Security For Costs Ordered At 75% Of Estimated Costs Due To Late Part 20 Claim.

Judge Elvin orders £1.5m security for costs at 75% rate in complex solicitors’ fees dispute, applying established CPR 25 principles on financial inability. The Baker Botts v Carbon Holdings judgment demonstrates how courts assess both the “reason to believe” test under CPR 25.27(b)(ii) and quantification approaches when ordering security for costs against financially distressed Part 20 claimants.

BAKER BOTTS (UK) LLP V CARBON HOLDINGS LIMITED & EHI LIMITED & EGYPT HYDROCARBON CORPORATION SAE [2025] EWHC 2225 (Comm)

In Baker Botts (UK) LLP v Carbon Holdings Ltd & Ors the court determined two principal costs issues: an application for security for costs against a Part 20 claimant and a challenge to the reasonableness of the claimant’s fees raised over two years after the most recent invoice. On the security for costs application under CPR 25.26 and 25.27, the court found there was reason to believe Egypt Hydrocarbon Corporation SAE (“EHC”) would be unable to pay the applicant’s costs if unsuccessful. The judge applied the principles from Explosive Learning Solutions Ltd v Landmarc Support Services Ltd [2023] EWHC 1263 (Comm), rejecting EHC’s arguments of a transformed financial position due to lack of supporting evidence, its history of defaulting on obligations, and the uncertainty of a working capital facility that expired before the litigation’s conclusion. On quantum, adopting the broad-brush approach from Pisante v Logothetis [2020] Costs LR 1815, the court awarded security at £1,500,000 (75% of the £2,000,000 assessed), reflecting the late timing of EHC’s Part 20 claim brought four years after the alleged breach, and ordered it be provided by banker’s draft. On the fee reasonableness issue, whilst the service of Points of Dispute in January 2025 was “highly unsatisfactory”, the court permitted the defendants to amend their defence to challenge the reasonableness of fees under the principle in Turner & Co v O Palomo SA [2000] 1 WLR 37. The court granted summary judgment for invoices totalling US$1,026,053.67 but referred assessment of their reasonableness to a Costs Judge.

In my judgment, considering the evidence in the round, including both the positive and negative aspects of EHC's own evidence, the SFC Application succeeds on the basis that there is reason to believe that the Part 20 Claimant will not be able to meet BB's costs if ordered to pay them... The 'transformation' in EHC's finances claimed by Mr James is significantly lacking in substance... The cashflow projections provided by EHC... significantly overstate EHC's probable cashflow in Q4/24.

