Get in touch
31st July, 2018 by Sarah Lee
The court will be cautious about refusing security for costs on the grounds that it would stifle a serious or genuine claim. Sarah Lee considers why the court was willing to do so in the recent decision to do in Absolute Living Developments Limited v DS7 Limited.
In a judgment that will be of interest to insolvency office holders contemplating litigation, Mr Justice Marcus Smith has declined to make an order for security for costs against Absolute Living Developments Limited (in Liquidation) (“ALDL”) because to do so would stifle a genuine claim.
The Defendants had applied under rules 25.12 to 25.13 of the Civil Procedure Rules for an order that ALDL provide security of £500,000 on the basis that ALDL was a company which would be unable to pay the Defendants’ costs if ordered to do so.
There was no dispute that ALDL would be unable to pay the Defendant’s costs if ordered to do so. The “entry requirement” for the application was met. The Judge then had to consider, having regard to all the circumstances of the case, whether it was just to order security:
Determining whether an application for security for costs was being used to stifle a serious or genuine claim involved the court carrying out a balancing exercise. On the one hand, it had to consider if this would result in an injustice to the Claimant (and in this case its creditors) if it was ordered to provide security but, being unable to do so, was forced to abandon a genuine claim. This had to be weighed against the possible injustice to the Defendant if the claim failed and the Defendant was unable to recover its legal costs incurred in defending the claim.
The balance in this case clearly favoured the Liquidator continuing to bring the claims on behalf of ALDL for the benefit of its creditors. The particular matters that led to this conclusion were that:
The case demonstrates that in the right circumstances, an insolvent company, acting by its appointed office holder may be able to litigate a claim even if ATE insurance or other funding options are not available.
The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.