Security against company

Automotive Latch Systems Ltd v Honeywell International Inc [2006] EWHC 2340 (QB)

The claimant was a start-up company created to exploit the development of its design for a latch system for car doors. The defendant agreed to collaborate with the company, but the collaboration was not a success. The claimant maintained that the defendant was in breach of the agreement in failing to develop the latch and issued proceedings claiming substantial damages for the loss of sales and loss of chance of sales. The defendant applied for £1.4m security for costs. The court rejected the claimant’s submission that in respect of orders for security for costs, CPR rule 25.13(2)(c) looked to the ability to pay costs at the time an order to pay was made and that as a matter of jurisdiction, the defendant could not show in two years’ time or so, when any litigation would be likely to be the subject of a judgment and a costs order, that the claimant’s finances would not be such as to enable it to pay the defendant’s costs. The claimant obviously lacked the ability to meet any substantial costs liability as matters stood and the court could properly conclude that it was probable that the claimant would be unable to meet a costs order against it should one be made, even though that was some way in the future. The court also rejected the claimant’s submission that the defendant had caused its financial difficulties because to do so would be to pre-judge one of the major issues in dispute in the proceedings. The court did not accept that an order for security would or might stifle the claimant’s proper claim or seriously affect its ability to develop its business, although it was a common, if not inevitable, feature of any order for security that the paying party would expect to find a better use for the money if it did not have to pay it as security. There was a balance to be struck. The claimant had brought the claim and pursued it for a considerable sum yet sought to pursue it without exposure to the risk, which was a normal incident of commercial litigation, of an effective costs sanction should the claim fail. That was potentially unfair and oppressive to the defendant. It had not been established that an order for a substantial sum by way of security would stifle the claim. The appropriate order was for security in the sum of £500,000.