In Plus Group Limited v John Albert Pyke

On an application for security for costs, the appellants bear the burden of showing that security would probably stifle the appeal. The court need not conduct a detailed or numerical assessment of the appeal’s prospects. It may treat those prospects as one factor among the circumstances, alongside the respondent’s inability to recover an existing judgment and costs, the appellants’ financial position, the timing of the application and the amount sought. Article 6 does not prevent a security order where stifling has not been demonstrated. An administration order does not necessarily prevent security being ordered against a company in administration where the effect is only to require payment into court before proceedings continue.

The appellants, a group of companies, appealed against an order of the Central London County Court dismissing their claim for breach of fiduciary duty, entering judgment for Mr Pyke on his counterclaim and awarding him most of his costs.

Mr Pyke applied for security for the costs of the appeal after the group’s only trading company entered administration and evidence emerged of the companies’ serious financial difficulties. The application concerned whether the appellants were likely to be unable to pay the respondent’s costs, whether security would stifle the appeal, the relevance of the appeal’s prospects, the timing and amount of security, Article 6, and the effect of section 11(3)(d) of the Insolvency Act 1986.

1. Application allowed. The appellants were ordered to pay £5,000 into court as security for the respondent’s appeal costs. If payment was not made by 4.00 pm on the following Monday, the appeal would be stayed. The appellants were also ordered to pay the respondent’s costs of the application.
2. The evidence gave reason to suppose that the appellants would be unable to pay the respondent’s costs if the appeal failed. The burden of showing that the appeal would probably be stifled by security lay on the appellants. No evidence had been filed to establish that consequence, despite evidence of the companies’ dire financial state.
3. The court accepted that the appeal had at least an approximately equal prospect of success, but it was unnecessary and unjust to undertake a detailed assessment involving a percentage prediction such as 70 or 90 per cent. The merits were therefore not determinative.
4. The relevant circumstances included the short period before the fixed appeal hearing, the absence of any apparent funds in the companies, and the respondent’s difficulty in recovering the judgment sum and costs already awarded. Those factors justified security, but the whole sum claimed was excessive in the circumstances. A smaller sum was appropriate.
5. The reasoning in Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534 was applied: the court had to be satisfied that stifling was probable before refusing security on that ground. The principles discussed in Federal Bank of the Middle East v Hadkinson were also considered, including the relevance of funding, prospects and Article 6.
6. Section 11(3)(d) of the Insolvency Act 1986 did not require referral to the Companies Court. The administrator was supporting the proceedings, and the proposed order merely prevented continuation unless security was lodged.

• Central London County Court: On 12 February 2001, His Honour Judge Levy QC dismissed the claim for breach of fiduciary duty, entered judgment for Mr Pyke on his counterclaim and ordered the claimants to pay 85% of the costs.
• Court of Appeal (Civil Division): The appeal was pending. The court allowed Mr Pyke’s application for security for costs and ordered payment of £5,000, with a stay if unpaid by the specified deadline.