Citations

Ainsworth v Stewarts Law LLP [2020] EWCA Civ 178 Points of dispute in detailed assessments must clearly identify specific items being challenged and provide concise reasons for the objections, ensuring transparency and fairness in the process. Explosive Learning Solutions Ltd v Landmarc Support Services Ltd [2023] EWHC 1263 (Comm) An applicant for security for costs must show a reason to believe the claimant will not be able to pay, supported by justification and evidence, and can rely on the totality of the evidence including the absence of financial disclosure from the claimant. Jirehouse Capital v Beller [2009] 1 WLR 751 Establishing a reason to believe a claimant cannot pay requires more than doubts or mere possibility; a defendant must provide justification supported by evidence. Phaestos Ltd v Ho [2012] EWHC 662 (TCC) A belief that a claimant may not be able to comply with a future costs order must be supported by concrete evidence rather than mere assertions or possibilities. Abbotswood Shipping Corporation v Air Pacific Ltd [2019] EWHC 1641 (Comm) Concerns over a claimant’s financial capacity may justify a security for costs order if the claimant fails to provide adequate responses or evidence to address those concerns. Guest Supplies International Ltd v South Place Hotel Ltd [2020] EWHC 3307 (QB) The court should consider whether a claimant will be able to meet a future costs order rather than current solvency, especially where financial concerns are not refuted with sufficient evidence. Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534 In considering security for costs, the court must avoid evaluating the merits of the claimant’s case unless plainly unsustainable and should balance justice to both parties. Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) Summary judgment may be granted only where a claim or defence has no real prospect of success, and the court must avoid conducting mini-trials on disputed facts or incomplete evidence. Swain v Hillman [2001] 1 All ER 91 A real prospect of success in resisting summary judgment must involve a case with some substance and not merely arguable without merit. ED & F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472 A “realistic” case under CPR 24 must carry conviction and be more than merely arguable; the court may assess documentary evidence contradicting assertions. Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550 In resisting summary judgment, a party may rely on evidence reasonably expected to be available at trial, not just evidence currently before the court. Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63 Where further factual investigation is likely to affect the outcome, summary judgment should be refused even where facts are not clearly disputed at the time. ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725 Summary judgment should not be granted merely because fuller evidence has not yet emerged if that material is likely to be available at trial and may alter interpretation. Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1 In complex cases involving factual inferences or substantial disputes, it is inappropriate to determine them summarily without a full trial and proper disclosure. Okpabi v Royal Dutch Shell plc [2021] UKSC 3; [2021] WLR 1294 Courts must exercise judicial restraint and avoid resolving factual disputes or conducting mini-trials at the summary judgment stage. De Molestina v Ponton [2002] 1 Lloyd’s Rep 271 Applications relying on contested inferences are not suitable for summary determination where those inferences cannot safely be made absent trial. Chitty on Contracts, 33rd Edn, paras 16-018, 16-020 While not a case, these authorities establish that collateral contracts may be actionable even where excluded by an entire agreement clause, provided they were intended to induce entry into the main agreement. Vitol SA v Sterling Oil Trading Ltd [2012] EWHC 3108 (Comm) A collateral contract which operates alongside a main written contract can be valid and enforceable despite entire agreement clauses, especially where the parties entered into the main contract relying on it. Briggs v Gleeds (Head Office) [2015] 1 Ch 212 Estoppel may arise from statements of law if made by a person in a superior legal position to a party reasonably relying on them, particularly where legal interpretation was represented as certain. TMF Trustee Ltd v Fire Navigation Inc [2019] EWHC 2918 (Comm) Contractual prohibitions on set-off do not apply where the claim arises from the claimant’s breach of the same agreement, enabling the defendant to raise a counterclaim. Turner & Co v O Palomo SA [2000] 1 WLR 37 A solicitor’s entitlement to payment is subject to an implied term of reasonableness under common law or statute, and they bear the burden of proving that fees charged are reasonable if challenged. Pisante v Logothetis [2020] Costs LR 1815 Security for costs should be determined robustly and broadly without detailed assessment, balancing fairness by considering both parties’ potential prejudice. Stockers v IG Markets Ltd [2012] EWCA Civ 1706 It is legitimate to apply a percentage discount, often between 60% and 70%, to estimated costs when determining security for costs to reflect uncertainties of litigation and typical recoveries. Excalibur Ventures LLC v Texas Keystone Inc [2012] EWHC 975 (QB) In awarding security for costs, courts should apply a sensible discount to estimated costs and may infer reasonableness from the absence of a counter-schedule from the respondent. St Francis Group LLP v Kelly [2025] EWHC 125 (SCCO) Effective challenges to solicitors’ bills in assessments must be particularised and supported; procedural delay and lack of focus may result in dismissal of general objections to reasonableness.

Track allocation housing disrepair CPR 46.13 settlement sum costs restriction SCCO

MRO fee markup cap 25% detailed assessment personal injury Senior Courts Costs Office

Security for costs refused CPR 25.27 very high probability success excessive estimate King's Bench

IPEC scale costs transfer Patents Court PD 30 para 9.2 costs caps Court of Appeal

Costs budget variation CPR 3.15A promptness significant development unfair prejudice Chancery Division

Costs budgeting inter partes proportionality high hourly rates AI disclosure Patents Court CPR 3E

Beneficiary personal liability section 71(3) Solicitors Act 1974 indemnity costs VAT self-supply SCCO

Summary assessment indemnity costs unless order payment on account disclosure default Chancery Division

Provisional assessment set aside CPR 3.1(7) points of dispute filing duty PD 47 para 14.3 SCCO

Fixed recoverable costs police claims CPR 26.9(10)(e) intentional tort exemption

Key Points

On an application for security for costs against a company under CPR 25.13(2)(c), the applicant must show a reason to believe that the claimant will be unable to pay the applicant’s costs if ordered to do so; a mere possibility or doubt is insufficient. The burden of proof remains with the applicant, who must justify their belief with evidence.
The court may order security for costs to include both incurred and future costs if the application is brought within a reasonable time, particularly where the claimant’s counterclaim arises well after the main proceedings have commenced.
In quantifying security for costs, the court adopts a broad, robust approach rather than a detailed assessment, applying discretion as to the appropriate amount and often applying a percentage discount to reflect litigation uncertainty and proportionality.
If an applicant for security for costs raises legitimate concerns about a respondent’s financial position supported by evidence, a practical or evidential burden shifts to the respondent to provide cogent and reliable financial evidence to allay those concerns. A failure to provide such evidence, or the provision of unsatisfactory evidence, can justify the court concluding that the respondent will be unable to pay a costs order.
The reasonableness of solicitors’ fees in a common law claim for unpaid invoices is assessed under an implied term that only reasonable charges are payable. This common law jurisdiction exists alongside the statutory Solicitors Act jurisdiction, and the solicitor bears the burden of proving that the sums claimed are reasonable.

