Judge refuses to grant security for costs on the basis that the claim would be stifled
This case involved an application for security for costs against a corporate Claimant where there was reason to believe that it would be unable to pay the Defendant's costs if ordered to do so. Nonetheless, even though the conditions for granting security were met, Smith J concluded it would not be just to make the order because it would stifle the claim being brought by the Claimant's liquidators on behalf of the Claimant, for the benefit of the Claimant's creditors.
The judge noted that the key question when considering whether a claim will be stifled is whether the company (and the company alone) can or cannot provide the security. In this case, even if the liquidator was prepared to take the highly unusual step of causing the security to be paid out of her firm's coffers, those funds would be coming from a third party, and not the company itself. Furthermore, the liquidator had agreed a "no win no fee" structure and had chosen not to approach the Claimant's creditors for funding, which led the judge to conclude that "there [was] no source of funding available to the Claimant that would enable it to finance an order for security for costs were ... one [to be made]". This therefore led to a clear risk that a bona fide claim would be stifled.
This ruling can be contrasted with Northampton Regional v Cowling , in which the judge agreed with textbook commentary that in considering whether a claim might be unfairly stifled, the court should consider not just whether a claimant can raise security out of its own resources, but also whether it could raise the amount needed from outside sources (e.g. directors or shareholders).
In reaching his decision in this case, the judge relied on the Supreme Court decision of Goldtrail Travel v Onur Air , where, in deciding whether the company could raise funds from its controlling shareholder, it was held that the approach should be as follows: "The question should never be: can the shareholder raise the money? The question should always be: can the company raise the money?"
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.