Frank & Anor v Chlorelle Construction Ltd

When deciding whether to order security for costs, the court must balance the claimant’s ability to pursue a genuine claim against the defendant’s protection if successful. Relevant considerations include whether the claim is bona fide, its apparent merits, whether the claimant’s lack of means was caused by the defendant, the timing of the application, the risk of oppressive stifling, the prejudice to both parties, and proportionality between costs and the prospective recovery.

The claimant bears the burden of showing that funds cannot realistically be raised. Evidence of unwillingness to contribute is insufficient. After-the-event insurance may be inadequate where its terms are unclear, particularly as to cover, success, costs and expenses. Security may therefore be ordered, with a stay and dismissal consequence if it is not provided.

Chlorelle Construction Ltd, which was in voluntary liquidation, pursued a construction claim while its liquidator represented numerous creditors. The applicants sought security for costs. Chlorelle relied on a conditional fee arrangement and proposed after-the-event insurance, arguing that an order would oppressively stifle a genuine claim.

The court considered the parties’ existing and prospective costs, the likely recovery, the creditors’ interests, the proposed insurance and the prejudice to the defendants, who had incurred substantial expenditure and might abandon their counterclaim if the action did not proceed.

The central issues were whether security would stifle the litigation and whether the proposed insurance adequately protected the defendants.

1. Security for costs. The court applied the established discretionary factors, including whether the claim was bona fide and not a sham, its reasonably good prospects, whether security would oppressively stifle a genuine claim, whether the claimant’s lack of means was attributable to the defendant, the timing of the application, and the prejudice to the defendant if successful.
2. The balancing exercise had to consider both parties’ prejudice. The court also had to stand back and assess proportionality between the costs already incurred, the likely costs of trial and the sum potentially recoverable.
3. The burden of showing that further money could not be raised rested on the claimants. The evidence showed unwillingness by the creditors to contribute, but not inability. The court therefore concluded that an order would not stifle the litigation.
4. The proposed after-the-event policy did not provide satisfactory protection. Its drafting was unclear about pre-inception costs, expenses, the meaning of success, partial success, lack of success and the extent of cover. Defendants needed sufficient clarity to assess litigation risk and settlement.
5. Security for costs was ordered in the sum of £100,000 rather than the £200,000 sought. The action was stayed for 12 weeks. If the security was not paid within that period, the action would stand dismissed.

First-instance decision. No earlier appellate decision is stated in the judgment.