Legal Test for Security for Costs
A warranty claim can be made at any stage of the procedure. However, it is best to have early and as soon as there is sufficient evidence that the applicant may not be able to bear the costs. The amount of the security ordered must be proportionate and not overwhelming. Determining quantity is not an exact science. The court takes into account the costs already incurred and to be incurred and the defendant must prove it. It will also assess whether proceedings are imminent, as it may be considered disproportionate to order substantial guarantees at such a late stage. Guarantee is usually not given on the basis of compensation, so not all of a defendant`s costs are guaranteed. If the plaintiff is domiciled abroad, the court will consider the difficulty of enforcing an English decision on costs in the jurisdiction in which the plaintiff is domiciled. However, the court will almost certainly not order a guarantee against a person simply because that person is a national of another EU member state and resides there, as this would discriminate against EU citizens outside the UK and EU law. Discretion can be exercised against a company incorporated in the UK or abroad, provided it can be demonstrated that the company will not be able to pay the adverse costs imposed on it – which will put companies from other EU countries under the same test as companies based in the UK. Rule 56.01 sets out the circumstances in which a court may order security for costs.
On the application of a defendant, the court may order security for costs, “as is specifically the case here, that”: In a recent High Court decision in Fortberry Limited v Promontoria (Aran) Limited & Ors1 (“Fortberry”) concerning a claim for costs security, the court took the opportunity, in determining the security, to consider and encourage the parties to: deal with the case as efficiently as possible and as soon as possible. The decision is interesting in the current climate, where there is a backlog of cases currently pending before the courts, and underlines the willingness of the Court of Justice to take account of the efficiency of cases when dealing with issues of interim measures, such as protection of costs. It should also be noted that a defendant may claim security against a non-party to the proceedings, such as a financial third party (CPR 25.14). As a general rule, a defendant must file their claim for costs coverage as soon as they have “reasonable grounds to believe” that the plaintiff meets one of the criteria listed above.2 This threshold is not onerous.3 To meet it, the defendant does not have to prove “with certainty” that either of the criteria is met. Rather, the defendant`s motives must be based on “proven facts” and evidence and not on “mere conjecture, intuition or speculation”.4 Once any of the criteria set out in rule 56.01 have been established, the burden of proof is on the claimant to prove that he or she has assets in the jurisdiction or that he or she meets another exception to the security deposit. In most cases, a defendant should consider filing a request for certainty as one of the first steps in the proceedings. Taking this approach into account from the outset and, where appropriate, initiating it makes it possible to avoid the risks associated with the obligation to declare a time-limit to the Court later in the dispute. In circumstances where the current pandemic continues to pose a number of challenges to the judiciary and the judiciary in terms of the smooth and efficient functioning of the judicial system, it will be very interesting to see to what extent the courts continue to focus and adopt in their decision-making process. Important factors for the efficient processing of files, both from the point of view of time and cost.
A copy of the full judgment can be found here. Defending a lawsuit can be an expensive process, even if a defendant ultimately succeeds in dismissing claims against them. Normally, court fees are “in the case”, so a winning defendant is awarded a portion of his court costs. However, depending on the applicant`s situation, there may be serious difficulties in recovering legal fees – for example, the applicant may have no assets. Although he concluded that a bond would have been warranted if the claimant`s claim had been considered separately from that of its shareholder, the Chamber judge rejected the guarantee on the grounds that (a) each security posted by the applicant company should be provided by the individual claimant; and (b) there were no “special circumstances” justifying the granting of security against the individual claimant. In some cases, the defendant may be confident that they can successfully defend a claim, but may fear that the plaintiff may not be able or unable to pay the costs awarded. The defendant may request the court, at the beginning of the proceedings, that the plaintiff provide security for any costs he may have to bear. This order generally requires the plaintiff to pay money to the court or provide other security within a certain period of time before being allowed to pursue the claim.
The first defendant (“Promontoria”) sought security for costs against the plaintiff Fortberry in an action for damages brought by Fortberry in connection with the sale of real property by the second and third defendants (the “insolvency administrators”). The property in question is Dowth Castle, a medieval castle in County Meath (the “Castle”) adjacent to a Victorian manor house known as Netterville Manor. Fortberry brought an action against the defendants, alleging that they acted unlawfully and in bad faith with respect to the appointment of trustees and the sale of the castle, in circumstances in which Fortberry argues that the sale was not necessary because it had an agreement to sell the castle at a higher price (€2.2 million) than the trustees (€1.95 million). However, a claimant company may be wholly or substantially controlled by a person who is also a plaintiff in the proceeding – in this scenario, an order requiring the applicant company to post security is likely to affect the individual plaintiff as well.