Vedatech Corporation v Crystal Decisions (UK) Ltd & Anor

A finding that the threshold for security for costs is met does not determine whether security should be ordered. The court must conduct a proportionate discretionary balancing exercise. It must decide whether security should be ordered at all, rather than merely calculate a sum likely to be recoverable.

Where an application is made shortly before trial, the court must consider the practical consequence of an unless order, the security already available, and whether the order would effectively prevent the claim from being heard. An order requiring substantial security within days, on pain of strike-out, may be oppressive even if the claimant has not produced evidence that its claim would be stifled. Article 6 requires a proportionate exercise of the jurisdiction.

The claimant, a Japanese corporation, brought claims arising from an alleged arrangement to assist the defendants’ entry into the Japanese software market. The claims included breach of contract, quantum meruit and unjust enrichment.

Following earlier orders for security, the Chancery Division ordered further security of £350,000. The claimant had to pay £200,000 within ten days, failing which its claim would be struck out, shortly before a listed 20-day trial. The judge proceeded under rule 13(2)(c) of the Civil Procedure Rules, having found reason to believe that the claimant could not meet an adverse costs order.

The claimant appealed. The central issue was whether the further order was a proportionate exercise of the discretion to order security for costs at that late stage.

Appeal allowed unanimously. Ward LJ gave the principal judgment, with which Sedley LJ agreed. Longmore LJ gave concurring reasons.

1. The defendants had established the jurisdictional condition in rule 13(2)(c) of the Civil Procedure Rules. There was no permitted challenge to the finding that there was reason to believe the claimant could not pay an adverse costs order. That finding gave the court a discretion; it did not compel an order for security.

2. The judge erred in principle by asking only how much further security should be ordered. He had to decide first whether security should be ordered at all. The discretionary exercise required attention to the lateness of the application, the imminent trial, the security already held or treated as held, and the practical effect of the proposed order.

3. Because the trial was only three weeks away, a stay on the usual terms was not a realistic option. The order therefore operated as an unless order. It required £200,000 within ten days on pain of striking out a claim that was otherwise ready for a lengthy trial. That consequence was oppressive and disproportionate.

4. Ward LJ held that this conclusion followed even if the claimant had not supplied sufficient evidence to establish that security would stifle the claim. Longmore LJ added that, although evidence of stifling normally matters, the imminence of the trial may be an equally important consideration.

5. Article 6 of the European Human Rights Convention did not invalidate the jurisdiction to order security for costs. However, its exercise had to be proportionate. The further security order was set aside, and the defendants’ application for it was dismissed. The claimant received the costs of the appeal and of the application below.

• Court of Appeal (Civil Division): Allowed the claimant’s appeal and set aside the paragraphs ordering further security: [2002] EWCA Civ 356.
• Chancery Division: Evans-Lombe J ordered further security for costs of £350,000, including £200,000 payable by 1 February 2002 on pain of strike-out.