Kerry Underwood

SECURITY FOR COSTS: THREE RECENT CASES

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In Physiotherapy Network v Health & Case Management Ltd [2017] EWHC 1238 (QB)

the High Court has overturned a Master’s order requiring the Defendant to pay security for costs, failing which judgment in default would be entered for the Claimant on both the claim and counterclaim without further order.

The High Court Judge found that the effect of the order was not only that the counterclaim would not proceed, but that there would be no trial of the merits of the claim.

In his view, that, of itself, justified granting permission to appeal.

The High Court Judge referred to

BJ Crabtree (Insulations) Ltd v GPT Communications Systems Ltd [1990] 59 BLR 45,

which discusses the situation where a claim and counterclaim exist and, if security were ordered and not provided, one claim would be stayed and one would be advanced.

He observed that here, the Master had tried to address this potential difficulty by issuing an order which meant that neither claim nor counterclaim would be advanced, “but only because he gave judgment on the claim in default of providing the security on the counterclaim”.

This was unjust when the counterclaim raised the same issues as the claim.

He noted that the parties had not focused on whether the Defendant’s counterclaim was freestanding or covered the same issues as the claimant’s claim (Autoweld Systems Ltd v Kito Enterprises LLC [2010] EWCA Civ 1469 considered).

This meant that an important factor had not been considered at all by the Master, so the exercise of his discretion was flawed.

The claim and counterclaim here covered identical ground, such that it was unjust and wrong to order the Defendant to pay security for costs in respect of the counterclaim.

The judge described this as “a curious case and a curious order”, but his judgment includes lengthy consideration of several authorities on security for costs applications where there is a claim and counterclaim, and serves as a helpful reminder of the importance of considering whether the counterclaim simply gives rise to the same issues as the claim.

 

ATE AND SECURITY FOR COSTS

In Catalyst Managerial Services v Libya Africa Investment Portfolio [2017] EWHC 1236 (Comm)

the High Court held that the claimant’s After the Event (ATE) insurance policy was not satisfactory security for the Defendant’s costs in circumstances where the proceeds might not be available if the Claimant became insolvent and also where there was a risk that the insurer would avoid the policy.

The court held that there was a real and not fanciful risk of the Claimant becoming insolvent and if that happened the policy proceeds would go to unsecured creditors and not to pay the Defendant’s costs.

The policy also excluded reliance on the Contracts (Rights of Third Parties) Act 1999 and the Defendant could not rely on the Third Parties (Rights Against Insurers) Act 2010 if the Claimant was wound up in foreign jurisdiction, here the United Arab Emirates.

The judge held that the ATE policy could not be described as reasonably satisfactory security as the Defendant risked becoming an unsecured creditor in a foreign insolvency.

The court also held that there was a significant risk that the policy would be avoided by the insurers as part of the defence was an allegation for forgery against the claimant.

There was also a suggestion of misrepresentation by the Claimant.

 

FOREIGN CLAIMANTS ORDERED TO PAY SECURITY FOR COSTS

In Newwatch Ltd and another v Bennett and others [2016] EWHC 3506 (Comm)

the High Court ordered the Claimant companies, based in Denmark and Jersey, to pay security for costs under CPR 25.13(2)(a),(c) and (f).

On the evidence, the judge accepted that there was reason to believe that the claimants would be unable to pay the Defendants’ costs if ordered to do so and noted that the threshold in CPR 25.13(2)(c)and (f) was low.

The judge considered that the ATE insurance policies, which the claimants had taken out with a benefit of £1.8 million, provided insufficient protection for the Defendants because:

  • the Defendants were not named as direct beneficiaries and both policies expressly excluded the rights of third parties;

 

  • if a substantial costs order was made against them, the claimants would be insolvent and any payment from the insurers would be to the insolvency practitioner and the Defendants would be unsecured creditors in a foreign insolvency.

The case could be distinguished from Premier Motorauctions v Price Waterhouse Coopers LLP [2016] EWHC 2610 (Ch), which involved an English company;

  • there was a risk that insurers would refuse payment on the basis of exclusion clauses because of issues of illegality and fraud regarding deeds of assignment on which the claimants relied;

 

  • the Defendants’ costs were likely to be in excess of £1.8 million.

The application for security for costs was made very close to trial but the court said that the delay was not a bar to the making of an order, but it was material to the exercise of discretion.

The judge ordered the claimants to pay security for costs in the sum of £1.2 million.

Courts have reached differing views on whether ATE insurance provides sufficient protection for Defendants but most, like this one, rule that it will not, and particularly where there are issues of fraud and a foreign element.

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Written by kerryunderwood

July 10, 2017 at 9:22 am

Posted in Uncategorized

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