A decision of Mr Justice Kitchin (Chancery Division, English High Court) of 18 March 2011 provides some helpful guidance to parties on the court’s jurisdiction to make an order for security of costs under CPR Rule 24.6.

Background

The defendants to copyright proceedings had sought summary judgment against the claimant or, in the alternative, a conditional order for their costs of defending the claim. The claim concerns The Goblet of Fire, the fourth book in the successful seven-book Harry Potter series. It is alleged that JK Murray (formerly Rowling), in writing Goblet, infringed the copyright in Willy the Wizard, a short illustrated book self-published in 1987 by Adrian Jacobs. The claim is being pursued by Paul Allen, trustee for the late author’s estate (the Estate), who sued both JK Murray and her UK publisher, Bloomsbury. The trustee also launched proceedings in New York against JK Murray’s US publisher, Scholastic1.

Following three full days of argument in July, Kitchin J handed down his decision on the summary judgment application in October 2010. In a detailed decision he determined that while it was improbable that it would succeed, Mr Allen’s claim was not so bad as to be fanciful and declined to strike out the case. However, he stated that he would consider making a conditional order against the claimant and the hearing was adjourned to allow the parties to submit further evidence on the shape and substance of any such order.

The security for costs issue

One of the central issues before the court was its jurisdiction to make an order for security as a condition of pursuing a claim under CPR 24.6. Resisting the application for any conditional order, Mr Allen argued that the court’s power only extended to the making of an order for security for costs where the requirements of CPR 25.13 are met. This rule specifies the conditions, one or more of which must be satisfied, before the court will make an order for security for costs on an interim application by a defendant under CPR 25.12.

Mr Allen relied on a recent decision by the Court of Appeal, Bryan Huscroft2, in which the court cautioned against parties trying to circumvent the requirements of CPR 25.12 by seeking security under a different provision of the Civil Procedure Rules. The issue in that case was the jurisdiction to make an order under CPR 3, which specifies a number of general powers which the court may exercise in case management, and which are additional to specific powers elsewhere in the Civil Procedure Rules. Under CPR 3 the court may impose conditions on parties to proceedings when making an order concerned with the management of the case. In Huscroft, Lord Justice Moore-Brick concluded that it was wrong to encourage litigants to regard Rule CPR 3.1(3) as providing a convenient means of circumventing the requirements of CPR 25 and thereby of providing a less demanding route to obtaining security for costs.

Mr Allen argued that as an extension of this decision, and those in Olatawura v Abiloye3 and Ali v Hudson4, the court must be satisfied that one or more of the conditions of CPR 25.13 are met before exercising any jurisdiction under CPR 24.6. In addition, he argued that the applicant must also demonstrate that the other party has routinely breached or ignored procedure and demonstrated a lack of good faith.

The decision

The judge addressed the legal principles which apply when the court is invited to impose a condition on one or more parties following an unsuccessful application for summary judgment. He reviewed the general powers of case management, the provisions of CPR 24 and the accompanying practice direction and the provisions of CPR 25.12 and 25.13 (in particular 25.13(2)(f)). In addition, he reviewed the decisions of Olatawura, Ali and Bryan Huscroft.

From these the judge derived to the following principles:  

  1. the court has jurisdiction under rule 24.6 to make an order which is tantamount to an order for security for costs;
  2. that jurisdiction extends to requiring someone advancing an unpromising claim to secure the defendant’s costs;
  3. before ordering security for costs in any case, the court should be alert and sensitive to the risk that by making such an order it may be denying the party concerned a right of access to the court; whether or not the person concerned has raised or can raise the money will always be a prime consideration;
  4. the court has a wide discretion to ensure that justice is done in any particular case;
  5. relevant considerations, beside the ability of the person to pay, include his conduct of the proceedings and the apparent strength of his case;
  6. a party only becomes amenable to an adverse order for security under rule 3 once he can be seen either regularly to be flouting proper court procedures or orders or otherwise has demonstrated a want of good faith, that is to say a will to to litigate a genuine claim or defence as economically as reasonably possible in accordance with the overriding objective;
  7. likewise, an order for security for costs would not be appropriate in every case where a party appears to have a somewhat weak claim or defence;
  8. exorbitant applications for summary judgment in misguided attempts to obtain conditional orders providing security for costs are not to be encouraged;
  9. the occasions when security for costs is ordered solely because the case appears weak may be expected to be few and far between;
  10. it would be wrong to encourage litigants to regard rule 3.1 as providing a convenient means of circumventing the requirements of Part 25 and thereby providing a less demanding route to obtaining security for costs. When the court is asked to consider making an order under rule 3.1(3) or 3.1(5) which is or amounts to an order for security for costs or when it considers doing so of its own motion it should bear in mind the principles underlying rules 25.12 and 25.13. In my judgment, the court should also bear this principle in mind when considering whether to make a conditional order under rule 24.6.”

On this basis the judge rejected Mr Allen’s submission that the jurisdiction to impose a condition akin to security under CPR 24 is limited to circumstances where (1) one of the conditions in CPR 25.13 is satisfied and (2) where the party applying for the condition can demonstrate that the other party has regularly flouted court rules or otherwise demonstrated a want of good faith.

The judge then went on to consider the strength of Mr Allen’s case, which he found to be limited. He referred back to his decision on the summary judgment application where he had concluded that the case was improbable to succeed. He noted that the summary judgment application had failed by the narrowest of margins and this is not a case that is simply somewhat weak, but a case where the prospects of success are so poor the court is justified in exercising its discretion to make an order pursuant to CPR 24.6.

In addition, the judge found Mr Allen to be a nominal claimant as that term is understood following the decision in Semler v Murphy5. Reviewing all of the facts before him he found that the appointment of Mr Allen as trustee for the Estate had not been explained by Mr Allen and that the sole beneficiary of the Estate, Jonathan Jacobs, could have brought the claim himself. As a nominal claimant, Mr Allen is potentially personally liable for the defendants’ costs of the litigation, subject to the benefit of the indemnity in place with Jonathan Jacobs. As such the judge held that the condition in CPR 25.13(f) was satisfied.

The judge further found that the claim had not been pursued in good faith. On the evidence before him, including the long delay in the progression of the claim, which was first threatened in 2004, the wide-ranging formulation of the claim and Mr Allen’s continued pursuit of unjustifiable allegations, he concluded that the claim had not been prosecuted as expeditiously as possible in accordance with the overriding objective. Referring to the decision in Al Koronky & Another v Time-Life Entertainment Group Limited & Another6 he found that Mr Allen had not adduced sufficient evidence to support his claim that the imposition of an order for security would stifle the claim or deny him access to justice. He ordered that Mr Allen pay 65% of the defendants’ total estimated costs (payable in three tranches) by way of security for the defendants’ costs.

Conclusion

The clear guidance on how a party should approach an application for security outside the traditional CPR 25.13 jurisdiction is to be welcomed. The principles cut through the confusion that surrounded the exercise of this jurisdiction following the decision last year in Bryan Huscroft and provide the court and applicants with a workable framework for future applications.