Explosive Learning Solutions Limited v Landmarc Support Services Limited

For security for costs under CPR rule 25.13, the applicant must show, on evidence, a justified reason to believe that the claimant company will be unable to pay a future costs order. The standard is below likelihood or probability, but mere doubt or possibility is insufficient. The court considers the totality of the evidence, including the claimant’s failure to provide evidence within its particular knowledge.

Where a claim and counterclaim substantially overlap, the usual position is that security will not be ordered because dismissal of the claim may leave the same issues to be tried on the counterclaim. That is a discretionary principle, not an inflexible rule. An undertaking to stay or dismiss the counterclaim if the claim is dismissed for failure to provide security may remove the resulting unfairness.

The claimant brought contractual claims for approximately £3.5 million against the defendant. The defendant defended those claims, advanced a counterclaim of approximately £2 million under the same subcontract, and applied for security for costs under CPR rules 25.12 and 25.13(1)(a) and (2)(c).

The central issues were whether there was reason to believe that the claimant company would be unable to pay a future costs order, whether it was just to order security given the substantial factual overlap between the claim and counterclaim, and how the court should exercise its discretion. The defendant offered to consent to a stay or dismissal of its counterclaim if the claimant’s claim were dismissed for failure to provide security.

1. The application was granted in principle. The defendant established a reason to believe that the claimant would be unable to pay a costs order made at the conclusion of the action, although the court did not conclude that inability was likely or probable. The claimant’s cash reserves were below the amount sought; much of its net assets consisted of the alleged debt owed by the defendant; its position was worsened by the counterclaim; and its forecasts lacked sufficient underlying detail and did not cover the whole relevant period.

2. The phrase “reason to believe” in CPR rule 25.13 requires more than doubt or a possibility of non-payment, but less than proof of likelihood or probability. The applicant bears the burden of proof and must provide evidence justifying the belief. The court considers the claimant’s prospective ability to meet a future costs order, normally at the anticipated date of that order, rather than merely its present position.

3. The court may consider the totality of the evidence, including the absence of evidence from the claimant where it is best placed to provide it and any unexplained discrepancies in its financial material. The merits of the claim should not ordinarily be assessed on a security application.

4. Once the jurisdictional condition is established, it will ordinarily be just to order security, although the court retains a broad discretion under the overriding objective. The claimant’s assertion that the order would be oppressive did not justify refusal because there was no evidence that the claim would be stifled or that security could not be raised.

5. The substantial overlap between the claim and counterclaim engaged the default principle that security will not usually be ordered where the same issues would be litigated in the counterclaim if the claim were dismissed. That principle was not invariable. The defendant’s undertaking to consent to a stay or dismissal of the counterclaim in that event neutralised the principal unfairness. The defendant was therefore entitled to security, with the form and amount to be determined after further submissions.