22 February 2007

Security for Costs: Hart Investments Ltd v Larchpark Ltd. and Another

In England and Wales and a number of other countries costs (that is to say, lawyers' fees and expenses) follow the event. Another way of putting it is that the loser pays. Not every country in the world has such a rule. In the USA, for instance, it is the exception rather than the rule for a court to order an unsuccessful party to pay the successful party's costs though jurisdiction to make such an order does exist under a number of statutes and juries are said to take legal fees into account when awarding damages. But in England the loser pays and we are unlikely to change that rule anytime soon because it works to the advantage of the state and other big and powerful interests. I think the rule is very unfair but then that may be because I advise a lot of little chaps from places like Oswaldtwistle and Heckmondwike who as often as not have borrowed up to the hilt and mortgaged their grannies to float their software houses, design studios or other businesses.

Anyway, when you have a rule that the loser always pays the winner's costs you need another rule that prevents persons of straw such as companies with an authorized share capital of £100 from suing Microsoft or Tony Blair with impunity. That rule is contained in CPR 25.13 (1):


"The court may make an order for security for costs under rule 25.12 if –
(a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and
(b) (i) one or more of the conditions in paragraph (2) applies, or
(ii) an enactment permits the court to require security for costs."
The conditions set out in CPR 25.13 (2) are:


"(a) the claimant is –
(i) resident out of the jurisdiction; but
(ii) not resident in a Brussels Contracting State, a Lugano Contracting State or a Regulation State, as defined in section 1 (3) of the Civil Jurisdiction and Judgments Act 1982;

...............................................................................
(c) the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so;
(d) the claimant has changed his address since the claim was commenced with a view to evading the consequences of the litigation;
(e) the claimant failed to give his address in the claim form, or gave an incorrect address in that form;
(f) the claimant is acting as a nominal claimant, other than as a representative claimant under Part 19, and there is reason to believe that he will be unable to pay the defendant’s costs if ordered to do so;
(g) the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him."

Paragraph 2 (c) is derived from s.726 (1) of the Companies Act 1985 which used to apply to English and Welsh companies. S.726 (2) made similar provision for Scotland though as Scots have "expenses" rather than costs pursuers have to lodge "caution" which while it looks like the English word actually sounds like Cajun.

It will be obvious that this rule affords a fair measure of discretion to the court and a very good example of the way in which such discretion is exercised is the decision of His Honour Judge Coulson in Hart Investments Ltd v Larchpark Ltd. and another [2007] EWHC 291 (TCC) (9 Feb 2007). This was an application for security for the claimant's costs of a counterclaim. The claim was for damages arising from the collapse of a building allegedly caused by the defendant's act or default while the counterclaim was for the consideration for erecting the structure.

The judge considered the authorities and, in particular, Sir Lindsay Parkinson & Co. v. Triplan [1973] QB 609 which provides the following checklist::

(a) Has the claim or counterclaim a reasonably good prospect of success?
(b) Is the application for security being used oppressively so as to stifle a genuine claim?
(c) Has the claimant's want of means been brought about by the conduct of the defendant, such as delay in payment or in doing their part of any work?
(d) Has the application for security been made at a late stage of the proceedings?


Applying those guidelines, the judge decided it was not unreasonable to award security and set it at £25,000.

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