16. Interim Payments and Security for Costs Flashcards

Question

What is the guidance on ordering security for costs against insolvent/impecunious companies?

Answer 1

Merely have to show there is reason to believe that they will not pay when the costs fall due. – however, giving reason to believe they ‘may’ not is insufficient. Not ordered as a matter of course. Has to have regard to the full circumstances. Have to think about what the company will have at the time the payment becomes due, in the form of cash or other realisable assets This rule on believing they will be unable applies to all companies, unlimited, limited, registered elsewhere e.c.t. The fact defendants may have had the benefit of a performance bond and company guarantee which guaranteed the claims company’s solvency and obligations is irrelevant to the application for security to costs. In respect of a costs order made at the end of a two-week trial, where there is no possibility of summary assessment, the relevant due dates, are (a) the payment date of any order made by the trial judge for payment on account, and (b) the date when an order for the balance is made upon completion of detailed assessment.”

Answer 2

No, they are not under a duty to ensure that there is sufficient money for costs. That is why an application for security for costs would be made. A defendant who fails to make such an application will not normally be entitled to an order or costs payable by the liquidator or receiver personally.

Answer 3

Yes, especially where there is comparatively small overlap between its own claims and those of the others

Answer 4

Yes, where it is incorporated but supported by well-resourced people with an interest in the proceedings.

Answer 5

A protective costs order (allowing a person to pursue claims in the public interest where they are of limited means) may be sought in public interest proceedings. The guidelines on this are relevant to where a claimant should be ordered to provide security for costs in judicial review proceedings

Answer 6

* i) The requirement is that the claimant has taken in relation to his assets steps which, if he loses the case and a costs order is made against him, will make that order difficult to enforce. It is not sufficient that the claimant has engaged in other conduct that may be dishonest or reprehensible: Chandler v Brown [2001] CP Rep 103 at [19]-[20]; * ii)The test in that regard is objective: it is not concerned with the claimant’s motivation but with the effect of steps which he has taken in relation to his assets: Aoun v Bahri [2002] EWHC 29 (Comm), [2002] CLC 776, at [25]-[26]; * iii)If it is reasonable to infer on all the evidence that a claimant has undisclosed assets, then his failure to disclose them could itself, although it might not necessarily, lead to the inference that he had put them out of reach of his creditors, including a potential creditor for costs: Dubai Islamic Bank v PSI Energy Holding Co [2011] EWCA Civ 761 at [26]; * iv)There is no temporal limitation as to when the steps were taken: they may have been taken before proceedings had been commenced or were in contemplation: Harris v Wallis [2006] EWHC 630 (Ch) at [24]-[25]; * v)However, motive, intention and the time when steps were taken are all relevant to the exercise of the court’s discretion: Aoun v Bahri, ibid; Harris v Wallis, ibid; * vi)In the exercise of its discretion, the court may take into account whether the claimant’s want of means has been brought about by any conduct of the defendant: Sir Lindsay Parkinson & Co v Triplan [1973] QB 609 per Lord Denning MR at 626; Spy Academy Ltd v Sakar International Inc [2009] EWCA Civ 985 at [14]; * vii)Impecuniosity is not a ground for ordering security; on the contrary, security should not be ordered where the court is satisfied that, in all the circumstances, this would probably have the effect of stifling a genuine claim: Keary Developments Ltd v Tarmac Construction [1995] 3 All ER 534 at 540, para 6. Thus the court must not order security in a sum which it knows the claimant cannot afford: Al-Koronky v Time-Life Entertainment [2006] CP Rep 47 at [25]-[26] (where this was referred to as ‘the principle of affordability’); * viii)The court can order any amount (other than a simply nominal amount) by way of security up to the full amount claimed: it is not bound to order a substantial amount: Keary at 540, para 5; * ix)The burden is on the claimant to show that he is unable to provide security not only from his own resources but by way of raising the amount needed from others who could assist him in pursuing his claim, such as relatives and friends: Keary at 540, para 6. However, the court should evaluate the evidence as regards third party funders with recognition of the difficulty for the claimant in proving a negative: Brimko Holdings Ltd v Eastman Kodak Co [2004] EWHC 1343 (Ch) at [12]; * (x)When a party seeks to ensure that any security that may be required is within his resources, he must be full and candid as to his means: the court should scrutinise what it is told with a critical eye and may draw adverse inferences from any unexplained gaps in the evidence: Al-Koronky at [27].” It has also been held that it can also be important to note the extent of the effect of the steps taken by the respondent upon the ability of the applicant to enforce the following or subsequent cost judgment, because that effect is relevant to the exercise of the discretion. For example, if the steps taken have a minimal effect on the ability of the applicant subsequently to enforce a judgment, then the court is much less likely to make an order. If all or most of the claimant’s assets are put beyond the defendant’s reach, the injustice to the defendant if no security is given may be just as great as it would be if it was the claimant who had transferred overseas or disappeared. That said, the proof of a specific intent to stultify future orders for costs will generally increase the likelihood that an order for security will be made. The applicant may seek to prove a specific intent to stultify future orders for costs in a variety of ways, e.g. evidence of dishonest behaviour by the claimant, unreliability in the past, evasiveness in these proceedings and statements of intent by the claimant. The fact that an application under r.25.13(2)(g) will involve confidential financial information is not, by itself a sufficient reason to persuade the court to make a direction under r.39.2(3) for the application to be heard in private