Michael Phillips Architects Ltd v Riklin & Anor

Where a claimant company may be unable to pay an opponent’s costs, CPR Part 25.13 gives the court jurisdiction to consider security for costs and a broad discretion whether to order it. A claimant’s ATE insurance may provide some security, but it must offer real and effective protection. A policy which benefits only the claimant and permits cancellation, avoidance or withdrawal on readily available grounds may provide no appreciable security. The court may reduce the amount ordered to reflect realistic insurance cover, but ATE insurance will rarely equal payment into court or a bank guarantee. The court should consider the parties’ competing interests, the merits only to the limited extent appropriate, the risk of stifling a genuine claim, the lateness of the application and the costs attributable to the claim rather than a counterclaim.

The claimant architectural practice brought a claim for unpaid professional fees arising from renovation works at property leased by the defendants. The defendants denied the alleged fee agreement, advanced a counterclaim for professional negligence and sought security for costs.

The claimant had obtained ATE insurance with a £100,000 indemnity. The application concerned whether the conditions and discretionary requirements under CPR Part 25.13 were met, whether the policy provided effective security, and what amount should be ordered. The claimant ultimately accepted that it could provide £30,000 security.

1. Jurisdiction. The defendants established the threshold under CPR Part 25.13(1) and (2)(c): there was reason to believe that the claimant company would be unable to pay the defendants’ costs if ordered to do so. The ATE policy did not alter that conclusion because it gave no direct benefit to the defendants, did not make them insured parties and contained extensive cancellation and avoidance mechanisms.
2. ATE insurance. In principle, ATE insurance covering the claimant’s liability for the defendants’ costs may provide some security. It must actually protect the defendants and must not be readily avoidable or terminable in circumstances outside their control. It will rarely provide security equivalent to payment into court, a bank bond or guarantee. The amount of security may nevertheless be reduced to reflect a realistic probability that the policy will meet some of the defendants’ costs.
3. Discretion and amount. The court applied the balancing approach in Keary Developments Ltd v Tarmac Construction Ltd and considered the competing risks of unfairly stifling a genuine claim and leaving defendants unable to recover costs. The merits were not investigated in detail because no high degree of probability of success or failure was shown. Costs attributable to defending the claim had to be separated from costs of pursuing the counterclaim. £30,000 was an appropriate level of security.
4. Stifling. It became unnecessary to decide whether security would stifle the claim because the claimant accepted that it could provide the ordered sum. The claimant’s submission that the defendants’ non-payment caused its impecuniosity was unsupported and could not be determined on the evidence.
5. Order. Security for costs was ordered in the sum of £30,000.