Jirehouse Capital & Anor v Beller & Anor

The Court of Appeal dismissed an appeal against orders that the claimants provide security for the defendants' costs. The court held that CPR 25.13(2)(c) applies to "a company or other body (whether incorporated inside or outside Great Britain)" without excluding unlimited companies registered in Great Britain, and that the wording of CPR 25.13(2)(c) was deliberately broader than section 726 of the Companies Act 1985. The court further held that the statutory test "there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so" does not require proof on the balance of probabilities; rather the court must assess the evidence and may conclude there is reason to believe (often formulated as a significant danger) the company will be unable to pay. The judge's exercise of discretion and factual conclusion that there was a significant danger of non-payment were upheld.

The appellants (Jirehouse Capital, an English-registered unlimited company with a sole shareholder, and its wholly owned limited subsidiary) appealed against orders of Briggs J requiring security for costs. The underlying proceedings comprised claims for damages and rescission based on alleged fraudulent misrepresentations and/or conspiracy, a claim under section 262 of the Insolvency Act to revoke an individual voluntary arrangement, and a bankruptcy petition; those matters had been ordered to be tried together.

Nature of the application: An application by the defendants for security for costs under CPR Part 25, specifically CPR 25.13(2)(c).

Issues framed:

• Whether CPR 25.13(2)(c) excludes unlimited companies registered in Great Britain (or unlimited companies with only individual members) from the expression "company or other body";
• Whether the second limb's condition that "there is a reason to believe that it will be unable to pay the defendant's costs if ordered to do so" requires the court to be satisfied on the balance of probabilities that the company will be unable to pay.

Procedural posture: Appeal with permission from Mr Justice Briggs' orders dated 16 January 2008 (Chancery Division); hearing in the Court of Appeal on 29 July 2008.

Court's reasoning and conclusions: On issue one the court concluded the plain wording of CPR 25.13(2)(c) includes companies without distinguishing limited from unlimited companies; the Rules Committee's deliberate choice of wider terminology (compared with s 726 of the Companies Act 1985) precluded reading unlimited companies out of the rule. Past policy considerations for s 726 did not justify narrowing the CPR by implication and the consultation paper relied upon by the appellants was not persuasive or admissible to construe the rule. The court emphasised that the discretionary exercise remains sensitive to the facts, including shareholder resources, and that unlimited status is a factor for weight not exclusion.

On issue two the court analysed Unisoft and later authorities and concluded that the statutory phrase "reason to believe" does not import the balance of probabilities standard. The correct approach is an evaluative assessment of the evidence so as to determine whether there is reason to believe (expressed in prior cases as a significant danger) that the company will be unable to pay costs when required. The court endorsed using the statutory words rather than paraphrases and upheld the judge's application of a "significant danger" formulation as compatible with "reason to believe". The appeal was dismissed.

The appeal was dismissed. The Court of Appeal held that CPR 25.13(2)(c) plainly permits orders for security for costs against companies generally, including unlimited companies registered in Great Britain; and that the statutory condition "reason to believe" does not require proof on the balance of probabilities but an evaluative conclusion (often expressed as a significant danger) based on the totality of the evidence that the company will be unable to pay the defendant's costs if ordered to do so. The judge's exercise of discretion and conclusion on the facts were upheld.

Appeal to the Court of Appeal (Civil Division) with permission against orders of Briggs J, High Court of Justice (Chancery Division), dated 16 January 2008; judgment of the Court of Appeal delivered 30 July 2008 (neutral citation [2008] EWCA Civ 908).