Summary

The power of the court to make orders for security for costs against "companies" under CPR r.25.13(2)(c) was without distinction and included unlimited companies and those having only an individual member.

Facts

The appellant companies (J and K) appealed against a decision of the judge ordering them to provide security for the costs of the respondents (B). J was an unlimited company with only one shareholder. K was a wholly owned subsidiary of J. Both companies were incorporated in England. J and K had issued three sets of proceedings against B which were due to be tried together. B applied for security for costs against J and K. They resisted that application on the ground that, under CPR r.25.13(2)(c), the court had no jurisdiction to order security for costs against an unlimited company incorporated within the jurisdiction. The judge held that CPR r.25(13)(2)(c) enabled the court to make an order for security for costs even as against an unlimited company, and that on the facts there was a significant danger that J and K would not be able to pay costs ordered against them. He therefore exercised his discretion to award the security for costs sought. J and K contended that the judge was wrong to hold that CPR r.25(13)(2)(c) gave the court jurisdiction to order security for costs against an unlimited company and that the judge should have interpreted that rule with the Companies Act 1985 s.726 and held that the jurisdiction extended only to limited companies. Alternatively, they argued that the court had no jurisdiction to award security for costs against an unlimited company with a sole shareholder who would be jointly and severally liable for paying the company's debts, so that a costs order against an unlimited company was akin to a costs order made against a sole shareholder. J and K contended that it was contrary to the policy of CPR r.25.13(2)(c) to allow the court to order security for costs where the claimant was the sole shareholder in an unlimited company but not where he was an individual. J and K submitted further that the judge had also erred in applying a test of "significant danger" that the company would be unable to pay the costs order against it, rather than a test on the balance of probabilities which was required by the words "reason to believe" in CPR r.25.13(2)(c). They argued that the wording was unambiguous and left no room for the introduction of a lower standard of proof such as that applied by the significant danger test.

Held

It was a striking feature of CPR r.25.13(2)(c) that it did not use the expression "limited company" which was a feature of s.726 of the Act. The change of terminology had to be deliberate. CPR r.25.13(2)(c) provided that the court might make orders for security against companies without distinction. To include unlimited companies was not unprincipled as, if the members of unlimited companies were individuals, that could be taken into account in the exercise of the court's discretion. (2) There was a critical difference between a conclusion that there was "reason to believe" that a company would not be able to pay costs ordered against it and a conclusion that it had been proved that the company would not be able to pay the costs. In the former case, there was no need to reach a final conclusion on what would probably happen; in the latter case, a conclusion had to be reached on the balance of probabilities. The second limb of CPR r.25.12(2)(c) did not lay down any test on the balance of probabilities, Unisoft Group (No2), Re (1993) BCLC 532 Ch D (Companies Ct) explained. There was no real distinction between a test that a company was "in significant danger" of not being able to meet costs and that of "reason to believe" that that would be the state of affairs. Since the event in question (non-payment of an order for costs) was a future one, the court had to evaluate the risk, or the danger, of that event occurring. However, as there might be contexts in which a test of significant danger could produce a different result from the reason to believe test, it would be much safer to use the statutory words in future. In the circumstances, the judge had made no error in ordering J and K to pay security for costs.