"Nothing in the Act, or its successors, takes away the need for the solicitor to prove that his fees are reasonable, if they are challenged, absent any express agreement as to what they should be... The common law or 'ordinary jurisdiction' of the court is not excluded... the burden of proving that the sum is reasonable rests upon him." Turner & Co v O Palomo SA

Key Findings In The Case

The court found there was reason to believe that EHC would be unable to pay the Defendant’s costs if ordered to do so, based on its substantial accumulated losses (USD 384 million), a history of debt defaults, failure to comply with a 2023 debt settlement agreement, and the lack of reliable financial forecasts or independent expert confirmation of recovery prospects under a 2024 addendum to the settlement. [47]
The security for costs application included recovery for both historical and prospective costs, as the Part 20 claim introduced by EHC was not raised until after the main claim and the application for security was brought promptly following disclosure of EHC’s poor financial condition. [95]
The court adopted a broad-brush approach in quantifying security for costs, setting a total security figure of £1.5 million (a 75% allowance on a gross figure of approximately £2 million), having regard to proportionality, uncertainty in litigation costs, the complexity of the professional negligence counterclaim, and the lack of a reliable cost comparator from EHC. [96–97]
The court held that, even if only a portion of the claim succeeded on summary judgment, an assessment of the reasonableness of the solicitors’ fees remained necessary. The applicable standard was the common law implied term that only reasonable fees are recoverable, and the solicitor bore the burden of proving reasonableness irrespective of whether a formal assessment was requested under the Solicitors Act 1974. [73–80]
The court admitted a late-provided Points of Dispute from the Defendants challenging the reasonableness of the solicitors’ fees, granting permission to amend the Defence accordingly, on the grounds that the claim included pleadings entitling the Defendants to raise issues of reasonableness despite the procedural shortcomings in timing. [81]

"I will discount the costs in the circumstances to reflect the uncertainty in the process and in the incurring of the costs... In this case the just discount here appears to me to be 75% given the circumstances of EHC's Part 20 claim and I therefore will make an order for security for costs in the sum of £1,500,000."

Security For Costs Ordered At 75% Of Estimated Costs Due To Late Part 20 Claim

Baker Botts (UK) LLP v Carbon Holdings Limited & Ors [2025] EWHC 2225 (Comm)

In Baker Botts (UK) LLP v Carbon Holdings Ltd & Ors, the Commercial Court determined two principal costs issues: an application for security for costs against a Part 20 claimant and a late challenge to the reasonableness of the claimant’s fees. The decisions provide guidance on both the financial threshold for security applications and the common law assessment of solicitors’ fees.

Background | Unpaid Legal Fees and Late Counterclaim

Baker Botts claimed approximately £4.4 million in unpaid legal fees from Carbon Holdings Limited and EHI Limited under various engagement letters between 2019 and 2021. In May 2024, Carbon Holdings joined its subsidiary Egypt Hydrocarbon Corporation SAE (“EHC”) to the proceedings through a Part 20 claim, alleging joint liability for the fees.

EHC subsequently brought its own Part 20 claim against Baker Botts, alleging professional negligence in connection with the settlement of arbitration proceedings in March 2020. EHC claimed damages of at least US$150 million. Crucially, EHC raised no complaint about the settlement or Baker Botts’ performance until this Part 20 claim, some four years after the events.

The Security For Costs Application | Financial Difficulties and Late Claims

Baker Botts applied for security for costs of £2,016,777.45 against EHC under CPR 25.26 and 25.27 on two grounds: EHC’s residence outside the jurisdiction (Egypt) and reason to believe it would be unable to pay costs if ordered to do so.

EHC’s Financial Position

The court found compelling evidence of EHC’s financial difficulties:

Accumulated losses of US$384 million as at December 2023
Negative working capital of US$677 million
Outstanding debt of US$648 million with inability to meet principal and interest payments
Breach of financial covenants requiring a debt settlement agreement in June 2023
Default on that settlement agreement, necessitating an addendum in July 2024
Auditors’ emphasis of material uncertainty about going concern status

EHC’s Response | Claims of Financial Transformation

EHC argued its position had been transformed since July 2024 through:

The debt settlement addendum
A working capital facility of US$70 million until September 2025
Improved sales performance
Undertakings by “old shareholders” to bear financial amounts ruled against EHC

The Court’s Analysis | Substance Over Claims

David Elvin KC sitting as Deputy High Court Judge applied the principles from Explosive Learning Solutions Ltd v Landmarc Support Services Ltd [2023] EWHC 1263 (Comm), noting that whilst an applicant need not prove likelihood of inability to pay, there must be justification and evidence for that belief.

The court rejected EHC’s transformation claims, finding:

“The ‘transformation’ in EHC’s finances claimed by Mr James is significantly lacking in substance… The cashflow projections provided by EHC… significantly overstate EHC’s probable cashflow in Q4/24.”

