Lord Ltd v HSBC Bank Plc

For security for costs against a company, the court must first have reason to believe that the company will be unable to pay an adverse costs order. A mere doubt is insufficient, although inability need not be proved on the balance of probabilities. The court must then decide whether security is just, having regard to all the circumstances. Relevant considerations include the merits and complexity of the claim, whether security would stifle the proceedings, the resources of interested persons, prejudice to the defendant, the timing of the application and the form and amount of security. Any order should be proportionate and ordinarily take a secure form.

Lord Ltd, an investment company, claimed that HSBC Bank Plc had prematurely surrendered and encashed financial products. It advanced claims in contract, statutory duty, negligence and fraud.

Before serving a Defence, HSBC applied under the Civil Procedure Rules for security for costs and for an extension of time to serve its Defence. Lord Ltd opposed the application and argued that it could not provide security and that an order would prevent it pursuing the claim. The central issues were whether there was reason to believe that Lord Ltd would be unable to pay HSBC’s costs and whether security was just in the circumstances.

1. Application allowed. Lord Ltd was ordered to provide security for costs of £27,500 in respect of HSBC’s costs up to service of its Defence. HSBC was granted an extension of time to serve its Defence until 14 days after the security was provided.
2. Under CPR rules 25.12 and 25.13(1) and (2)(c), the jurisdictional condition was satisfied. The company’s accounts showed substantial net liabilities if its alleged debt owed by HSBC ceased to exist. Its evidence did not establish sufficient liquid assets or reliable alternative resources. A purported undertaking by a related company was inadequately evidenced, and the company’s other assets were either disputed in value or not readily liquid.
3. The court then considered whether ordering security was just under CPR rule 25.13(1)(a). The claim involved serious allegations, substantial sums and an intensive factual inquiry. The court made no preliminary assessment of the merits because HSBC had not yet served its Defence.
4. The company had not proved that security would probably be unavailable from its own resources or from interested persons, including related companies, directors, shareholders and financial backers. Assertions of inability were insufficient. The evidence that related-company property might support security was relevant.
5. The court accepted that security would not interfere with the operations of an investment company which was not trading and had no outstanding bank indebtedness. HSBC would otherwise face a risk of unrecovered costs. The early timing of the application was relevant but did not count against HSBC.
6. The amount claimed was reduced because security should be proportionate to the task and the application was made at an early stage. Security of £27,500 was appropriate. It should be provided in a traditional secure form, such as a first-class bank guarantee, payment into court or payment to HSBC’s solicitors.