Security for costs - impecuniosity condition (Collatory Case)

INTRODUCTION

In Chady Aero Developments Ltd v Aero Engine Finance LLP [2026] EWHC 1271 (Ch), Master Clark considered an application by a defendant for a security for costs order against a claimant, on the basis, amongst other things, that: (a) condition CPR 25.27(b)(ii) - the impecuniosity condition - was satisfied; and (b) it would be 'just', having regard to all the circumstances of the case, to exercise the discretion, in favour of making the security for costs order.

LEGAL PRINCIPLES

Under the heading 'Legal principles', Master Clark said,

(1) at paragraph 17:

'The purpose of ordering security for costs is to protect the defendant (who is an involuntary party to litigation) against the risk that they may be unable to recover the costs of the claim brought against them: Bestfort v Ras Al Khaimah [2016] EWCA Civ 1099, [2016] 2 CLC 714 at [71].' and

(2) under the subheading 'Conditions to be satisfied', at paragraph 14:

'The application is made under CPR 25.27, which relevantly provides:

“Conditions to be satisfied

25.27 The court may make an order for security for costs under rule 25.12 if–

(a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and

(b) … one or more of the following conditions apply-

(i) the claimant is resident out of the jurisdiction;

(ii) the claimant is a company or other body (whether incorporated inside or outside England and Wales) and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so;

(iii) the claimant has changed their address since the claim was commenced with a view to evading the consequences of the litigation;

(iv) the claimant failed to give their address in the claim form, or gave an incorrect address;

(v) the claimant is acting as a nominal claimant, other than as a representative claimant under Part 19, and there is reason to believe that they will be unable to pay the defendant’s costs if ordered to do so;

(vi) the claimant has taken steps in relation to their assets that would make it difficult to enforce an order for costs against them.”'

When the defendant issued its application, the defendant relied upon:

(1) the non-residence condition: CPR 25.27(b)(i);

(2) the impecuniosity condition: CPR 25.27(b)(ii);

(3) the nominal claimant condition: CPR 25.27(b)(v);

(4) the enforcement avoidance condition: CPR 25.27(b)(vi).

However, (3) the nominal claimant condition: CPR 25.27(b)(v); and the enforcement avoidance condition: CPR 25.27(b)(vi), were not pursued[1]. In relation to:

(1) the non-residence condition: CPR 25.27(b)(i) - Master Clark found this condition satisfied, at the first hearing of the security for costs application (judgment not seemingly available; in the judgment reported [2026] EWHC 1271 (Ch), Master Clark said 'It is unnecessary to say anything further about that' (paragraph 17));

(2) the impecuniosity condition: CPR 25.27(b)(ii) - Master Clark considered the law on this, under the subheading 'Impecuniosity condition' and 'Principles',

Impecuniosity condition: CPR 25.27(b)(ii)

At paragraph 18, Master Clark said:

'The principles applicable to this condition can be summarised as follows:

(1) The applicant must show that, on all the material presently available to the court, there is reason to believe that the claimant will be unable to pay the applicant's costs if ordered to do so: Chemistree Homecare Limited v Teva Pharmaceuticals Ltd [2011] EWHC 2979 (Ch) at [3];

(2) Inability to pay means to pay when the costs fall due for payment: Re Unisoft Group (No 2) 1993 BCLC 532 at 534, approved in Jirehouse Capital v Beller [2008] EWCA Civ 908; [2009] 1 W.L.R. 751 at [23];

(3) This calls for an assessment of what the claimant may be expected to have available for payment at the due date or dates in the form of cash or other readily realisable assets: Longstaff International v Baker and McKenzie [2004] 1 WLR 2917 at [17] and [18]); Autoweld Systems Ltd v Kito [2010] EWCA Civ 1469 at [20] and [29];

(4) The opening words “there is reason to believe” have the effect of watering down the obligation which follows. The defendant does not have to show on a balance of probabilities that the claimant company “will be unable to pay”: 2021 White Book at 25.13.12; Jirehouse Capital;

(5) The approach adopted should be simple and not “over-burdened by technical and semantic arguments relating to the construction of the ‘threshold’ test”: Bestfort at [48].'

'Just' and exercise of discretion whether to make the security for costs order

Master Clark then went through some further aspects. Under the subheading:

(1) 'Discretion: whether it is just to make an order', Master Clark said, at paragraphs 19 and 20:

'Where the impecuniosity condition applies, it will ordinarily be just to order security unless the claimant can show that do so will stifle the claim: Premier Motorauctions Ltd (in liquidation) v PricewaterhouseCoopers LLP [2017] EWCA Civ 1872, [2018] 1 W.L.R. 2955 at [37].

'Similarly, the inability of the claimant company to pay the costs is a matter which not only opens the jurisdiction, but also provides a substantial factor in the decision whether to exercise it: Pearson v Naydler [1973] QB 609 at 906.'

