Shared Network Services Ltd v Nextiraone UK Ltd

On an application for security for costs, the court must balance the claimant’s injustice if prevented from pursuing a proper claim against the defendant’s risk of being unable to recover costs. The jurisdiction should not become an instrument of oppression or unfairly stifle a genuine claim.

Before refusing security on stifling grounds, the court must be satisfied that the claim would probably be stifled. It should consider whether security can be obtained from the claimant’s own resources or from directors, shareholders, backers or other interested persons. Evidence that potential funders cannot finance the whole case does not establish that they cannot contribute towards security.

The claimant appealed from summary judgment given by Mr Justice Flaux in the Commercial Court in favour of the defendant. The claim was held to be barred by an exclusion clause in the parties’ contract. Permission to appeal was granted because of a conflict of High Court authority and the importance of obtaining authoritative clarification of English contract law, although the court provisionally considered that the appeal had no reasonable prospect of success.

The defendant applied for security for costs. The claimant company could not meet a costs order, and the central issue was whether ordering security would probably stifle the appeal.

The defendant’s application for security for costs was granted. Security of £12,500 was ordered for future costs, and the time for service of the Respondent’s Notice was extended until 14 days after security was provided.

1. The jurisdiction to order security was conceded because the claimant company could not meet a costs order. The principles in Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534 required a balancing exercise. The court had to weigh the claimant’s risk of being prevented from pursuing a proper claim against the defendant’s risk of being unable to recover costs if the claim failed. The power should not be used oppressively.
2. Before refusing security because it would stifle a valid claim, the court had to be satisfied that stifling was probable in all the circumstances. The court had to consider not only the claimant’s resources but also possible contributions from directors, shareholders, backers and other interested persons.
3. The court provisionally considered that the appeal had no reasonable prospect of success. Permission had nevertheless been granted because authoritative clarification was important and there was a compelling reason for the Court of Appeal to hear the appeal. That public interest did not require the respondent to bear the costs of the clarification.
4. The distinction identified in Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 33, approving the statement in Al-Koronky v Time-Life Entertainment Group Ltd [2006] EWCA Civ 1123, was material. A substantial risk that security could not be raised differed from fixing security in the knowledge that it could not be raised. The latter was tantamount to striking out the claim and required equivalent procedural justification.
5. The claimant’s evidence was sketchy. A shareholder had net equity in property, and the evidence that other interested persons could not fund the case did not show that they could not make a contribution. The court was therefore entitled to order security.
6. Although the court had jurisdiction to require security for costs already incurred, those costs had been incurred without security and the respondent had accepted that risk. The order was confined to future costs, VAT was deducted, and a proportionate figure of £12,500 was ordered.

• Court of Appeal (Civil Division) — [2012] EWCA Civ 1171. Granted the defendant’s application for security for costs and extended time for service of the Respondent’s Notice.
• High Court of Justice, Queen’s Bench Division, Commercial Court — Mr Justice Flaux gave summary judgment for the defendant on the basis that the contractual exclusion clause barred the claim. No citation for that decision is stated in the judgment.