the Claimants (“Maroil”) in respect of an application for security for costs made by the Defendants (“Novoship”). The application raised an important point of principle on when a claimant should be ordered to provide security for a defendant’s costs of an additional claim brought against a third party, including security for the defendant’s costs exposure to that third party.
The application was made within existing proceedings arising out of the disclosure of sensitive information concerning Maroil by the private investigator acting for Novoship (“Mr Hall”). Two claims had been brought.
The first was a claim by Maroil that Mr Hall’s disclosure constituted a breach by Novoship of a confidentiality obligation owed to Maroil in a settlement agreement between the parties. It was alleged that the disclosure of that information prompted third parties to issue proceedings against Maroil, which caused them loss.
The second was an additional claim by Novoship against Mr Hall and his employer (the “Third Parties”) that the disclosure by Mr Hall constituted a breach of a separate duty of confidence owed to Novoship. Further, Novoship argued that a settlement agreement entered into between the Third Parties and Novoship should be rescinded because it was procured by fraudulent misrepresentations made by the Third Parties arising from Mr Hall’s disclosure.
Novoship sought security for costs against Maroil. The security sought was not only in respect of their costs of Maroil’s claim, but also in respect of Novoship’s costs of the additional claim. Those costs comprised both (a) Novoship’s own costs and (b) the Third Parties’ costs. Maroil accepted that they should provide security in principle for Novoship’s costs of their claim, but disputed that Novoship were entitled to seek any security for their costs of the additional claim.
Following a remote hearing, Mrs Justice Cockerill refused to make any order for security in respect of Novoship’s costs of the additional claim. The only previous case to consider this issue in any detail was the Court of Appeal’s decision in Sarpd Oil International Ltd v Addax Energy SA  EWCA Civ 120. It was held in that case, which concerned whether oil supplied by a third party and sold by a middleman to the claimant met the contractual specification, that security could be ordered where it was likely that the defendant middleman would have to pay the third party’s costs if the main claim failed. That itself reflected the long-standing principle that the court may order an unsuccessful claimant to pay to the defendant the costs it has incurred in an additional claim which was also unsuccessful.
As in Sarpd, it was held that the question whether security should be ordered turned on whether the unsuccessful claimant would be ordered at the end of the trial to pay the defendant’s costs of the additional claim if that also failed. However, the circumstances of this case were quite different from those in Sarpd. Whereas the claim and additional claim in Sarpd both turned on whether the oil met the contractual specification, the additional claim by Novoship depended on establishing allegations of fraud against the Third Parties which were unconnected with Maroil’s claim and which would only be fought out between Novoship and Maroil. Although it was held that the Court of Appeal in Sarpd was not laying down a prescriptive rule that an applicant must show that it is “likely” that the claimant will be ordered to pay the costs of the additional claim at the end of the trial, it was unlikely to be justified for the court to order security on the basis of a mere possibility and it was likely “to be not unadjacent to a likelihood” (at ).
Taking into account the nature of the additional claim, in particular the fraud case, that jurisdictional standard had not been met. Further, even if it was met, the court should nonetheless be hesitant about exercising the discretion to order security in circumstances where, as in this case, the likelihood was not high and was, instead, a fairly distant possibility.
Mrs Justice Cockerill’s judgment contains an important consideration of the circumstances in which a claimant may be ordered to provide security for the costs of the additional claim. It clarifies the effect of the Court of Appeal’s judgment in Sarpd while affirming the essential point that security should only be ordered upon a proper consideration of the likely or probable outcome at the end of the trial, rather than on the basis of a mere possibility that the unsuccessful claimant may also have to stump up the costs of the unsuccessful additional claim. It is very commonly the case in heavy commercial litigation that there will be multiple parties advancing a series of claims against one another. The judgment makes clear that the court should not be too quick to require the claimant to fund the costs of those claims simply to pursue his own claim.
The judgment can be found via this link.
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