TBD (Owen Holland) Ltd v Simons & Ors

A court has jurisdiction to require a defendant to give an undertaking in damages as the price of an order requiring security for costs. The jurisdiction should be exercised only where special circumstances make it possible to define the event triggering the undertaking and to assess the consequences for the defendant. The ordinary possibility that security may prove unnecessary, or may have adverse costs consequences if the claimant ultimately succeeds, is insufficient. Security for costs is justified by the need to ensure that a possible costs order in favour of the defendant is effective. Its justification does not depend on the eventual outcome of the trial.

The claimant sought an order for security for costs on terms that the defendants provide an undertaking in damages to hold it harmless against loss caused by the security order. The court considered the analogy with cross-undertakings ordinarily required for interlocutory injunctions and the reference in the Commercial Court Guide to such protection in appropriate cases. The central issue was whether the court should make security for costs contingent on such an undertaking in the absence of unusual circumstances.

1. The application was refused. The court declined to order security for costs contingent on the defendants giving an undertaking in damages.
2. The court had jurisdiction to require a defendant to provide an undertaking as the price of an order for security for costs. The fact that such an order was unusual did not itself prevent its being made. The court accepted the indication in the RBS Rights Issue litigation that there was no reason in principle why such protection could not be ordered. RBS Rights Issue litigation was referred to at [2].
3. The jurisdiction should ordinarily be exercised only where special circumstances exist. Those circumstances must permit the court, when making the order, to define the contingency triggering the undertaking and to form a reasonably clear view of the consequences for the defendant if it is triggered.
4. Cross-undertakings accompanying interlocutory injunctions provide a useful contrast. The failure to grant a final injunction ordinarily identifies the triggering event, and the likely harm caused by the injunction can usually be assessed. The potential consequences of security for costs are much less readily bounded, including the possibility, in an extreme case, that security could contribute to the claimant’s insolvency.
5. The ordinary possibility that security may ultimately prove unnecessary because the claimant succeeds, or may have costs implications, was not a special circumstance. Security is justified by the known contingency that the defendant may obtain a costs order and by the need to ensure that such an order is effective. That justification remains capable of applying whatever the eventual outcome of the trial.

Not stated in the judgment.