Michael Phillips Architects Ltd v Riklin
| Jurisdiction | England & Wales |
| Judge | Mr Justice Akenhead |
| Judgment Date | 23 April 2010 |
| Neutral Citation | [2010] EWHC 834 (TCC) |
| Docket Number | Case No: 2010 TCC 17720 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 23 April 2010 |
[2010] EWHC 834 (TCC)
Before: The Honourable Mr Justice Akenhead
Case No: 2010 TCC 17720
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Paul O’ Doherty (instructed by Clive Sutton) for the Claimant
Andrew Fenn (instructed by Hannah & Mould) for the Defendants
Hearing dates: 15 and 23 April 2010
Introduction
The Defendants, Mr and Mrs Riklin, apply for security for costs in circumstances in which the Claimant company, Michael Phillips Architects Ltd, have obtained After the Event Insurance (“ATE Insurance”) which covers costs payable to the Defendant. This raises issues as to whether or not the conditions required by CPR Part 25.13 for the court to exercise its jurisdiction with regard to security for costs are satisfied and, if they are, at whether or not the Court should exercise its discretion to award such security.
The Background
Mr and Mrs Riklin leased a property, St Mary's Lodge, Captains Road, Lymington which they wish to use primarily as a holiday home but which they considered was in need of substantial renovation, modification and refurbishment. To that end in mid-2007, they retained the Claimant to provide architectural and possibly other services in connection with this project. There is an issue between the parties as to the extent of the retainer and the financial basis upon which the Claimant was to proceed.
From the pleadings, it seems clear that the project ran into difficulties in mid-2008 when the contractor engaged by the Defendants went into administration. There is an issue as to the extent to which the Claimant was or was required to be involved thereafter.
Proceedings were issued by the Claimant on 22 December 2009 in which it claims (by amendment) £147,387.0That claim is made upon a time spent basis said to have been agreed between the parties. In its Defence and Counterclaim, Mr and Mrs Riklin deny that there was any such agreement and assert that there was a simple contract by which they would pay the Claimant a reasonable fee for work done; they do not assert what a reasonable fee was in all the circumstances but suggest at least that regard should be had to the RIBA fee scales. Set-off is pleaded as a defence in relation to matters raised by the Counterclaim. The Counterclaim puts forward a number of breaches of duty, totalling some 16 in number and the damages claimed exceed £162,000.
The Course of these Proceedings
On 8 February 2010, approximately, the Claimant served a “Notice of funding of case or claim” which referred to the existence of a conditional fee agreement dated 16 July 2009. On 18 February 2010, the Defendants’ solicitors wrote to the Claimant's solicitors calling for security costs in the sum of £50,000.
The proceedings, having initially been issued in the Southampton County Court, were transferred to the TCC in London by order of this Court made on 1 March 2010. Mr Justice Edwards-Stuart made a number of directions leading to a provisional date for the Trial starting on 19 July 2010. The directions included a requirement that the Reply and Defence to Counterclaim be served by 22 March 2010. There was some discussion before the judge about security for costs and the Claimant's solicitor told the court that the Claimant was putting in place ATE Insurance. No order was made or sought at that stage in relation to security.
By 8 March 2010, the Claimant's solicitor was saying that an offer in principle for ATE Insurance had been received but that it was unlikely that a formal offer would be received before 31 March 2010. On 19 March 2010, the Claimant's solicitor indicated that he was prepared to agree to a stay of proceedings if the ATE Insurance cover had not been effected by 31 March 2010 and to an extension of the Directions timetable until the policy was in force. On the same day the Defendants’ solicitors wrote back indicating that they were not prepared to incur any further costs in this matter until the Claimant had provided security for costs; they did agree to an extension of time for the service of the Reply and Defence to Counterclaim until 26 March 2010.
On 30 March 2010, the Claimant's solicitor asked for a further extension of time for the service of the pleading until 6 April 2010. He made it clear that the ATE Insurance cover was not in place but he hoped that it would be finalised within a few days. On the same day the Defendants’ Solicitors wrote back agreeing to an extension for the service of the Reply and Defence to Counterclaim until 6 April 2010 on the basis that a stay of proceedings was agreed to be effective immediately to continue until such time as the Claimant had provided evidence that appropriate insurance cover was in place for “at least £100,000 specifically ring-fenced for our clients’ costs”; all dates were to be fully extended pro rata to reflect the amount of time lost by the extension of time.
On 1 April 2010, the Claimant applied to the Court for an extension of time for the service of its pleading. On the same date, the Defendant applied to the Court for a stay of proceedings until the Claimant had provided security for costs and an extension of the earlier Court Directions to reflect the amount of time lost. On 7 April 2010, the Claimant's solicitor wrote to the Court indicating that the Claimant had no difficulty with the proceedings being stayed “until such time as the Claimant has provided evidence that appropriate insurance cover is in place of at least £100,000 on security for the Defendants’ costs.”
By 7 April 2010, the TCC Registry was indicating that there would be a hearing of the applications (issued on 1 April 2010) on 13 April 20Also on that day, the Claimant served its Reply and Defence to Counterclaim. By 8 April 2010, the hearing date had been re-fixed for 15 April 20On 12 April 2010, the Defendants served an application directly for security for costs and for a stay of all further proceedings until such security was given. That was accompanied by a document headed “Defendants’ Request the Security Costs” which was treated as a statement. The total costs for which a security was claimed was £100,000 including the costs associated with the Counterclaim; duly corrected, the claim for security for costs was in the sum of £66,000.
Late on 14 April 2010, the Claimant served responsive witness statements from Mr Phillips and Mr Sutton his solicitor. Mr Phillips exhibited most if not all of the insurance documents for the ATE Insurance which had been obtained on 13 April 2010. I will return to this document and its adequacy for security for costs purposes later.
The Law and Practice
The jurisdiction to order security is materially to be found in CPR Part 25.13 (1) and (2) (c):
“(1) The court may make an order for security of the costs if-
(a) it is satisfied, having regard to all the circumstances of the case, that is just to make such an order; and
(b) (i) one or more of the conditions in paragraph (2) applies…
(2) The conditions are-
(c) the claimant is a company… and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so…”
Thus, the threshold to the Court having jurisdiction where the claimant is a company is that there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so. Once the threshold is established, the Court has a broad discretion as to whether to order security for costs and if so in what amount.
Although the case of Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534 occurred before the Civil Procedure Rules, the judgement of Peter Gibson LJ provides useful guidance as to the criteria to which a court can and should have regard when deciding as a matter of discretion whether to order security for costs in the case of a company:
“The relevant principles are, in my judgement, the following.
1. As was established by this Court in Sir Lindsay Parkinson and Co Ltd v Triplan Ltd… [1973] QB 609, the court has a complete discretion whether to order security, and accordingly it will act in the light of all the relevant circumstances.
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…By making the exercise of discretion under s 726 (1) [ of the Companies Act] 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…
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 a trial the plaintiff's claim fails and the defendant finds himself unable to recover from the plaintiff the costs which had 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…but it will also be concerned not to be so reluctant to order security as it becomes a weapon whereby the impecunious company can use it inability to pay costs as a means of putting unfair pressure on the more prosperous company…
4. In...
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