“7. But that is precisely the problem. On an interlocutory application such as this, a court must be wary about being drawn into an analysis of the merits. The court does not have before it all of the relevant material that the trial judge will have. To go beyond assessing the arguability of a claim involves the court in a process that – in most cases – it is simply not equipped to carry out, because of the early stage at which the application is made in the proceedings. 8. For this reason, the notes in Civil Procedure 2018 make clear that it is important for the court to try to avoid a situation in which the merits have to be considered. The parties should not attempt to go into the merits of the case unless it can be clearly demonstrated one way or the other that there is a high degree of probability of success or failure.”
“2. The possibility or probability that the plaintiff company will be deterred from pursuing its claim by an order for security is not without more a sufficient reason for not ordering security (see Okotcha v Voest Alpine Intertrading GmbH[1993] BCLC 474 at 479per Bingham LJ, with whom Steyn LJ agreed). By making the exercise of discretion under s 726(1) conditional on it being shown that the company is one likely to be unable to pay costs awarded against it, Parliament must have envisaged that the order might be made in respect of a plaintiff company that would find difficulty in providing security (see Pearson v Naydler[1977] 3 All ER 531 at 53 6–537,[1977] 1 WLR 899 at 906per Megarry V-C). 3. The court must carry out a balancing exercise. On the one hand it must weigh the injustice to the plaintiff if prevented from pursuing a proper claim by an order for security. Against that, it must weigh the injustice to the defendant if no security is ordered and at the trial the plaintiff's claim fails and the defendant finds himself unable to recover from the plaintiff the costs which have been incurred by him in his defence of the claim. The court will properly be concerned not to allow the power to order security to be used as an instrument of oppression, such as by stifling a genuine claim by an indigent company against a more prosperous company, particularly when the failure to meet that claim might in itself have been a material cause of the plaintiff's impecuniosity (see Farrer v Lacy, Hartland & Co(1885) 28 ChD 482 at 485 per Bowen LJ). But it will also be concerned not to be so reluctant to order security that it becomes a weapon whereby the impecunious company can use its inability to pay costs as a means of putting unfair pressure on the more prosperous company (see Pearson v Naydler[1977] 3 All ER 531 at537,[1977] 1 WLR 899 at 906).”
“11. That basic proposition needs to be considered together with two other propositions. First, the burden of establishing that a claim would be stifled by an order for security rests on the claimant. He or it must put evidence before the court of his or its means and must satisfy the court, not to a standard of certainty but at least to a standard of probability, that the claim would be stifled if security was ordered. Second, the court should not restrict its evaluation of the ability of a claimant to provide security to the means of the claimant itself. If the claimant cannot provide the security from its own resources, the court will be likely to consider whether it can reasonably be expected to provide it from third parties such as, in the case of a corporate claimant, shareholders or associated companies or, in the case of an individual claimant, friends and relatives. If the case moves to the stage of considering whether security should be regarded as being available from third parties, the burden still rests on the claimant. He or it has to show that, realistically, there do not exist third parties who can reasonably be expected to put up security for the defendant’s costs. 12. At the same time the court should not press too far the proposition that the burden rests on the claimant. It should be recalled that when the claimant has to establish that third parties do not exist from whom security can reasonably expected and obtained, that is to place on the claimant the burden of proving a negative. That is always difficult to do, and the court should, in my judgment, evaluate the evidence with a degree of sympathy for the difficulty which a claimant faces. I would venture, if I may, to draw attention to a paragraph in a judgment which I wrote sitting in the Court of Appeal in Anglo-Eastern Trust Ltd v Kermanshahchi[2002] EWCA Civ 198 . The relevant paragraph is paragraph 55. I will not prolong this judgment by reading it out, but I draw attention to what I have said.”
“can the company raise the money or can the company not raise the money with the result that the claim will be stifled?”
