INNOVATE PHARMACEUTICALS LIMITED v UNIVERSITY OF PORTSMOUTH HIGHER EDUCATION CORPORATION

On an application for security for costs, an ATE policy may prevent the jurisdictional condition from being met only if it provides reliable and adequate protection. The court should examine its scope, avoidance and cancellation risks, conditions precedent, exclusions and the evidence supporting its continuing availability.

Where the merits are considered, the threshold is a high degree of probability of success or failure. It is higher than a merely arguable case but does not require certainty or an almost certain outcome. The merits must remain a brief assessment, and the court must still consider all the circumstances when deciding whether an order is just.

The Defendant applied under CPR rule 25.13 for security for costs in ongoing contractual and negligence proceedings concerning allegedly misleading research results about a pharmaceutical drug.

The Claimant was a small company and, without its ATE policy, would be unable to pay the Defendant’s costs if ordered to do so. The issues were whether the policy supplied adequate protection and, if not, whether it was just to order security having regard to all the circumstances, including the apparent merits, the parties’ conduct and the burden on the Claimant.

1. The ATE policy did not provide adequate security. It contained no anti-avoidance provision, permitted non-payment or avoidance in several circumstances, imposed extensive conditions precedent, allowed suspension or immediate cancellation for breach, left important proposal and premium information undisclosed, and did not clearly establish the scope or maintenance of cover. The jurisdictional condition in CPR rule 25.13(2)(c) was therefore satisfied.

2. The merits should be considered only where it can be shown without detailed investigation that there is a high degree of probability of success or failure. That threshold is equivalent to a claim being highly likely to succeed or fail. It does not mean certain or almost certain success. The court must nevertheless consider all the circumstances under CPR rule 25.13(1)(a).

3. This was an exceptional case in which the available material showed a high probability that the Claimant would establish at least part of its claim. The Defendant was highly unlikely to establish that its contractual obligations were confined to research and excluded publication of research results. The evidence from the Defendant’s own disciplinary investigation and the journal’s retraction strongly supported the allegations that the published results were false or misleading, although retraction alone would not establish breach.

4. The Defendant’s public funding was not relevant to the justice of the application. The Claimant’s procedural defaults were relevant but insufficient. The absence of a pleaded stifling argument was also relevant, but the substantial burden of raising approximately £1.3 million, combined with the strong merits, weighed against an order.

5. Balancing all the circumstances, it was not just to order security. The application was dismissed. Costs submissions were permitted unless the parties agreed.