Vacek & Ors v Triload Invest S.R.O (In Liquidation) & Ors

For security for costs, a company in liquidation gives rise to reason to believe that it cannot meet an adverse costs order, unless credible evidence shows otherwise. The court must then assess whether security is just, balancing protection for the defendant against the risk of stifling a bona fide claim.

At an interlocutory stage the court should generally assess arguability only, rather than determine the merits. In deciding whether a claim would be stifled, the court considers the claimant’s own resources and realistic third-party funding, while respecting a liquidator’s funding decisions. Under CPR 3.1(5), a failure of full and frank disclosure may constitute breach of CPR 1.3, but security requires exceptional circumstances where the order would stifle the claim and there is a lack of good faith.

The applicants were Triload Invest s.r.o, in liquidation, and forty individuals. They brought proceedings under sections 212 and 423 of the Insolvency Act 1986 against, among others, Robert Vacek, Daniel Krivanek and Jiri Kubelka.

The respondents sought security for costs under CPR 25.13 and, alternatively, CPR 3.1. The application concerned whether Triload Invest could meet an adverse costs order, whether security would stifle its claims, whether the application was late, and whether the individual applicants made security unnecessary. A further issue was whether the applicants’ earlier failure to give full and frank disclosure engaged CPR 3.1(5).

1. CPR 25.13 application. The liquidation of Triload Invest raised a presumption that it would be unable to pay the respondents’ costs. The applicants produced no credible evidence that their receivables would be realised, particularly as several alleged debtors were themselves in liquidation. The jurisdictional hurdle was therefore satisfied.
2. The claims were bona fide and not shams. Given the early stage of the proceedings, the court declined to assess their merits beyond arguability. There was also insufficient evidence to conclude that the respondents’ alleged breaches had caused Triload Invest’s lack of means.
3. The evidence showed, on the balance of probability, that Triload Invest could not fund security from its own resources. The Czech liquidator could not reasonably be required to provide it, and the evidence supported the inference that creditor funding had neither been sought nor would probably be available. Security would therefore stifle Triload Invest’s genuine claims. The court balanced that prejudice against the respondents’ costs risk and took account of the fact that the forty individual applicants had identical claims and would be jointly and severally liable for costs. The application under CPR 25.13 was refused.
4. CPR 3.1 application. The duty of full and frank disclosure fell within the parties’ duty under CPR 1.3. The failure in the service application was a breach, but it was a single occurrence for which adverse costs had already been ordered. There was no evidence of bad faith, and ordering security against Triload Invest would stifle its claim. The exceptional circumstances required for security under CPR 3.1(5) were absent.

The application was dismissed.