“(5) I begin with the second potential outcome: the liquidator causing the security to be paid out of her firm’s coffers: (a) It is plain that this is not a case of the Claimant, the company, raising funds. Selfevidently, these funds are coming from a third party, the liquidator. (b) Moreover, I am satisfied that the liquidator would not make such a payment. It would be an entirely unusual course for a liquidator to take such a course, and nothing in the evidence persuades me that it would occur in this case. I regard the prospect as theoretical or fanciful. (c) Yet still further, I see real difficulties in taking the liquidator’s propensity to pay into account when considering the question of security. It is well-established that a liquidator will not be obliged to pay costs by way of a third party costs order made pursuant to section 51 ofthe Senior Courts Act 1981unless there is a degree of impropriety or misconduct in the bringing of the proceedings. The mere fact that the liquidator has caused proceedings to be brought, but has lost, does not result in general in a third party costs order. Were I to make an order that the Claimant provide security in circumstances where I appreciated that that security would, in reality, be provided by the liquidator, I take the view that what I would be doing is in effect creating a regime where, in advance of an adverse costs order, the liquidator was being obliged to provide the security. That, as it seems to me, is entirely contrary to the public interest in the insolvency regime that exists in this jurisdiction. It is critical in the public interest that liquidators proceed in a manner that is uninhibited in terms of deciding how to bring actions, including how those actions are framed and funded. For these reasons, I conclude that there is no real prospect of the company funding any order for security through the liquidator; and that such funding would not be out of the Claimant’s funds in any event.” firm’s coffers: (a) It is plain that this is not a case of the Claimant, the company, raising funds. Selfevidently, these funds are coming from a third party, the liquidator. (b) Moreover, I am satisfied that the liquidator would not make such a payment. It would be an entirely unusual course for a liquidator to take such a course, and nothing in the evidence persuades me that it would occur in this case. I regard the prospect as theoretical or fanciful. (c) Yet still further, I see real difficulties in taking the liquidator’s propensity to pay into account when considering the question of security. It is well-established that a liquidator will not be obliged to pay costs by way of a third party costs order made pursuant to section 51 ofthe Senior Courts Act 1981unless there is a degree of impropriety or misconduct in the bringing of the proceedings. The mere fact that the liquidator has caused proceedings to be brought, but has lost, does not result in general in a third party costs order. Were I to make an order that the Claimant provide security in circumstances where I appreciated that that security would, in reality, be provided by the liquidator, I take the view that what I would be doing is in effect creating a regime where, in advance of an adverse costs order, the liquidator was being obliged to provide the security. That, as it seems to me, is entirely contrary to the public interest in the insolvency regime that exists in this jurisdiction. It is critical in the public interest that liquidators proceed in a manner that is uninhibited in terms of deciding how to bring actions, including how those actions are framed and funded. For these reasons, I conclude that there is no real prospect of the company funding any order for security through the liquidator; and that such funding would not be out of the Claimant’s funds in any event.”
“(6) The third potential outcome involves funding from the creditors. As to this: (a) It is the liquidator’s duty and obligation to determine whether and, if so, how a company in liquidation brings claims against third parties. It is for the liquidator to determine how such claims are to be funded. In some cases, the liquidator may seek to engage in some form of funding arrangement, whereby the claim is paid for by somebody else. In such circumstances, it is quite clear that, as regards such a funder, the section 51jurisdiction would be engaged. (b) Such a course has emphatically not been taken in this case. The liquidator has chosen to structure the manner in which this litigation is funded by deferring all costs that can be deferred on a contingent basis. In short: no win, no fee. It is true that to a limited extent some unavoidable costs have been incurred to date. These are costs that the liquidator has chosen to incur as an incidence in bringing these proceedings. (c) The liquidator has chosen not to approach the creditors. I find the explanation for that in Mr. Davis’ statement entirely credible and it seems to me that it is not for this court to look behind the funding decisions of the liquidator regarding the progression of this claim. Such decisions are nuanced and difficult and – in the first instance – for the liquidator alone. Indeed, as I have noted, were the remaining creditors to be persuaded to put in money to fund the claim, they would expose themselves to a risk of a third party funding order themselves in due course, were the Claimant’s claim to be lost. Whilst I accept, therefore, that there is the potential for creditor funding of any security for costs, that potential is one for the liquidator to explore. I cannot say whether – were an order for security for costs to