Costs News

12 November 2020
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High Court refuses to order undertaking in damages in return for security for costs

The High Court has refused to order that, in return for a claimant providing security for costs, a defendant should be required to provide an undertaking in damages to hold the claimant harmless against the costs or loss caused by the order to provide security.

In TBD (Owen Holland) Ltd v Simons and Ors [2020] EWHC 2681 (Ch), from February but only recently published, Mr Justice Marcus Smith said he had never seen such an order in his time practising in the Chancery Division or Commercial Court, but the Commercial Court Guide indicated that it was possible.

The difficulty with the application, he continued, was defining the contingency that triggered the undertaking or the consequences that followed.

By contrast, it was easy to define the contingency that triggered a cross-undertaking provided in return for an interlocutory injunction – the court's failure to grant a final injunction in similar terms – and, when it came to the consequences of the undertaking, both parties would have “a very clear idea as to what sort of damage or harm the interlocutory injunction will cause to the person enjoined”.

Thus the party providing the undertaking knew where it stood and roughly what it would be called up on to pay.

“Here it is actually very difficult to baseline what the consequences of the undertaking might be. Let us take an extreme case. It may well be that the provision of security, contrary to the expectation in my judgment, tips the claimant into insolvency,” said the judge.

“Is that to be a matter against which the defendants must hold the claimant harmless? It seems to me that this is a very open-ended and dangerous jurisdiction that I am being invited to exercise.”

Marcus Smith J added that it would also be “very difficult to say – even after the event – that the provision of security was wrongly granted”.

He explained: “The fact is that security is given in light of a known contingency that the defendant may obtain a costs order against the claimant, and the reason security is provided is in the event of that contingency to ensure that the costs order is not writ in water but actually is paid. That is something which is justifiable or capable of justification whatever happens at the trial of the case.

“The fact is that one knows that trials are uncertain things, one knows that costs orders may or may not be made in favour of the defendant. All one is saying in making the provision for security for costs is that if a costs order is made in favour of the defendant, it should have teeth.”

He concluded that while in theory the court could extract from a defendant an undertaking as the price for an order for security for costs, “it seems to me that it must be clear at the time of the making of the order that there are some special circumstances that suggest that the party providing the security requires a degree of protection more than simply receiving back the security provided if the action goes the claimant's way”.

If there was, it might be easier to define the contingency that would trigger the undertaking and have a better idea as to what the consequences of the undertaking would be to the party providing it.

“In this case, I am afraid I can see nothing out of the ordinary to justify the granting of an undertaking. What one has is the usual issue that the provision of security will have costs implications. That is so in every case where security is provided.

“It may be that the security is, when all is said and done, unnecessary because the action goes the claimant's way, and it receives a series of costs orders in its own favour, rather than being obliged to pay costs. That, again, is something which seems to me to be true of almost any case where security is ordered.”

A Butler QC (instructed by Geldards) appeared for the claimant, and N Caddick QC (instructed by Simon Birn) for the defendants.

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