Starting Point Recruitment Limited v Walsall Metropolitan Borough Council

On an application for security for costs under CPR Part 25.13, the court must first decide whether there is reason to believe that the claimant will, rather than merely may, be unable to pay the defendant’s costs. That assessment is made on all the evidence, including evidence supplied by the claimant.

If the gateway is satisfied, the court retains a broad discretion. It should refuse security where the claimant proves on the balance of probabilities that the order would stifle the claim because no other funding would be available. The fact that the claimant’s financial difficulty was caused or contributed to by the defendant’s alleged conduct is also a material factor. The claimant need not establish clear prospects of success for that factor to be considered.

The claimant, a recruitment company, brought proceedings against the defendant local authority concerning the alleged misuse of confidential information and solicitation of agency workers after the authority moved its business to another provider.

The defendant applied for security for costs under CPR Part 25.13. The claimant accepted that it could not presently meet an adverse costs order, but relied on a financial forecast, the alleged effect of the defendant’s conduct on its finances, and the contention that security would stifle the claim.

The central issues were whether the statutory gateway was met and, if so, whether it was just to order security in all the circumstances.

1. Gateway. The claimant was a company and accepted that it could not presently pay the defendant’s costs. Under CPR Part 25.13, however, the relevant question was whether there was reason to believe that it would be unable to pay when liability was likely to arise, rather than whether it might be unable to pay.
2. The burden lay on the defendant, but the court had to assess all the evidence. It was not confined to the defendant’s evidence. The claimant’s detailed financial forecast was a serious financial-management document and reasonably reliable, although necessarily uncertain. Even on that forecast, the projected profit would not meet the claimant’s own litigation costs as well as the defendant’s costs. The gateway was therefore satisfied.
3. Stifling. The burden then lay on the claimant to establish on the balance of probabilities that it could not raise the required security from another source. Applying the approach in Goldtrail Travel v Onur Air Tasimaclik [2017] UKSC 57, the court considered the underlying realities of the claimant’s relationship with its charitable parent. The evidence was sufficient to show that no other funds would be available. A substantial order would therefore stifle the claim.
4. The claimant’s financial position had also been caused or contributed to by the defendant’s alleged conduct. Under Mastermailer Stationery Ltd v Sandison & Ors [2011] EWHC 4304 (Ch), it was unnecessary for the claimant to show clear prospects of success before that circumstance could be considered. It was a material factor weakening the ordinary rationale for security.
5. Having regard to all the circumstances, it was not just to order security. The defendant’s application was refused. The judge’s provisional view was that the costs of the application should follow the event and be paid by the defendant.