Lobster Group Ltd v Heidelberg Graphic Equipment Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Coulson |
| Judgment Date | 06 March 2008 |
| Neutral Citation | [2008] EWHC 413 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT —07 —355 |
| Date | 06 March 2008 |
[2008] EWHC 413 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
St Dunstan's House
133-137 Fetter Lane
London, EC4A 1HD
The Honourable Mr Justice Coulson
Case No: HT —07 —355
Mr James Ramsden (instructed by Freeth Cartwright) for the Claimant
Mr David Lascelles (instructed by Ross & Craig) for the 1 st Defendant
Mr Sam Neaman (instructed by Teacher Stern Selby) for the 2 nd Defendant
Hearing date: 29 February 2008
Mr Justice Coulson:
The Defendants each seek security for costs against the Claimant pursuant to CPR Part 25 and s.726(1) of the Companies Act 1985. The Claimant accepts that, in this case, it is appropriate that it provide such security. There are, however, disputes between the parties as to the amount of the security to be provided and those disputes raise an interesting issue as to the extent, if at all, to which a party seeking security for costs can include within those costs the costs of a pre-action mediation.
The background to the litigation is as follows. The claimant was a printing company specialising in high quality print and reprographic products. In 2001, it purchased a large printing press from the 1 st Defendant. The purchase was facilitated by finance provided by the 2 nd Defendant. The Claimant alleges that the press was defective, and that, in consequence, it suffered extensive losses. Those losses are the subject of these proceedings.
The disputes about the alleged defects with the press had been ventilated in correspondence in 2004. In January 2005 there was what has been called a detailed mediation which unfortunately failed to resolve the disputes between the parties. In July 2005 the Claimant was placed in administration and the following year, on 13 July 2006, it was placed in liquidation.
These proceedings were commenced on 25 May 2007 in the TCC in Salford. The parties transferred the action by consent to the TCC in London in October 2007. That was the first time that the suggestion of security was raised by the Defendants. The 2 nd Defendant's solicitors wrote on 17 October to identify it as an issue. On 2 November 2007, the Claimant's solicitors asked for details of what sum was being sought and the form and manner in which it was suggested that security be given. In response, on the same day, the 2 nd Defendant's solicitors identified the sum of £20,000. In their response on 5 November 2007, the Claimant's solicitors said that they would take instructions and revert. Thereafter, nothing happened until the formal application was made on 5 February 2008. I note that at no time was a draft bill provided by the 2 nd Defendant's solicitors for consideration by the Claimant's solicitors.
The same pattern can be discerned in the correspondence involving the 1 st Defendant's solicitors. They also raised the question of security in mid October. They failed to respond to the Claimant's solicitors' letter of 2 November asking for details of the amount and form of security sought. Their application was made on 18 February 2008.
There is a significant discrepancy between the sum sought by way of security on the part of the 1 st Defendant, and the sum sought by the 2 nd Defendant. The 2 nd Defendant does not seek any pre-action costs. It limits is claim for security today to £37,000, in respect of the costs incurred since the start of the proceedings up to today, and the projected costs up to the exchange of witness statements, which will take place in May. The £37,000 is an agreed figure: the only point between the Claimant and the 2nd Defendant is whether the Claimant should provide security for the period between the commencement of these proceedings and 5 February, the date that the formal application for security was made.
The 1 st Defendant has put forward a draft bill in the sum of £363,014. That figure, which covers costs from the pre-action period, all the way up to the end of the trial, constituted the sum originally sought by way of security. Although, in recent days, the 1 st Defendant has modified its demands for security, it maintained before me a request for security in the sum of £160,000 in respect of the costs incurred prior to the commencement of proceedings and the costs of these proceedings up to but not including the trial itself.
RELEVANT PRINCIPLES
Section 726(1) of the Companies Act 1985 provides as follows:-
“Where in England Wales a limited company is [claimant] in an action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the defendant's costs if successful in his defence, require sufficient security to be given for those costs, and may stay all proceedings until the security is given.”
