Weightmans secures security for costs order while applications remain fact-sensitive

Weightmans has successfully secured an order for security for costs against a claimant who had divested himself of assets in an attempt to make it…

Deleclass Shipping Co Ltd (1) MWI Shipping Services Ltd (2) v Ingosstrakh Insurance Co Ltd QBD (Comm) (Andrew Henshaw QC) 09/03/2018;
Scott v Conwy County Borough Council as Conwy Harbour Authority QBD (Admlty) (Teare J) 16/02/2018

Executive summary

Weightmans has successfully secured an order for security for costs against a claimant who had divested himself of assets in an attempt to make it difficult to enforce a potential costs order. However, recent decisions demonstrate just how difficult it remains to obtain such an order.

Background

Orders for security for costs remain a useful tool for a party to protect itself against the risk that the opposing party will not be able to pay the costs of litigation, if it is required to do so. However, when deciding whether to grant an application, the courts must balance the risk that the applicant might not be able to recover its costs with the potential injustice caused by requiring the opposing party to pay a sum into court.

In order for the court to grant an order for security, one of the conditions in CPR 25.13(2) must be met and the court must also consider it just to make such an order having regard to all of the circumstances of the case. In deciding whether to exercise its discretion, a court will need to consider whether the claim has a reasonably good prospect of success, whether the claimant’s lack of funds has been caused by the defendant’s conduct, whether there has been a delay in making the application, and whether the order would stifle a genuine claim.

Recent decisions

Two recent High Court decisions highlight the fine balancing act required of the courts.

In Deleclass Shipping Co Ltd (1) MWI Shipping Services Ltd (2) v Ingosstrakh Insurance Co Ltd, the defendant applied for security of costs after both parties accepted that the claimants might not be able to pay the defendant’s costs if ordered to do so. The defendant was the insurer of a vessel which was owned and commercially managed by the two claimants but which had been declared a constructive total loss. The proceedings concerned the payment of the insurance proceeds from the vessel. The claimants had limited assets and it seemed unlikely that they would be able to raise the required security. The court also found that it was likely that the defendant’s conduct regarding the non-payment of the insurance proceeds had contributed to the claimant’s financial position. While it was accepted that the claimants would not be able to pay the defendant’s costs if they were unsuccessful, the court refused to grant the application, finding that it would not be just to do so, having regard to the high probability that the claimant would be forced to abandon a claim which had a reasonable prospect of success.

In Scott v Conwy County Borough Council as Conwy Harbour Authority, the defendant, represented by Weightmans, applied for security for costs on the basis that the claimant had taken steps in relation to his assets that would have made it difficult to enforce a costs order against him. Such conduct is a ground for security for costs under CPR 25.13(2)(g). The claimant argued that he had no assets or savings to pay the security and that any order would stifle his claim. The claimant had divested himself of the beneficial ownership of two vessels by the creation of a trust. The claimant alleged that the transfer of beneficial ownership had taken place years ago. However, Weightmans disclosed documents which proved that this was not the case and that the steps had been taken more recently. The court considered that it was just to make an order for security for costs of £25,000 against the claimant. The claimant had failed to convince the court that he did not have available funds and his conduct had been questionable. Meanwhile, the impact of legal proceedings on the defendant’s business and finances was evident and constituted a good reason to make the order.

Comment

These recent decisions provide useful guidance on the fine balancing act which the court is required to perform when exercising its discretion in applications for security for costs. Insurers should take note that when objecting to making a payment under a policy, the court may take the view that these actions have contributed to the claimant’s impecuniosity and that such a factor might persuade the court that it would be just to allow the claim to proceed without granting security. Nevertheless, with careful investigation and presentation, orders for security can be obtained in the right circumstances. As can be seen from the successful application by the defendant in Scott (represented by Weightmans LLP), a forensic approach to the claimant’s finances under CPR 25.13(2)(g) can yield such results.

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