Phones 4u Ltd v EE Ltd & Ors

Security for costs should not be calculated on an indemnity-costs basis merely because such an order is possible. The court must assess whether there is a sufficiently significant possibility, or real prospect, of indemnity costs being ordered. The merits should generally be avoided, except in the most obvious cases. This is particularly important in private competition claims, where secret collusion may be difficult to plead and prove because of information asymmetry. Serious allegations, weak pleadings or a possible failure at trial do not, without more, justify enhanced security. The court should also be cautious because excessive security may deter private enforcement of competition law.

Phones 4u Limited (In Administration) brought competition claims against mobile network operators and related companies concerning the termination of its commercial relationships before it entered administration. It also advanced contractual and tortious claims against some defendants.

The claimant agreed to provide security for costs at 65 per cent of the defendants’ estimates. EE, Deutsche Telekom AG and Orange SA sought security calculated at 75 per cent, contending that the allegations of secret collusion and impropriety might result in an indemnity-costs order. The central issue was whether that possibility justified security at the higher rate.

1. The applications by EE, Deutsche Telekom AG and Orange SA were dismissed. The claimant was required to provide security to those defendants on the same basis as to the other defendants.

2. Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (A Firm) established that indemnity costs require conduct or circumstances taking the case out of the norm. That principle does not create a fixed or statutory test.

3. The court rejected the submission that enhanced security was justified whenever an indemnity-costs order was not plainly unarguable. The authorities in Danilina v Chernukhin and Re Ingenious Litigation were not to be read as establishing that a mere real or reasonable possibility of indemnity costs was enough. The court respectfully disagreed with them to that extent.

4. The merits should not ordinarily be examined when deciding security for costs, save in the most obvious cases. The claim could fail for reasons unrelated to collusion, including causation and the claimant’s precarious financial position. It was therefore inappropriate to assess the merits in detail.

5. The limited factual basis of the collusion allegations was not, by itself, remarkable. Secret anti-competitive conduct is inherently difficult to uncover, and circumstantial evidence may suffice depending on the context. The defendants had not sought strike-out or summary judgment.

6. The court also considered the public importance of private competition-law enforcement. In light of the policy identified in Courage Ltd v Crehan, courts should generally be cautious before imposing enhanced security merely because a private competition claim might fail at trial.

Not an appeal. The judgment determined applications for security for costs in the High Court.