Kazakhstan Kagazy PLC & ors v Baglan Zhunus & ors (2017)
A company subject to rehabilitation proceedings had failed to discharge the onus of showing that in all probability an order that it provide security for costs would stifle its claim; it had failed to demonstrate that there were no creditors who could put up the necessary finance and it had been conducting the proceedings with funding of some sort.
The court was required to determine whether to discharge an order for security for costs.
The claimants had brought three claims against the defendants alleging fraudulent misappropriation of assets. The third, and smallest, claim was brought by the second claimant, which was a company subject to rehabilitation proceedings. As a result, any money recovered under a successful judgment would go to the company's creditors. The court ordered security of £2.3 million to be paid in two tranches, 75% by 17 February and 25% to be paid by the second claimant by 24 February, and listed the instant hearing to hear the claimants' argument that payment of the second tranche would stifle the third claim. The first tranche of security had been paid. The trial was due to begin two months later.
The claimants argued that: the second claimant was not in receipt of litigation funding and that there was no prospect of it obtaining funding from its shareholders, who had already seen the value of their investments reduce; the second and third defendants already had the benefit of substantial security; dealing with the third claim at trial was unlikely to lead to much additional expenditure; the fact that the second claimant had been able to pay its own costs so far did not mean that it could find money to pay for security; it would not be just and reasonable to maintain the order, particularly as it was so close to trial; and it was one of the rare cases where it was appropriate to have regard to the merits.
The test was whether in all the circumstances it was probable that the third claim would be stifled if the existing order for security was maintained, Keary Developments Ltd v Tarmac Construction Ltd  3 All E.R. 534 followed. The onus of proof was on the claimants, Chemistree Homecare Ltd v Teva Pharmaceuticals Ltd  EWHC 2979 (Ch) applied. The claimants had not demonstrated that there were no creditors who could provide the necessary finance. It was not suggested by the court that there had been a lack of candour, but it was necessary to consider the material put forward and ask whether or not it would have been reasonable for the claimant to put forward further evidence. If that point was freestanding the court might have reached a different conclusion, but it had to be viewed in conjunction with the fact that the second claimant had been pursing the third claim with funding of some sort. In all likelihood the claim would continue if the security order was maintained. It would be exceptional to have regard to the merits on a security for costs application. The claimants had not discharged the onus of showing that in all probability maintaining the order would stifle the third claim.
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17 Feb 2017
Queen's Bench Division (Commercial)
Andrew Twigger QC