Kuenyehia & Ors v International Hospitals Group Ltd

Where a defendant satisfies a gateway for security for costs, the court must decide whether an order is just in all the circumstances. A claimant resisting security because it would stifle a valid claim must show that stifling is probable. The claimant must address both its own resources and its ability to raise funds from directors, shareholders, backers or other interested persons. Incomplete, misleading or contradictory financial evidence may fail to establish impecuniosity. The strength of the claim does not justify an inference that funds would have been produced, particularly where the claimant has previously raised substantial sums. Where the lower court’s reasoning is flawed, the appellate court may exercise the discretion afresh.

The claimants sought approximately £5.5 million in unpaid commission under agency and related agreements. The defendant applied for security for costs exceeding £350,000. The first two claimants were resident outside the jurisdiction and the European Union, and the third claimant had limited apparent means. A Deputy Master had ordered £30,000 security. Irwin J dismissed the defendant’s further application, accepting that substantial security was likely to stifle the claim.

The defendant appealed, challenging the judge’s assessment of the claimants’ means and the conclusion that the claim would be stifled. The central issue was whether the claimants had established the probable stifling effect of a further order.

Appeal allowed. The Court of Appeal exercised the discretion afresh and ordered further security for costs.

1. It was common ground that the relevant gateways under the Civil Procedure Rules 1998, rule 25.13(1)(a), (c) and (e), were satisfied. The question was whether, having regard to all the circumstances, it was just to order security.
2. The merits had to be taken into account, but the distinction between a strong prima facie case and a high prospect of success was not determinative. In the circumstances, the merits could not be treated as crucial to the stifling issue.
3. Following the approach summarised in Keary Developments v Tarmac Constructions [1995] 1 AER 534, a claimant resisting security on the ground of stifling must satisfy the court that stifling is probable. The inquiry includes whether security can be provided from the claimant’s resources or raised from directors, shareholders, backers or interested persons.
4. The claimants had not provided an intelligible or credible account of the estate’s assets and liabilities. The earlier accounts were misleading, irrespective of the purpose for which they had been prepared, and the later assertion that approximately US$1 million had remained in the estate was unexplained and inconsistent with the earlier evidence.
5. The judge wrongly inferred that funds would have been produced if they were available because the claim was strong. The claimants had in fact produced substantial sums when ordered to do so or when it was in their interests. If those payments were made under the conditional fee agreement, that agreement represented a potential source of funds.

The claimants had wholly failed to establish probable stifling. Further security was fixed at £100,000, covering the period from exchange of witness statements and taking account of the defendant’s liability for the costs of the previous adjournment. Security, or a substantial part of it, was to be provided by 25 March 2007, with further argument reserved on the method of payment.

1. Court of Appeal (Civil Division): allowed the defendant’s appeal and ordered £100,000 further security for costs.
2. High Court, Queen’s Bench Division: Irwin J dismissed the defendant’s application for further security, concluding that a substantial order was likely to stifle the claim.