Accident Exchange Ltd & Anor v McLean & Ors

In an application for security for costs, the court must exercise its discretion justly by balancing the claimant’s ability to pursue a genuine claim against the defendant’s risk of unrecovered costs. The possibility that security may deter a claimant is insufficient by itself. A claimant resisting security on stifling grounds must show, on the balance of probabilities, that it cannot obtain the required funds from its own resources or from directors, shareholders, funders or other interested persons. The court must assess the underlying financial realities and may require evidence about those who could provide funding. Delay is a relevant discretionary factor and may justify limiting security, particularly in respect of past costs. The amount of security may be assessed broadly rather than by detailed costs analysis.

The claimants brought substantial claims concerning alleged understatements of credit-hire market rates and consequential losses. Three groups of solicitor defendants applied for security for costs. It was accepted that the claimants would be unable to meet an adverse costs order, giving rise to the statutory discretion whether security should be ordered.

The claimants opposed the applications principally on the grounds that security would stifle the claim and that the defendants had delayed in seeking it. The court also considered the claimed public interest in the litigation, the claimants’ prospects of success, the appropriate percentage of costs and the effect of delay.

1. Security ordered. The court held that justice required security for costs. The claimants had not shown, on the balance of probabilities, that they could not obtain funding from associated entities or other interested persons.

2. The court applied the principles in Keary Developments Ltd v Tarmac Construction Ltd and the related authorities. The power to order security is discretionary. The court must balance the injustice to a claimant whose genuine claim may be stifled against the injustice to defendants who may be unable to recover their costs.

3. The claimants had to address not only their own resources but also possible funding from shareholders, funders and other persons whose interests were affected. The evidence concerning the investment fund and its principal investors left a significant gap. The letters of comfort and the commercial expectation that the fund would benefit from a successful claim made it realistic for the claimants to seek funding from associated entities.

4. The application had been made late. That delay did not require refusal of security, but it justified a reduction, particularly in respect of incurred costs. The public interest in the claim and its bona fide nature did not outweigh the case for security.

5. Following the broad-brush approach in Stokors SA & Ors v IG Markets Ltd, security should generally be assessed without resolving every detailed challenge to the defendants’ costs. The appropriate figure was 60 per cent of the claimed costs. For incurred costs, a further reduction for delay produced security at 60 per cent of 60 per cent of those costs. For future costs, security was 60 per cent of the costs claimed. The parties were directed to agree the figures.

First-instance decision. No earlier judgment or appellate stage was stated in the judgment.