(2) 'Delay as a factor in the exercise of discretion', Master Clark said, at paragraph 21:

'Although an application for security for costs can be made at any stage, the general principle is that an application for security should be made promptly as soon as the facts justifying the order are known: 2026 White Book at 25.26.10. As summarised in Hniazdzilau v Vajgel [2015] EWHC 1582 (Ch) at [28]:

“Delay in making the application is one of the circumstances to which the court will have regard when exercising its discretion to order security. The court may refuse to order security where delay has deprived the claimant of the time to collect the security, or led the claimant to act to his detriment or may cause hardship in the future costs of the action. The court may deprive a tardy applicant of security for some or all of his past costs or restrict the security to future costs (see CPR 25.12.6 [now 25.26.6]). The question of delay must be assessed at moment when the application is made, although of course the court must take into account the impact of an order at the time it is made. That is because, as the Court of Appeal said in Prince Radu of Hohernzollern v Houston [2006] EWCA Civ 1575 (cited at White Book p 823–4), the order for security for costs comes with a sanction which gives a claimant a choice whether to put up security and go on or to withdraw his claim; that choice is meant to be a proper choice, and the claimant is to have a generous time with which to comply with it. As Waller LJ pointed out (at [18]), the making of an order for security for costs is not intended to be a weapon whereby a defendant can obtain a speedy summary judgment without a trial.”'

(3) 'Merits of the claim as discretionary factor', Master Clark said, at paragraph 22:

'The well-established position as to the relevance of the merits of the claim is set out in the Commercial Court Guide (para.4, Appendix 10):

“Investigation of the merits of the case on an application for security is strongly discouraged. It is usually only in those cases where it can be shown without detailed investigation of evidence or law that the claim is certain or almost certain to succeed or fail that the merits be taken into consideration.”

(held to properly reflect the law in Mountain Ash Portfolio Ltd v Vasilyev [2022] EWHC 1867 (Comm))'

(4) 'Discretion where there is both a claim and a counterclaim: the “Crabtree ” principle', Master Clark said, at paragraphs 23 to 26:

'This principle (as stated in B.J. Crabtree v GPT Communication Systems (1990) 59 BLR 43, cited in Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm) ; [2010] 2 CLC 661) is:

“As a general rule, the Court will not exercise its discretion under CPR Part 25 to make an order for security of the costs of the claim if the same issues arise on the claim and counterclaim and the costs incurred in defending that claim would also be incurred in prosecuting the counterclaim.”

This was explained further by the Court of Appeal in Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307, at 317 by Bingham LJ:

“The trend of authority makes it plain that, even though a counterclaiming defendant may technically be ordered to give security for costs of a plaintiff against whom he counterclaims, such order should not ordinarily be made if all the defendant is doing, in substance, is to defend himself. Such an approach is consistent with the general rule that security may not be ordered against a defendant. So the question may arise, as a question of substance, not formality or pleading: is the defendant simply defending himself, or is he going beyond mere self-defence and launching a cross-claim with an independent vitality of its own.”

And, as explained in Hniazdzilau at [12]:

“Although, as Bingham LJ said, this principle operates in the “largely discretionary area”, nonetheless it is a principle which must be applied according to its terms; and as he went on to say, approving the decision of Field J in Mapleson v Masini (1879) 5 QBD 144 at 147, “the substantial position of the parties must always be looked at”. There is of course no rule of thumb to determine what in every case is the substance, which will always turn on the particular facts of each case.”

In Dumrul, Hamblen J (as he was) held that if security would otherwise be refused because the Crabtree principle applied, it could be ordered if a defendant undertook to consent to the dismissal of the counterclaim the claim was dismissed for failure to put up security. This was followed in Cedar Mundi (Holding) SAL v Attieh [2025] EWHC 1930 (Comm).'

ON THE FACTS

On the facts in Chady Aero, Master Clark:

(1) held that 'the impecuniosity condition is satisfied.' (paragraph 45);

(2) rejected '...the claimant’s submission that any impecuniosity on its part is due to the defendant's failure to pay sums due to it.' (paragraph 44);

(3) held that, while 'there has been some delay on the part of the defendant' (paragraph 47; some was due to court inertia (paragraph 47)), 'the claim is still at a relatively early stage.' and, that he was not satisfied that '...the delay by the defendant has caused any prejudice to the claimant which would justify refusing to grant security.' (paragraph 48)

(4) recognised, as to the merits of the claim, that the defendant had admitted certain amounts were due, on 2 projects, but said the defendant's contention was that '...accounting is governed by the partnership agreement and is across all the projects.' (paragraph 49) and that '...the defendant has the stronger case on that issue, and the claimant’s case is weak.' (paragraph 49). The Master did not determine the merits of the claim any further. He said: 'To embark on a detailed analysis of the Account (let alone resolving some of the underlying factual issues) would be contrary to the case law as summarised in the passage from the Commercial Court Guide cited above.' (paragraph 49)

(5) considered that there was some force to the claimant's submission under the 'Crabtree principle', which required an additional provision to the order. Master Clark said, at paragraph 51 and 52:

'The claimant submitted that the defendant’s counterclaim fell within the Crabtree principle because, in order to show that the sum claimed by the defendant was due, it would be necessary to carry out the accounting which is sought in the claim.

There is some force in this submission. The defendant’s response was that if the claim were struck out, then it would have no commercial reason to pursue its counterclaim (given the claimant’s parlous financial state). In these circumstances, I propose to make the grant of security conditional upon the defendant undertaking to consent to the dismissal of its counterclaim if the claim is dismissed for failure to put up security.'

(6) determined that he '...grant security for costs in the sum sought.' (paragraph 53)

Further Authority 

See Freestream Aircraft Ltd v Seven Hundred Ltd [2026] WL 01654360, Master Kaye on 4.6.26 (only Case Digest currently available)

Collatory Case Series

The Collatory Case Series, is an series of bulletins, designed to report that one case (perhaps, with a few extra authorities), which collates the essential principles/propositions of law, for a particular doctrine/area of law. It is not designed as a deep and comprehensive review of an area of law, but to provide that quick 'go to' case.

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