Tyndaris v MMWWVWM Ltd

Security for costs should be varied only where the claimant establishes a material change in circumstances. A claimant seeking to show that payment would stifle the claim bears the burden of proving that conclusion on the balance of probabilities. The court must examine the company’s actual financial position and its realistic ability to raise funds, while respecting the separate legal personality of a shareholder.

Where security is paid by instalments and the final instalment is not paid, the court must assess the proportionality of an unless order and any strike-out sanction. The Denton principles are relevant, but the court must separately decide whether the proposed sanction itself is proportionate.

The claimant sought approximately US$2.8 million in management fees under an investment management contract. The defendant counterclaimed approximately US$22 million for breach of contract or misrepresentation.

Knowles J had ordered the claimant to provide US$750,000 security for costs in four staged payments. After paying three instalments totalling US$487,500, the claimant failed to pay the final instalment of US$262,500 and applied to reduce the security to the amount already paid. The defendant applied for an unless order leading to strike-out of the claim.

The issues were whether there had been a material change in circumstances, whether payment of the final instalment would stifle the claim, and whether strike-out for non-compliance would be proportionate.

1. The Variation Application was refused. The claimant had not provided convincing evidence that it lacked the resources to pay the final instalment or could not obtain funding. A vague assertion that cash had been depleted, without current financial information, was insufficient. The court also considered the claimant’s relationship with its owner and other possible sources of funding, while respecting the owner’s distinct legal personality.

2. The alleged evolution of the counterclaim did not amount to a material change of circumstances justifying variation. Knowles J had considered the scale of the counterclaim and the proportion represented by the claim when making the March Order. The later increase in counterclaim costs did not affect the correctness of the security ordered for the claim.

3. The Application for the Unless Order was granted. The principles in Walsham Chalet Park v Tallington Lakes [2014] EWCA Civ 1607 applied. Although the Denton principles were relevant, the court had to determine whether the strike-out sanction itself was proportionate, rather than whether relief should be granted from an existing sanction.

4. The breach was serious. The court was prepared to assume that the claimant had a good reason for missing the payment date, but the claimant had not established that payment would stifle the claim. Three instalments had been paid, but the outstanding sum was significant when compared with the total security ordered and the defendant’s approved costs budget. The fact that the counterclaim would proceed in any event did not justify reducing the security. The Variation Application was refused and the unless order granted.