Jirehouse Capital & Anor v Beller & Anor

CPR 25.13(2)(c) applies to an unlimited company as well as a limited company. Its unqualified reference to a company or other body cannot be read down by reference to the narrower security-for-costs power in the Companies Act 1985. The nature and resources of an unlimited company’s members remain relevant to the discretion and to whether the condition is met.

The condition of reason to believe that a company will be unable to pay costs does not require proof on the balance of probabilities. The court must assess all the evidence, including conflicting evidence, and use the statutory language rather than substitute paraphrased tests such as significant danger.

The appellants, an English unlimited company with one individual shareholder and its wholly owned limited subsidiary, brought proceedings against the respondents. Briggs J ordered them to provide security for the respondents’ costs.

The appellants appealed against the interpretation of CPR 25.13(2)(c). They contended that an unlimited company was outside the rule, or that the rule required proof on the balance of probabilities that the company would be unable to pay an adverse costs order. The central questions were the scope of “company or other body” and the meaning of “reason to believe”.

1. Appeal dismissed. CPR 25.13(2)(c) gives the court jurisdiction to order security for costs against an unlimited company incorporated in Great Britain. The rule refers to companies without distinction and uses materially broader language than section 726 of the Companies Act 1985, which is confined to limited companies.
2. That construction did not produce an unprincipled result. The limited-liability policy underlying section 726 was not shown to be the sole policy behind the CPR rule. An unlimited company’s members may themselves be limited or shell companies. If its members have substantial resources, that may bear on the condition of inability to pay and on the discretionary assessment, but it does not remove jurisdiction.
3. The court declined to formulate a rule that security should not be ordered against an unlimited company with individual members. The discretion requires all circumstances to be weighed and should not be fettered in that way.
4. The words “there is reason to believe that it will be unable to pay” do not impose a balance-of-probabilities test. They require more than a mere possibility of non-payment. The court must consider the evidence as a whole, including evidence answering the applicant’s case, and evaluate the future risk of non-payment.
5. Re Unisoft Group Limited (2) [1993] BCLC 532 did not establish a balance-of-probabilities standard. Nor did the “significant danger” formulation create a different test in the sense in which it had been used. Nevertheless, judges should apply and state the statutory test itself, because paraphrases may generate competing formulations. Per Moore-Bick LJ, this was particularly important in this context.

• Court of Appeal (Civil Division): Appeal dismissed: [2008] EWCA Civ 908.
• High Court of Justice (Chancery Division): Briggs J ordered the claimants to provide security for the defendants’ costs on 16 January 2008.