be made – creditor funding would be forthcoming. But it seems to me wrong to second guess the liquidator’s approach; and in any event, any creditor funding would not be funding from the company. I do not consider that the fact that a company in liquidation has creditors in the wings to be a relevant factor to take into account unless there is an actual approach involving those creditors actually being encouraged to fund the claim, which they are not in this case.” (a) It is the liquidator’s duty and obligation to determine whether and, if so, how a company in liquidation brings claims against third parties. It is for the liquidator to determine how such claims are to be funded. In some cases, the liquidator may seek to engage in some form of funding arrangement, whereby the claim is paid for by somebody else. In such circumstances, it is quite clear that, as regards such a funder, the section 51jurisdiction would be engaged. (b) Such a course has emphatically not been taken in this case. The liquidator has chosen to structure the manner in which this litigation is funded by deferring all costs that can be deferred on a contingent basis. In short: no win, no fee. It is true that to a limited extent some unavoidable costs have been incurred to date. These are costs that the liquidator has chosen to incur as an incidence in bringing these proceedings. (c) The liquidator has chosen not to approach the creditors. I find the explanation for that in Mr. Davis’ statement entirely credible and it seems to me that it is not for this court to look behind the funding decisions of the liquidator regarding the progression of this claim. Such decisions are nuanced and difficult and – in the first instance – for the liquidator alone. Indeed, as I have noted, were the remaining creditors to be persuaded to put in money to fund the claim, they would expose themselves to a risk of a third party funding order themselves in due course, were the Claimant’s claim to be lost. Whilst I accept, therefore, that there is the potential for creditor funding of any security for costs, that potential is one for the liquidator to explore. I cannot say whether – were an order for security for costs to be made – creditor funding would be forthcoming. But it seems to me wrong to second guess the liquidator’s approach; and in any event, any creditor funding would not be funding from the company. I do not consider that the fact that a company in liquidation has creditors in the wings to be a relevant factor to take into account unless there is an actual approach involving those creditors actually being encouraged to fund the claim, which they are not in this case.”
“3.1(3) When the court makes an order, it may – (a) Make it subject to conditions, including a condition to pay a sum of money into court…. (5) The court may order a party to pay a sum of money into court if that party has, without good reason, failed to comply with a rule, a practice direction or a relevant pre-action protocol.”
“40. Those principles show that the power to order security for costs in a case of this kind should be exercised with great caution. The correct general approach may be summarised as follows: i) it would only be in an exceptional case (if ever) that a court would order security for costs if the order would stifle a claim or an appeal; ii) in any event, a) an order should not ordinarily be made unless the party concerned can be shown to be regularly flouting proper court procedures or otherwise to be demonstrating a want of good faith; good faith being understood to consist (as Simon Brown LJ put it) of a will to litigate a genuine claim or defence (or appeal) as economically and expeditiously as reasonably possible in accordance with the overriding objective; and b) an order will not be appropriate in every case where a party has a weak case. The weakness of a party’s case will ordinarily be relevant only where he has no real prospect of succeeding.” a) an order should not ordinarily be made unless the party concerned can be shown to be regularly flouting proper court procedures or otherwise to be demonstrating a want of good faith; good faith being understood to consist (as Simon Brown LJ put it) of a will to litigate a genuine claim or defence (or appeal) as economically and expeditiously as reasonably possible in accordance with the overriding objective; and b) an order will not be appropriate in every case where a party has a weak case. The weakness of a party’s case will ordinarily be relevant only where he has no real prospect of succeeding.”
“51. Three points which are relevant to the current applications deserve emphasis. The importance of the duty has often been emphasised in the authorities. It is necessary to enable the Court to fulfil its own obligations to ensure fair process underArticle 6 of the European Convention on Human Rights . It is the necessary corollary of the Court being prepared to depart from the principle that it will hear both sides before reaching a decision, which is a basic principle of fairness. Derogation from that basic principle is an exceptional course adopted in cases of extreme urgency or the need for secrecy. If the court is to adopt that procedure where justice so requires, it must be able to rely on the party who appears alone to present the evidence and argument in a way which is not merely designed to promote its own interests, but in a fair and even-handed manner, drawing attention to evidence and arguments which it can reasonably anticipate the absent party would wish to make. It is a duty owed to the court which exists in order to ensure the integrity of the court’s process.”