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Security for costs – Don’t Delay!

The English Commercial Court has held that delay in seeking security for costs can lead to a reduction in the amount ordered for incurred costs.

Accident Exchange Ltd and another v McLean and others [2018] EWHC 1533 (Comm) (12 June 2018) concerned allegations of conspiracy and deceit.

Teare J granted the Defendant’s application for security for costs but significantly reduced the amount allowed with respect to incurred costs due to delay the application being made.

It was submitted that the delay was due to an anticipated strengthening of the Claimant’s financial position in the form of a refinancing, and that this caused the Defendant not to make the application for security at that stage. In fact, the refinancing was not approved, but the Defendant failed to make any further enquiries for two years.

Teare J observed that: this was a major piece of litigation, involving very substantial costs; consequently, one would have expected the Defendant to pursue the matter and, had they done so, it was very likely that the lack of shareholder approval would have emerged.

The judge noted that the Defendant sought security for 80% of their costs. He referred to Stokors SA v IG Markets Ltd [2012] EWCA Civ 1706, in which the Court of Appeal supported the view that around 60% was appropriate. Taking this into consideration, along with the delay, he ordered “60 per cent of 60 per cent” of the incurred costs. In relation to costs to be incurred, he ordered 60% of the costs claimed.

This judgment highlights the importance of defendants actively monitoring a claimant’s financial position to determine whether an expected improvement does in fact materialise.

The recently published English Chancery Court decision of Absolute Living Developments Ltd (in liquidation) (acting by its liquidator Brittain) v DS7 Ltd and others touches on the same issue.

In considering whether it was just and equitable for an order for security for costs to be made, the judge in this case considered various factors including whether the application for security for costs had been brought late.

 

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