Consort Healthcare (Thameside) plc v Thameside and Glossop Integrated Care NHS Foundation Trust

The Trust’s application for security for costs was determined under CPR 25.12 and CPR 25.13(2)(c) (the gateway that there is reason to believe the company will be unable to pay the defendant’s costs). The court held that, although Part 26A restructuring proceedings differ from ordinary adversarial litigation and the company is necessarily impecunious, those differences do not preclude an order for security for costs.

The court found there was a real risk that the Company would be unable to pay costs falling due in August 2024 and rejected the Company’s submission that the Trust was not exposed to real risk because any costs award would be set off against a materially larger contractual compensation-on-termination payment (COT Payment). The court accepted that third-party funders (the Funds) could reasonably be expected to provide security, and that the stifling risk was a relevant discretionary factor, but concluded it did not outweigh the Trust’s need for protection.

Balancing these factors, the court exercised its discretion to order security for costs, but reduced the amount sought by the Trust by fifty per cent as a proportionate measure. The Trust was awarded its costs of the application.

Background and parties: The Company proposed a restructuring plan under Part 26A of the Companies Act 2006 following an adjudication in which the Trust obtained an award. The Plan would, if sanctioned, alter the Trust’s contractual position under a long-term PFI Project Agreement. The Trust opposed the Plan and applied for security for costs.

Nature of the application: The Trust applied for an order for security for costs under CPR 25.12 and relied on the gateway in CPR 25.13(2)(c) (reason to believe the Company would be unable to pay costs if ordered to do so). The amount sought was £926,560.25 (representing 70% of the Trust’s estimated likely costs in opposing the Plan).

Issues framed:

• Whether the gateway in CPR 25.13(2)(c) was made out.
• How the court should exercise its discretion having regard to the special characteristics of Part 26A proceedings (including the risk of 'stifling' a rescue process and the Company’s inevitable impecuniosity).
• The effect of the Trust’s contractual set-off rights against any future compensation-on-termination payment (COT Payment), and whether those rights removed the risk of non-payment.
• The relevance of third-party funding (the Funds and RP Funding) to availability of security and the risk of stifling.

Reasoning and findings: The court accepted that the gateway in CPR 25.13(2)(c) was satisfied because the Company accepted that it may be unable to pay a costs liability falling due in August 2024. The judge acknowledged differences between Part 26A sanction proceedings and ordinary adversarial litigation but held those differences did not preclude an order for security for costs. The court found that the Funds (which had provided RP Funding of £4.9m and funded creditors) could reasonably be expected to provide security and that the Funds’ expressed unwillingness to provide further security was self-serving and not persuasive.

The court examined the Trust’s set-off argument (that any costs would be offset against a larger COT Payment payable by the Trust in 24 or 48 months) and concluded there was a realistic and material risk that set-off might fail, particularly if the Plan were sanctioned and retendering had to be completed in 24 months while a Centre of Best Practice survey might reveal defects. The uncertainty about how a shortened retendering would affect COT proceeds meant the risk of non-recovery of costs remained.

Decision: Exercising its discretion, the court ordered security for costs but reduced the Trust’s claimed figure by half as a proportionate measure to reflect the particular circumstances (including the role of third-party funders and the risk of stifling). The Trust was awarded its costs of the application.

The application for security for costs was allowed in part. The court found the CPR 25.13(2)(c) gateway established and, after weighing the particular features of Part 26A proceedings, third‑party funding and the risk that the Trust’s contractual set-off might fail (especially if the Plan were sanctioned), exercised its discretion to order the Company to provide security for costs but limited the security to fifty per cent of the sum sought. The Trust was awarded the costs of the application.