Critical factors included:

The working capital facility was uncertain in effect, did not clearly provide for litigation costs, and expired in September 2025 before litigation would conclude
No supporting evidence for claimed sales improvements
Complete lack of information about unnamed “old shareholders'” financial resources
The addendum probably represented banks seeking to limit losses rather than genuine improvement

Security Quantum | 75% Discount Applied

On quantum, the court applied principles from Pisante v Logothetis [2020] Costs LR 1815, adopting a broad-brush approach rather than detailed assessment.

Starting from an assessment of £2,000,000, the court applied a 75% figure (awarding £1,500,000) reflecting:

The late timing of EHC’s Part 20 claim (brought four years after the alleged breach)
Lack of prior intimation of any complaint
The substantially distinct nature from the main claim
Normal litigation uncertainties

The court rejected EHC’s argument that security should be limited to prospective costs only, given the Part 20 claim was not made until May 2024, well after the main proceedings commenced.

Reasonableness of Fees | Common Law Assessment Jurisdiction

A separate costs issue arose from the defendants’ late Points of Dispute challenging the reasonableness of Baker Botts’ fees. These were served in January 2025, over two years after the most recent invoice dated August 2022.

Late Service | Highly Unsatisfactory But Permitted

The court found the delay “highly unsatisfactory” but permitted the challenge, noting:

The Defence already pleaded the implied term of reasonableness at paragraphs 25 and 26
Baker Botts bore the burden of proving reasonableness under Turner & Co v O Palomo SA [2000] 1 WLR 37
This common law jurisdiction exists regardless of formal assessment requests under the Solicitors Act 1974

Summary Judgment on Partial Recovery

The court granted summary judgment for invoices totalling US$1,026,053.67 representing work undertaken directly for Carbon Holdings and EHI, even accepting the defendants’ case about subsidiary liability. However, the court referred assessment of reasonableness to the Costs Judge.

The court emphasised that the burden of proving fees are reasonable rests with the solicitor, whether under common law or the Supply of Goods and Services Act 1982.

Key Principles for Practice

Security for Costs Applications

The decision confirms several practical points:

Financial evidence matters more than recent arrangements: Courts will look beyond debt restructuring and working capital facilities to underlying trading performance and debt history. Recent refinancing may be viewed skeptically as banks protecting their position rather than genuine improvement.

Late claims attract less favorable treatment: The court’s 75% award (rather than the more typical 60-70% discount) reflected the tactical and belated nature of EHC’s counterclaim.

Prospective vs historic costs: Security may cover both incurred and future costs where the Part 20 claim is brought well after main proceedings commenced.

Fee Reasonableness Challenges

Common law jurisdiction remains available: Solicitors cannot rely on expiry of Solicitors Act time limits to avoid reasonableness challenges where fees are disputed in ongoing litigation.

Burden always on solicitor: The solicitor bears the burden of proving reasonableness, regardless of whether a formal assessment is requested.

Late challenges may still succeed: While procedural delay is “highly unsatisfactory,” substantive challenges to reasonableness may still be permitted where properly pleaded.

Conclusion

The Baker Botts decision demonstrates the court’s willingness to look beyond surface financial arrangements to underlying commercial reality when assessing security applications. For solicitors, it confirms that the common law obligation to charge only reasonable fees remains enforceable through ordinary litigation, providing clients with protection even where statutory routes may be time-barred.

The 75% security award reflects judicial recognition that late, tactical counterclaims should not receive the same treatment as genuine disputes raised promptly. This approach may influence how courts approach security applications in similar circumstances where professional negligence counterclaims emerge only after fee recovery proceedings commence.

Security for costs and the role of court approved costs budgets

Security for costs and the role of court approved costs budgets – SARPD Oil v Addax Energy CA decision on “deliberate reticence” – Court of Appeal decision directly relevant to security for costs under CPR 25.27(b)(ii) and the “reason to believe” test, with analysis of financial disclosure obligations.

£6m Security For Costs Denied As Escrow Funds In UK Account Deemed Sufficient – Virgo Marine v Reed Smith – High Court Commercial Court case on CPR 25.27 applications, discussing availability of funds and the “reason to believe” test with similar quantum considerations.

Additional Security For Costs Ordered For Inquiry And Detailed Assessment – Arcadia v Bosworth – High Court Commercial Court decision on additional security orders and material changes in circumstances, relevant to quantum and percentage discounting.

The Cost Of Providing Security For Costs | Court of Appeal Decision – Court of Appeal guidance on form of security and discretionary considerations under CPR 25.13, relevant to the banker’s draft requirement in Baker Botts.

The principles from Explosive Learning Solutions Ltd v Landmarc Support Services Ltd were applied by the court in assessing EHC’s financial position.

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