Natas Group Ltd. (In Administration) v Styles & Wood Ltd.

On an application for security for costs by a company in financial difficulty, the court must first decide whether there is reason to believe that the claimant will be unable to pay an adverse costs order. If that threshold is met, the court has a broad discretion and must balance the risk of unfairly stifling a genuine claim against the defendant’s risk of being unable to recover its costs. The claimant bears the burden of showing that security would probably stifle the claim. After-the-event insurance may provide some security, but its reliability and policy terms may justify discounting its value. Security may be assessed by reference to a realistic proportion of recoverable costs and ordered in stages.

The claimant, a company in administration, brought a substantial TCC claim against its former main contractor arising from asbestos-removal sub-contract works. The defendant sought further security for costs, having already received £144,000 under an earlier consent order. The claimant relied on alleged stifling, a counterclaim arising from the same accounting dispute, alleged impecuniosity caused by non-payment, and after-the-event insurance.

The court determined whether the threshold for security was met and how the discretion should be exercised.

1. Application granted. The claimant was ordered to provide a further £36,000 security for costs in three instalments of £12,000, and to pay 75% of the defendant’s costs of the application.
2. The threshold was satisfied because, if the claim substantially failed, the claimant would be unable to pay any significant costs order.
3. The claimant failed to establish that further security would probably stifle the claim. The court could consider the claimant’s own assessment of the claim’s value without conducting a detailed merits assessment.
4. The counterclaim did not materially reduce the security required, and the claimant did not establish that its impecuniosity had been caused by the defendant’s alleged non-payment.
5. The ATE policy provided some comfort but was less certain than payment into court or a bank guarantee. Its value was discounted because of uncertainties concerning partial success, termination, avoidance, premiums and disbursements.
6. Taking estimated costs of £335,000, the court allowed 70% as a realistic standard-basis figure, discounted that sum by £55,000, and fixed total security at £180,000. Since £144,000 had already been paid, a further £36,000 was ordered.