The following points arising from recent judgments will be of interest to those considering making or defending an application for security for costs.
- The standard of proof for the applicant is lower than the balance of probabilities (Coral Reef Limited v (1) Silverbond Enterprises Limited (2) Eiroholdings Invest (2016) EWHC 874 (Ch)). In Bestfort Developments LLP and others v Ras Al Khaimah Investment Authority and Others [2016] EWCA Civ 1099, Gloster LJ concluded that the European Human Rights Convention does not require the higher "likelihood" burden to be applied.
- The existence of an ATE policy can be effective to lead to defeat of an application for security for costs – the courts will consider whether the policy is likely to respond and if there is no reason to doubt that it will, or to question the creditworthiness of the insurer, then security for costs applications may be refused (Premier Motorauctions Ltd and another v PricewaterhouseCoopers LLP & Anor [2016] EWHC 2610 (Ch)).
- In order to argue successfully that providing security would effectively 'stifle' the claim, a claimant must provide evidence of what has been done to try to obtain funding (Premier Motorauctions, New Tasty Bakery Ltd v MA Enterprise (UK) Ltd [2016] EWHC 1038 (IPEC)). In the latter case, the court emphasised the obligation on a claimant to produce satisfactory evidence that it does not have funds and cannot obtain them from another source, e.g. a third party who might reasonably be expected to provide them. Without such evidence, no great weight can be given to the argument that the claim would be stifled by an order for security for costs.
- Arguments in relation to the '(in) equality' of the parties: in Dawnus Sierra Leone Ltd v Timis Mining Corporation Ltd [2016] EWCA Civ 1066 the court noted that in the face of an argument that justice demands that both parties are put on an equal footing in accordance with the overriding objective, the basic principle is that security is provided by the claimant alone and, therefore, in that respect the parties are not treated equally. Guidance on whether or not it will be appropriate to depart from this principle is to be found in the case law on security for costs rather than the terms of CPR Rule 1.1.(2)(a).
- Security for costs protection may be more appropriate if it is to cover the additional costs burden of any enforcement action (Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v John Kent (aka Joannis Kent) [2016] EWHC 623 (QB)).
- Past conduct demonstrating that a judgment debtor might take steps to denude itself of assets or to put its assets beyond the reach of normal enforcement processes is relevant in the context of security on appea but not essential (Merchant International Co Ltd v Natsionalna Aktsionerna Kopmaniia Naftogaz Ukrainy [2016] EWCA Civ 710).
- Third parties:
- In Deutsche Bank A.G. v (1) Sebastian Holdings Inc. (2) Alexander Vik [2016] EWCA Civ 213, the court confirmed that a defendant's failure to apply for security does not preclude a successful application for an order for costs against a third party.
- In M.A. Lloyd & Son Ltd (In Administration) v PPC International Ltd (t/a Professional Powercraft) [2016] EWHC 1583 (QB), Master Kay held that an application for wasted costs against a third party did not constitute a substantive claim against that third party which would allow the third party to seek security for its costs of defending the application.In Wall v The Royal Bank of Scotland plc [2016] EWHC 2460 (Comm), Mr Andrew Baker QC found that, in circumstances where a claimant is being funded by a third party (or there is good reason to believe that it is being funded), such that the court has the power to grant a remedy by way of security for costs against the funder, the court has the power first to make an order requiring the claimant to disclose the identity of the funder.
- Shareholder undertakings: In Dunn Motor Traction v National Express [2017] EWHC 228 (Comm), it was held by the High Court that a shareholder undertaking will only be regarded as equivalent to ATE insurance in security for costs applications in exceptional circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
