Absolute Living Developments Ltd v DS7 Ltd & Ors

Security for costs requires a two-stage inquiry. The claimant must first satisfy the entry requirement, namely a reason to believe that it cannot pay an adverse costs order. The court must then decide whether security is just in all the circumstances.

On an interlocutory application, the court should ordinarily avoid detailed merits analysis. It should assess the merits only where a high degree of probability of success or failure can be demonstrated quickly and proportionately. In considering whether security would stifle a genuine claim, the relevant question is whether the company can raise the money, not whether a shareholder, liquidator or creditor might do so. The court must balance the claimant’s interest in pursuing a proper claim against the defendant’s costs risk.

The claimant company was in liquidation and pursued claims against the defendants. The defendants applied for security for costs in the sum of £500,000 under CPR 25.13. The claimant conceded that there was reason to believe it would be unable to pay the defendants’ costs if an adverse order were made.

The central issues were whether the claimant’s prospects should be assessed, whether its lack of means was attributable to the defendants, whether the application would oppressively stifle a genuine claim, and whether the application had been made too late.

1. Two-stage test. The court accepted that the entry requirement under CPR 25.13(1) and (2)(c) was satisfied. The remaining question was whether it was just, in all the circumstances, to order security.
2. Merits. The guidance in Sir Lindsay Parkinson & Co v Triplan [1973] QB 609 was adopted as the framework. Although merits may be relevant where success or failure is highly probable, an interlocutory court should avoid detailed adjudication on incomplete evidence. Any merits assessment must be capable of being made quickly and proportionately. The court therefore left the claimant’s prospects open.
3. Stifling and funding. The court applied the principles in Aquila Design GRB Products Ltd v Cornhill Insurance plc [1988] BCLC 134, Keary Developments Ltd v Tarmac Constructions Ltd [1995] 3 All ER 534 and Goldtrail Travel Ltd v Onur Air Tasimacilik AS [2017] UKSC 57. The relevant question was whether the company itself could raise the money. It was not enough that funding might theoretically come from the liquidator or creditors.
4. The claimant had no realistic ability to provide security from its own assets. Funding by the liquidator would be contrary to the public interest in allowing liquidators to decide freely how claims should be brought and funded. Possible creditor funding was theoretical, and the court would not second-guess the liquidator’s decision not to approach creditors.
5. The court found a clear risk that security would stifle a bona fide claim. Balancing the claimant’s interests, including those of its creditors, against the defendants’ costs risk, the balance favoured continuation of the claim. The application for security for costs was dismissed.
6. The application was not rejected on grounds of lateness. Although such applications should ordinarily be made promptly, the defendants were not criticised for timing in the particular procedural circumstances.