Dunn Motor Traction Ltd v National Express Ltd

On an application for security for costs, the court must first ask whether there is reason to believe that the claimant will be unable to pay the defendant’s costs when they fall due. An indemnity from the claimant’s sole shareholder is an asset which must be considered, but it will generally not remove that risk because the shareholder is not ordinarily a reliable source of litigation funding. The court must then decide whether security is just in all the circumstances. The merits of the underlying claim are not investigated, and adverse effects on the claimant’s business or the shareholder’s expansion plans will not ordinarily make security unjust.

The claimant brought a claim for approximately £20 million in lost profits after the defendant allegedly repudiated a contract for coach services. The defendant applied for security for its costs under CPR 25.13.

The claimant accepted that its financial position meant it was unlikely to pay an interim payment on account of costs when due, but relied on an irrevocable indemnity given by its sole shareholder. The central issues were whether that indemnity answered the threshold question and whether, having regard to all the circumstances, it was just to order security.

1. Threshold condition. The defendant had to show both that there was reason to believe the claimant would be unable to pay its costs if ordered to do so and that, having regard to all the circumstances, it was just to order security. The relevant ability to pay was assessed by reference to the time when costs would fall due, including the likely interim payment on account, rather than the later date of detailed assessment.
2. The approach developed for after-the-event insurance was not applicable to a sole shareholder’s indemnity. An ATE policy may be a reliable source of litigation funding. A sole shareholder, who is practically adverse to the defendant and owes no obligation to it, cannot ordinarily be regarded in the same way.
3. The indemnity was an asset of the claimant and therefore had to be taken into account. Nevertheless, where the threshold would otherwise be satisfied, it would not usually change the answer, save perhaps in an exceptional case. There was a realistic possibility that the shareholder might delay calling upon or honouring the indemnity while using liquid resources for business purposes.
4. It was just to order security. The court could not investigate the likelihood of the defence succeeding on this application. The effect of security on the claimant’s business and on the shareholder’s expansion plans did not make an order unjust.
5. Security of £975,000 was ordered in two stages: £487,500 within four weeks and the remaining £487,500 within four months.