Lack of funds “not a good reason” for failure to comply with security for costs order

Cigars ruling: deputy master's rulings go up in smoke

Cigars ruling: deputy master’s rulings go up in smoke

A deputy master was “plainly wrong” to grant relief from sanctions over a failure to comply with an order for security for costs, when the reason given was a lack of funds, the High Court has ruled.

“I cannot see how a claimant’s lack of financial resources can be both the reason for making the order in the first place and a ‘good reason’ why it has not been complied with,” said Mr Justice Snowden.

He was ruling in Pittville Ltd v Hunters & Frankau Ltd & Anor [2016] EWHC 2683 (Ch), involving appeals against two decisions of Deputy Master Cousins and reviving a well-known name from litigation in the noughties, MasterCigars Direct, and the case involving the importation of Cuban cigars.

In the first judgment, the master granted relief from the sanctions that had been imposed upon MasterCigars in 2011 for failure to comply with an unless order requiring the provision of security for costs by way of cash or a bank guarantee.

The application for relief was made by Pittville, which in May 2014 obtained an assignment of MasterCigars’ rights of action from its liquidators. Pittsville was owned by a Mr Kenyon, the beneficial owner and director of MasterCigars.

In the second decision, the master permitted Pittville to be substituted as claimant in place of MasterCigars and to vary the unless order so as to give Pittville three months to obtain an after-the-event (ATE) insurance policy to provide security for costs.

Snowden J went through the Denton test. The failure to comply with the unless order was clearly serious and significant (the first stage) but he said the deputy master had got the second stage ‘good reason for non-compliance’ wrong.

This had to take into account why the order was made in the first place, the judge said. “In the case of an order requiring the provision of security for costs under CPR 25.13(2)(c), the order is made because there is ‘reason to believe that the claimant will be unable to pay the defendant’s costs if ordered to do so’.

“In other words, the order for security is made precisely because there is reason to believe that the claimant does not have the funds to pay costs orders that might be made… As such, I cannot see how a claimant’s lack of financial resources can be both the reason for making the order in the first place and a ‘good reason’ why it has not been complied with.”

He continued that the deputy master “fell further into error” at stage three of his Denton analysis by not considering CPR 3.9(1), and the need for litigation to be conducted efficiently and at proportionate cost, along with the need to enforce compliance with rules, practice directions and orders.

“MasterCigars’ failure to provide security had led to the claim not being proceeded with for over three years before Pittville made its application. The required security was still not available in 2015, and by January 2016 – the extra time which Pittville sought from Deputy Master Cousins to try to obtain it, some four and a half years would have expired since the security order was made, and over 11 years would have expired since the consignment of cigars was intercepted and examined.

“The short point was that MasterCigars’ breach had prevented the claim from being conducted at all for a very long time indeed, and even if the security was finally provided, it would be inevitable that substantial further costs would be wasted as lawyers sought to pick up the case again after such a long period.”

The second requirement, meanwhile, required the court to ask whether the applicant for relief was actually in a position to comply with the order in question.”

Pittville’s only prospect of providing any security for costs to obtain an ATE policy that was a suitable alternative to cash or a bank guarantee. However, Mr Kenyon had failed several times to arrange an ATE policy over the years.

The judge said: “Mr Kenyon had expressed new optimism, but as this largely depended upon relief from sanctions being granted before he made a renewed approach to funders, this clearly involved an element of circularity: the question was whether such relief should be granted in the first place.”

The deputy master should only have granted relief if it was also appropriate, four years after the event, to vary the unless order to allow for the provision of security by way of an ATE policy, he said, and if it was also appropriate to give a significant further extension of time to Pittville to obtain one.

It was not, Snowden J said. There had been no material change of circumstances since the order was made. If the terms of an order were unjust, the remedy was to appeal.

“It cannot be open to the party concerned to decide not to appeal the order, but then to come back to court at a distant point in the future when it has been able to arrange its affairs so that it is (or thinks it might be) able to do what was required, and assert that its new situation amounts to a material change in circumstances. That would entirely undermine the interests of finality in litigation, the purpose of the original unless order, and the concept of an appeal.”

As a result, Snowden J overturned both of the orders made by Deputy Master Cousins.

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