Gregory Mitchell QC examines security for costs against insolvent companies
The practice derived from the well known authorities on the provision of security for costs fails to deal adequately with the modern world of causes of action vested in an insolvent company with no assets, pursuing a claim with the benefit of conditional fee agreements (CFA). This is an area which requires the consideration of the Court of Appeal given the existing authorities. There are two problems: first the court is required to strike a balance at an early stage on inadequate evidence and without a sufficient hearing time, between requiring security for costs in a sum which the company cannot afford—resulting in oppression and a potential breach of Human Rights Act 1998 (HRA 1998) Art 6(1)—or else refusing security and exposing the defendant to the risk of being unable to enforce any order for costs. Second, there should be no requirement for full and frank disclosure of the ability of directors/shareholders/creditors to fund litigation brought by an insolvent company—because however good the cause of action may be—it is rare that it makes commercial sense for a
