Security, costs and the CPR

District Judge John Mitchell shows how one party's insecurity may become the other party's salvation

In the recent case of Olatawura v Abiloye (2002) The Times, 24 July, the Court of Appeal ruled that the court can make an order requiring security to be given for costs not just under the Civil Procedure Rules 1998 (CPR) part 25 but also when considering an application for summary judgment under CPR part 24 as well as under the general powers set out in CPR part 3.

Security and CPR part 25

Rules 25.13 and 25.15 enable the court to grant security of costs against a claimant or appellant in a variety of circumstances.

These include a claimant/appellant ordinarily residing outside the jurisdiction in circumstances in which a claim cannot be enforced under the Lugano or Brussels Conventions (even though they may have assets in a convention state - see De Beer v Kanaar & Co [2002] 3 All ER 1020), acting as a nominal party when there is reason to believe they will be unable to pay their opponent's costs or having taken steps in relation to their assets that would make it difficult to enforce an order for costs.

It is not necessary that the steps are taken with the intention of evading enforcement.

It is sufficient that they will have that effect (see Aoun v Bahri [2002] All ER (D) 104 (Feb)).

Security can also be ordered against a company claimant which appears on credible evidence to be unable to meet an order for costs (section 726 of the Companies Act 1985).

Security and CPR part 24

Olatawura concerned a dispute between two solicitors as to the amount the defendant would pay the claimant for his employment.

District Judge Margaret Langley refused the defendant's application for summary judgment on the ground that she could not be satisfied that the claimant had no real prospect of success.

However, his prospects were limited and she considered that she should order the claimant to provide 5,000 security as to costs.

On appeal, the circuit judge and the Court of Appeal agreed.

The first question which had to be considered was whether a court had power to order security outside the provisions of CPR part 25.

In the view of Lords Justices Simon Brown and Dyson, the answer was 'a clear yes'.

Rule 3.13 provides that a court may make an order subject to a condition that a party pays a sum of money into court and practice direction 24 specifically applies this to applications under part 24.

The second more difficult question was how the power should be exercised.

Lord Justice Simon Brown stressed that it was not necessarily appropriate to make an order in every case where a party has 'a somewhat weak' claim or defence.

The occasions when an order will be made should be expected to be few and far between.

'The court will be reluctant to be drawn into an assessment of the merits beyond what is necessary to establish that the person concerned has no real prospect of succeeding.'

Unfortunately no clear test was provided by the court as to how weak the case should be.

Can the power be exercised only when a court, having decided that it has the power to strike out, is considering whether or not to the exercise that power? In Olatawura, the court took into account factors in addition to the strength of the claimant's case - the 'wholly unreasonable' way in which he was conducting the case and the fact that because he was not permanently resident in the jurisdiction, the enforcement of a costs order was likely to prove more than ordinarily difficult.

Security and CPR part 3

The Court of Appeal also considered the power under rule 3.1 to make it a condition of any order that security should be given.

The aim was to achieve justice.

Relevant considerations beside the ability of the party to pay included his conduct of the proceedings and the apparent strength of his case.

However, the court should not ordinarily penalise breaches of rules and orders by making such orders.

In Mealey Horgan plc v Horgan (1999) The Times, 6 July, for example, Mr Justice Buckley held that it would be inappropriate to order a party to give security solely as a penalty for failing to serve witness statements in time.

But such an order might be appropriate if 'there is a history of repeated breaches of timetables or court orders or if there is something in the conduct of the party which gives rise to suspicion that they may not be bona fide and the court thinks that the other side should have some financial security.'

Ability to pay

In all applications for security, the court has be alert and sensitive to the risk that by making the order it may be depriving a party of his right to access to the court.

In Olatawura, Lord Justice Simon Brown described this as 'a prime consideration, not least since article 6 of the European Convention on Human Rights has become incorporated into domestic law.

Paradoxically, of course, the more difficult it appears to be for the person concerned to raise the money, the more obvious becomes the need for an order for security...The court will have to resolve that conundrum as best it may.' In MV Yorke Motors v Edwards [1982] 1 All ER 1024, the House of Lords was clear that the onus is on the party affected to place sufficient evidence before the court to show that it will be impossible (and not merely difficult) for him to comply.

Full and frank disclosure must be given.

How much?

In Sweetman v Shepherd (2000) The Times, 29 March, the Court of Appeal indicated that in the absence of financial constraints, the appropriate figure to be ordered was likely to be about 75-80% of the costs which a party could reasonably expect to recover at the end of the action if fully contested.

However, in Aoun, Mr Justice Moore-Bick decided that it might be appropriate to take into account the possibility of early settlement.

The party seeking the order needs to place a detailed costs estimate before the court.

In Olatawura, the Court of Appeal rejected an argument that three days' notice of an application made in part 24 proceedings should be given but observed that the person concerned must be given a proper opportunity to deal with it.

Any ambushing of a party is likely to result in the application being adjourned, possibly with a costs order against the culprit.

District Judge Mitchell sits at Bow County Court