K Ltd. v National Westminster Bank Plc & Anor

Security for costs on an appeal by a company requires the court to be satisfied both that security is just and that there is reason to believe the company will be unable to pay the respondent’s costs. Procedural complaints about parallel solicitors or an alleged litigation ambush do not, without more, engage the jurisdiction. Financial evidence must be considered as a whole. The court retains a general discretion to refuse security where the wider justice of the case requires the appeal to be heard, particularly where it raises an important public-interest issue. That discretion may favour refusal even though the order would not stifle the appeal.

K Ltd was appealing from a decision of the Queen’s Bench Division, Manchester District Registry Mercantile Court, before His Honour Judge Gilliland QC. The respondent bank applied for security for the costs of the appeal, relying on alleged procedural non-compliance and on the company’s financial position. Customs and Excise intervened because the appeal concerned the ambit of the Proceeds of Crime Act. The central questions were whether the procedural or financial grounds were established and, in any event, whether justice required an order for security.

Application refused.

1. The procedural ground was not made out. The inconvenience of different firms of solicitors acting in parallel did not justify security. An alleged ambush in the court below had not been properly considered there, and the court had ordered costs in the bank’s favour. The conduct was not sufficiently serious to justify invoking CPR 3.1(5).
2. Under CPR 25.15, read with CPR 25.13, security could be ordered only if the court was satisfied that it was just to do so and that there was reason to believe that the appellant company would be unable to pay the respondent’s costs. The company’s accounts showed deteriorating assets, cash and liabilities. However, evidence of a possible change in its business and an unexplained VAT refund left the court in doubt about its true financial position. The court was therefore not fully satisfied that the inability-to-pay condition was established.
3. Even if that conclusion were wrong, the court retained a general discretion to determine where justice lay. The application had been made late, although the delay in listing was not the bank’s fault.
4. The appeal raised an important public-interest issue concerning the operation of the Proceeds of Crime Act. The bank faced conflicting contractual and statutory responsibilities in relation to suspected proceeds of crime. It was important that the appeal be heard promptly so that financial institutions could understand their position. The public interest justified allowing the appeal to proceed, even though security would not have stifled it. The bank therefore had to bear the risk of an unsatisfied costs order.

1. Court of Appeal (Civil Division): refused the respondent bank’s application for security for the costs of the appeal.
2. Queen’s Bench Division, Manchester District Registry Mercantile Court: the underlying decision was given by His Honour Judge Gilliland QC, with permission to appeal granted in September 2005.