Security for Costs - International Pipeline Products Ltd v IK UK Ltd. and others

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Jane Lambert

Chancery Division (Me David Stone) International Pipeline Products Ltd v IK UK Ltd and others [2020] EWHC 1602 (Ch) (24 June 2020)

This was an application by several defendants to a claim for breach of contract, conspiracy, breach of confidence and patent, copyright and unregistered design right infringement for security for costs.  It was heard by Mr David Stone sitting as a deputy judge of the High Court on 1 May 2020. He gave an extemporary judgment on the day of the hearing and delivered detailed reasons on 24 June 2020.

CPR 25.12 (1) provides:

"A defendant to any claim may apply under this Section of this Part for security for his costs of the proceedings."

The costs of civil litigation in the UK can be eye-watering.  It is bad enough to be sued in this country in the first place.  What makes it worse is being unable to recover those costs from an unsuccessful claimant.  To prevent that from happening the court has power under CPR Part 25 to stay an action until the claimant has deposited funds into court or made some other arrangements to cover at least part of the cost of resisting an unsuccessful claim.

CPR 25.12 is intended to prevent injustice to defendants but it can be unjust to claimants, particularly in intellectual property litigation.  For instance, a startup with a good cause of action may be prevented from pursuing a well-heeled infringer by an application for security for costs.  CPR 25.13 makes clear that the power to make an order under 25.12 is discretionary.  Two conditions must be fulfilled.   First, the court must be satisfied having regard to all the circumstances of the case, that it is just to make such an order (CPR 25.13 (1) (a)).  Secondly, one of a number of circumstances must apply.   One of those circumstances is that:

"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" (CPR 25.13 (2) (c)).

Courts consider the second question first for without it there is no jurisdiction to make an order.  They then consider how to exercise their discretion.  Mr Justice Briggs (as he then was) provides the following guidance at paragraph [13] pf his judgment in Chemistree Homecare Limited v Teva Pharmaceuticals Limited [2011] EWHC 2979:

"Happily there has been no dispute about the law, recently comprehensively restated by the Court of Appeal in Jirehouse Capital v Beller [2009] 1 WLR 751. For present purposes the relevant principles are as follows:
(1) the applicant must show that on all the material presently available to the court there is reason to believe that the claimants will be unable to pay the applicant's costs if ordered to do so.
(2) The question is whether the claimant companies will, rather than might, be unable to pay.
(3) Inability to pay means to pay when the costs fall due for payment (see Re Unisoft Group (No 2) 1993 BCLC 532 at 534, approved in Jirehouse Capital at paragraph 23). This calls for an assessment of what the claimants may be expected to have available for payment at the due date or dates in the form of cash or other readily realisable assets (see Longstaff International v Baker and McKenzie [2004] 1 WLR 2917 at paragraphs 17 and 18).
(4) 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, as it seems to me, are (a) the payment date of any order made by the trial judge for a payment on account, and (b) the date when an order for the balance is made upon completion of detailed assessment.
(5) If this ability to pay threshold is passed, then the court has a broad discretion whether to order any, and if so how much, to be paid or secured by way of security. The reported cases have identified specific aspects which have to be taken into account (see for example Sir Lindsay Parkinson and Co v Triplan [1973] QB 609 per Lord Denning, summarised in the White Book at paragraph 25.13.13).
(6) But overall the question is whether the court is satisfied, having regard to all the circumstances of the case, that it is just to make such an order (see CPR 25.13 (1) (a))."

In this application, the defendants argued that the claimant was a company that it would be unable to pay their costs if ordered to do so. Mr Stone considered what those costs would be and when they would have to be paid.  The claimant argued that they would be about £900,000 and the defendants slightly over £1 million.  The case was likely to come on between April and July 2021 which meant that an interim payment of between £800,000 to £900,000 would be required around October or November 2021.  At paragraph [24] Mr Stone directed himself that the question he needed to answer was whether there was reason to believe that the claimant would be unable to pay between £800,000 and £900,000 in October or November 2021. There was no doubt that it could do so now as it had net assets of £2.4 million.   The defendants contended that the situation could deteriorate considerably by October or November 2012 because of the economic downturn as a result of COVID-19 and the need to repay a £1.5 million loan in February 2021.   The learned deputy judge rejected the defendants' contention.   The claimant's business was pipeline maintenance and its services were likely to remain in demand regardless of what happens to the rest of the oil and gas industry.  There was no reason to doubt that it would be able to pay the defendants' costs if and when required to do so.

Having failed to clear the first hurdle it was unnecessary for Mr Stone to consider the second, namely whether it was just in all the circumstances to make an order.   As the point had been argued Mr Stone indicated that it would not have been just in all the circumstances of the case to make an order.

Anyone wishing to discuss this article or any of the issues in it should call my clerk Stephen on  07986 948267 or send me a message through my contact page.

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