Spy Academy Ltd. v Sakar International Inc

Where a refusal to admit relevant evidence is a serious procedural error which makes a security for costs decision unjust, an appellate court must exercise the discretion afresh.

The question is whether, in all the circumstances, security is just. Relevant matters include the genuineness and merits of the claim, whether security would stifle it, the cause of the claimant’s impecuniosity, delay in applying, and prejudice to the defendant if costs cannot be recovered.

A claimant alleging stifling bears the burden of showing that it cannot obtain security from its own resources, its directors, shareholders, backers or investors. If a worthwhile order would stifle a bona fide claim with reasonable prospects, that is a powerful, though not conclusive, reason to refuse security.

The claimant company brought a contractual claim arising from a licensing agreement. The defendant applied for security for costs. The Birmingham Mercantile Court excluded the claimant’s late witness statement, ordered security of £20,000 and, when security was not provided, entered judgment for the defendant and made consequential costs orders.

The claimant appealed with permission. It also had permission to appeal the dismissal of its Part 18 application for further information. The central issues were whether excluding the statement was a serious procedural error and, if so, whether security for costs was just when the discretion was exercised afresh.

1. Appeal allowed. Sir Simon Tuckey, with whom Sedley LJ agreed, held that the judge’s refusal to admit the claimant’s statement was a serious procedural error which made the security order unjust. The statement had been late through no fault of Mr Price: the court’s notice had been addressed to the company rather than to him at the accommodation address. As a litigant in person, he had been unable to advance orally the developed objections contained in the statement.
2. The error had substantive consequences. The judge had not addressed those objections and had assessed the merits without the required neutrality. The Court of Appeal therefore exercised the security-for-costs discretion afresh.
3. The inability-to-pay precondition was met, but the court had to decide whether security was just in all the circumstances. The claim was bona fide and had a reasonable prospect of success. The claimant was a special-purpose company which could contend that its lack of revenue resulted from the alleged contractual breaches. The application had also been made nine months after proceedings began.
4. Applying [1995] 1 AER 534, the court held that the claimant had sufficiently shown that neither it, Mr Price, associated companies, previous investors nor other realistic sources could provide security. A worthwhile order would therefore stifle the genuine claim. That consideration was not conclusive, but strongly outweighed the defendant’s prejudice if it succeeded and could not recover costs.
5. The security order, the default judgment for non-compliance, and consequential costs orders were set aside. The appeal against dismissal of the Part 18 application was also allowed, and that application was remitted to the Birmingham Mercantile Court for determination on its merits.

• Court of Appeal (Civil Division) — in [2009] EWCA Civ 985, allowed the appeal, set aside the security-for-costs order and its consequences, and remitted the Part 18 application.
• Birmingham Mercantile Court — on 15 September 2008 ordered security of £20,000. Following non-compliance, judgment and costs orders were made on 7 October 2008. The Part 18 application was dismissed without its merits being considered.