The subsequent authorities establish:-
a) Questions of delay are relevant both to the principle of awarding security and the amount of security to be granted: see Sir Lindsay Parkinson & Co v Triplan [1973] QB 609.
b) The court is entitled to refuse to make an order for security for costs if it would result in oppression, in that the claimant company would be forced to abandon a claim which has a reasonable prospect of success: see Aquila Design (GRB) Products Ltd v Cornhill Insurance plc [1988] BCLC 134. However, a claimant seeking to avoid the order for security on this ground must satisfy the court that in all the circumstances it is probable that the claim would be stifled: see Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 AllER 534.
c) It is usually impossible and/or inappropriate for the court to engage in any consideration of the merits of the underlying claim: see Fernhill Mining Ltd v Kier Construction Ltd [2000] C.P. Rep 69.
THE ISSUES
The issues which arise for me to decide on this application are:
a) whether the amount of security should include pre-action costs (1 st Defendant's application only);
b) whether the amount of security should include the costs from the commencement of these proceedings to the making of the security applications (both applications);
c) the appropriate quantum of the security awarded (1 st Defendant's application only).
I deal with each of those issues in turn below.
PRE-ACTION COSTS
In certain circumstances, the costs incurred by a party prior to the commencement of litigation can be recovered as costs: see In re Gibson's Settlement Trusts [1981] 1 Ch.179. In a more recent example of that principle, in McGlinn v Waltham Contractors [2005] 3 AllER 1126, this court concluded that the costs incurred by a party in complying with any pre-action protocol were capable of being costs 'incidental to' any proceedings which were subsequently commenced (if the protocol procedure failed to lead to an early settlement) and that they were therefore covered by s.51 of the Supreme Court Act 1981. However, in that case, the court refused to award a defendant costs thrown away at the pre-action protocol stage in successfully persuading a claimant to abandon particular heads of claim. It was held that those were not costs 'incidental to' any subsequent proceedings because, in those subsequent proceedings, such heads of claim did not feature at all.
It seems to me, therefore, that as a matter of principle, pre-action costs can be the subject of an application for security. That said, I consider that a court should be slow to exercise its discretion in favour of the applicant in such circumstances, because of the risk that, if the pre-action period was lengthy, the costs might be extensive, and any subsequent attempt to obtain security in respect of such costs might become penal in nature. Moreover, it must be right that, the greater the distance in time between the incurring of the costs and the commencement of proceedings, the greater will be the likelihood that the losing party will have good grounds to dispute its liability to reimburse such costs in any event, and/or will have a stronger argument to the effect that the court should not exercise its discretion under CPR 25 and order security in respect of such historic costs.
I note that, in the present case, in their first CMC questionnaire, the 1 st Defendant's solicitors estimated their costs of the action as a whole at £100,000. That is, of course, far less than the costs that they now maintain they will incur in these proceedings. The only explanation for this considerable discrepancy with which I have been provided is that the £100,000 excluded all the pre-action costs. It seems to me, therefore, that the fact that the 1 st Defendant's solicitors did not consider that such costs were relevant for the purposes of the questionnaire is an indication that they did not instinctively think that such costs would be recoverable in these proceedings.
In addition to the general point, Mr Ramsden takes four specific points as to why the costs incurred prior to the commencement of the proceedings should not now be the subject of the order for security. They are that:
a) a considerable part of the pre-action costs were incurred in relation to the detailed mediation and that such costs cannot be recoverable in these proceedings in any event;
b) a large proportion of those costs were incurred before the administration/liquidation, so that any order for security would be an unfair preference;
c) to the extent that the security ordered was in respect of pre-action costs, the claimant would be unable to obtain After The Event insurance (ATE insurance) or, if they did so, would have to pay prohibitive premiums, and that therefore a genuine claim would be stifled;
d) the length of the pre-action period...
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At the End
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