UPC Court of Appeal Clarifies Security for Costs Rules

In the dispute between Aarke AB, a Swedish small business, and SodaStream Industries Ltd., an Israeli company owned by PepsiCo, the UPC Court of Appeal issued a decision on 29 November 2024, addressing two key issues: whether the financial position of a claimant’s parent company is relevant, and what evidence is needed to show enforcement of a cost order would be difficult.

Focus on the Claimant’s Financial Position

The Court of Appeal ruled that only the financial position of the claimant itself—SodaStream in this case—matters when deciding on security for costs. The Court found that SodaStream was financially capable of complying with any cost order and rejected arguments that its connection to PepsiCo should influence the decision. It emphasised that, contrary to the reasoning of the decision at first instance, PepsiCo’s financial strength was irrelevant as it is not a party to the case. 

Proving Enforcement Challenges

The Court of Appeal emphasised that a key consideration for ordering security for costs is whether enforcement of a potential cost order would be unduly burdensome for the requesting party. The burden of proof lies with the applicant—in this case, Aarke—to provide concrete evidence that enforcement would be problematic.

Aarke pointed to the Israeli Foreign Judgments Enforcement Law (1958), which requires reciprocity for enforcing foreign judgments. Aarke argued that the lack of bilateral treaties or conventions between Israel and the EU or Sweden could create enforcement challenges.

However, the Court found these arguments unconvincing. It noted that Aarke did not present specific evidence about how Israeli courts apply this law. By contrast, SodaStream cited Israeli Supreme Court case law showing that reciprocity can be established even without a treaty, provided there is potential for Israeli judgments to be enforced abroad. The Court concluded that SodaStream had sufficiently demonstrated that enforcement of a UPC judgment in Israel was likely to proceed without undue difficulty.

This decision highlights that the burden of demonstrating that enforcement proceedings of an adverse costs award against an unsuccessful claimant with its seat outside the EU would be problematic falls fairly and squarely on the defendant wishing to claim security for its costs.  The sufficiency of such difficulties enabling a defendant to claim security will be determined on a case by case basis. However, the fundamental principles have now been explained fully by the Court of Appeal.