As a result of the judgment of Sir Ross Cranston (sitting as a Judge of the High Court) in Sheikh Mohamed Bin Issa Al Jaber v Sheikh Walid Bin Ibrahim Al Ibrahim & Anor [2019] EWHC 1135 (Comm), the efficacy of CPR 25.13(2)(g) as a basis for security for costs (i.e. steps taken in relation to a claimant’s assets that would make it difficult to enforce an order for costs against him) should be questioned.

The judgment is available here. 

The purpose of CPR 25.13(2)(g)

The clear purpose of CPR 25.13(2)(g) is to protect defendants from a situation where a claimant (typically an individual), who otherwise ought to be capable of meeting a costs order against them, has put their assets beyond the scope of enforcement (regardless of whether such steps were taken with a deliberate view to avoiding enforcement of a costs order).

The test to be applied by the court is an objective one. It is not concerned with the claimant’s motivations but with the effect of the steps in relation to his assets. There is also no temporal limitation as to when the steps were taken, they may have been taken before proceedings were commenced or even in contemplation (they must however have been taken).

The ‘steps’

The ‘steps’ relied on by the applicant were quite straightforward:

1. The Claimant structured his ownership of corporate entities through offshore jurisdictions;
2. The Claimant accepted that he had transferred assets to his children, for estate planning purposes, since the commencement of the litigation;
3. The Claimant’s companies and the Claimant himself had been subject to past enforcement actions and freezing injunctions;
4. The Claimant owned properties in London, France and Portugal, in his own name.

The judgment

1. The Judge held that the structuring of corporate assets off-shore were “not unusual” arrangements amongst the “very wealthy“. However, the judgment does not go further in describing the reasons for such arrangements being held not to be “steps taken in relation to [the Claimant’s] assets that would make it difficult to enforce an order for costs against him.“
2. The Judge also found that the transfer of assets to the Claimant’s children were not a step in relation to assets as would satisfy CPR 25.13(2)(g). However, the judgment does not give any further reasons as to why a transfer of an asset out of a claimant’s ownership to a non-party to the litigation is not, at least, a step in relation to the claimant’s assets.
3. As regards the past enforcement action the judge relied on the first instance judgment in Chandler v Brown [2001] CP Rep 103 to the effect that the word ‘would’ in CPR 25.13(2)(g) cannot be used as a springboard for an argument that the paragraph can be used in relation to steps which the claimant had not taken, but which, if he did take them before judgment with costs given against him, would make it difficult to enforce a costs order. In fact Chandler was not a sound basis for the Judge’s reliance, being a case in which the defendant had failed to meet the threshold requirement of any ‘steps’ having been taken in relation to the claimant’s assets with the effect that the evidence as to the claimant having exploited his creditors was irrelevant. The judgment does not record any reasons as to whether the requirements of creditors to commence enforcement actions against a “very wealthy” claimant and his companies, may or may not, lead to the inference that steps had been taken in respect of assets that made enforcement difficult. In order for the purpose behind CPR 25.13(2)(g) to be realised, the Court should have recognised the fact that on any analysis steps had been taken by the Claimant which diminished the value of the estate available to creditors. The only appropriate step thereafter would have been for the Court to have approached the question as to whether that “would make it difficult to enforce…” by considering the effects on the Claimant’s estate, the circumstances in which such steps were taken and the Claimant’s conduct with regard to his assets and creditors since taking those steps. Only following such enquiry could the Court be in a position to assess whether the ‘steps‘ “would make it difficult to enforce…a costs order…”
4. Finally, as regards the properties in London, France and Portugal, the Judge held that, in itself, the London property was sufficient to defeat the application for security for costs. 

Consequences for applicants for security for costs

That offshore asset structures were held not to be steps satisfying the requirements of CPR 25.13(2)(g) on the basis that they were “not unusual” steps for the “very wealthy”, without the need for any further reasoning as to the objective test as to whether, regardless of intent, that off-shore structuring has the effect of making enforcement of a costs order difficult, should be of concern to defendants being sued by claimants who structure their assets in this way.

Of perhaps even greater concern for defendants is the finding that the transfer of assets by a claimant to their children by way of estate planning did not even constitute a “step in relation to assets” for the purposes of CPR 25.13(2)(g). That provides a very large loop-hole in CPR 25.13(2)(g).

However, of greatest concerns to defendants considering an application under CPR 25.13(2)(g) is perhaps that a claimant may have put the vast majority of its assets beyond the scope of enforcement but leave or place some asset within the jurisdiction that is sufficient to meet a costs order and then rely on the decision in Al Jaber v Al Ibrahim to say that, in itself, is sufficient to defeat the application. Thus leaving the defendant in the invidious position of having to continuously monitor whether that asset remains in the jurisdiction, in the possession of the claimant and unencumbered. It is not hard to imagine that a claimant wishing to avoid a costs order may await draft judgment and then, if they have lost, put the asset they have relied on to defeat the application for security for costs beyond the scope of enforcement – for example by simply transferring ownership or charging it. If that is right then there must be serious doubt as to whether CPR 25.13(2)(g) is fit for purpose.