Don’t dawdle – the importance of a prompt application for security


Author: Alice Morrissey


Alice Morrissey, Associate, Fladgate LLP (amorrissey@fladgate.com)


 

A recent interim judgment in the case of Accident Exchange Ltd & Anor v McLean & Ors [2018] EWHC 1533 (Comm) serves as an important reminder that parties seeking security should be proactive in their approach to enquiries of their counterparty and their financial circumstances, and that a delay in making an application for security for costs can result in the court significantly reducing the quantum of security ordered.

The case concerns allegations of conspiracy and deceit against defendants which include three firms of solicitors (Solicitor Defendants).

The question of security for costs was first raised by letter dated 22 April 2016 from Womble Bond Dickinson (WBD), solicitors acting for one of the Solicitor Defendants, to DLA Piper (DLA), solicitors for the claimants.  By letter dated 9 May 2016, DLA stated that the court did not have jurisdiction to award security but that in any event the claimants were taking measures to improve their balance sheet and were in discussions with their senior lender in relation to a refinancing.  No further information was given but the claimants stated they were willing to provide additional information in due course.

On 28 September 2016, WBD requested an update from DLA who responded to say that a refinancing had been completed the week before, subject to shareholder approval.  As a result of that information, no application for security for costs was pursued.

However, ultimately the shareholders failed to approve the claimants’ refinancing. Neither DLA nor the claimants informed the defendants (whereas it was accepted that there was no duty so to do the court was critical of their failure to update the defendants).  It was not until 2018 that the defendants revisited the question of security and asked what the position was. At that juncture, an application for security was made, and opposed by the claimants on the grounds that: (1) an order for security for costs would stifle its claims; and (2) there had been an inordinate delay in making the application.

As regards the latter ground of opposition, the claimants submitted that:

  1. A prudent defendant would have asked for details of when the shareholders’ approval was to be given and what the up-to-date position was.
  2. The defendants ought to have kept the matter under review.
  3. The correspondence was between WBD and DLA only and did not involve the other two Solicitor Defendants.

The court accepted that there was some force in the claimants’ submissions and remarked that in a piece of major litigation, where costs were very substantial, they would expect the party who had raised the question of security to pursue the matter.  Mr Justice Teare commented that if they had done so it was very likely that they would have discovered, in a matter of weeks rather than years, that the shareholders’ approval of the claimants’ refinancing had not been granted, and accordingly an application for security for costs would have been made earlier than it was in fact.

As a consequence, the court granted the order for security but ordered a significant reduction in the amount to reflect the defendants’ delay, awarding just 60% of 60% of the incurred costs and 60% of estimated future costs.

This case is a helpful reminder that the court has a wide discretion when it comes to ordering security for costs and will consider all of the prevailing circumstances, including the conduct of the parties, when weighing up whether to grant security and in what amount.

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