In a recent judgment, the Court of Appeal upheld a decision to strike out a claim as an abuse of the court’s process, where the claim repeated an earlier claim which had been struck out as a result of the claimant’s failure to provide security for costs pursuant to an unless order: Harbour Castle Limited v David Wilson Homes Limited  EWCA Civ 505.
It was accepted that, if the claimant’s failure to provide security had been deliberate, this would justify a finding that the present action was an abuse of process. The appeal centred on whether the High Court had been entitled to find that the failure had been deliberate, in circumstances where it was accepted that the claimant did not itself have the means to pay security but was reliant on funds being provided by its owner.
The claimant argued that the Supreme Court’s judgment in Goldtrail Travel Limited (in liquidation) v Onur Air Taşimacilik AŞ  UKSC 57 (considered here) meant that the question was not whether a third party (here the claimant’s owner) could pay the required sum, but whether the claimant itself could raise the funds. Ultimately, the Court of Appeal accepted that, as the claimant’s owner and directing mind could have provided the funds if he considered it in the company’s interests to do so, the High Court had been entitled to find that his refusal to do so amounted to a deliberate breach of the unless order by the claimant.
The judgment provides a helpful illustration of the application of the principles set out in Goldtrail, in particular where the third party that would be in a position to pay the required sum on the claimant’s behalf is also the claimant’s directing mind and will. The decision suggests that, in such circumstances, there may be little distinction between the claimant’s ability to raise the funds and the third party’s ability to do so.
Francesca Ruddy, an associate in our dispute resolution team, considers the decision further below.
The claimant, HCL, commenced an action in 2009 (the “First Action”) seeking damages and other relief in connection with a property transaction it had entered into with the defendant, DWHL. HCL was ordered to provide security for DWHL’s costs. After failing to comply with the initial order, HCL was made subject to an unless order, which it also failed to satisfy, resulting in the First Action being struck out.
HCL later commenced a second action (the “Second Action”), which was materially identical to the first. This was struck out on the grounds that, by its deliberate non-compliance with the unless order, HCL had chosen to abandon the First Action and should not be permitted a second opportunity to litigate the same cause of action.
HCL appealed to the Court of Appeal. It is well established that, where a second set of proceedings raises the same issues as in a previous action, there will be a proper basis for finding the second action to be an abuse of process if the first action was struck out for a deliberate failure to comply with a peremptory order. However, HCL disputed that its breach of the unless order in the First Action had been deliberate.
An unless order for security for costs will not normally be made if security cannot be provided and so the order is likely to stifle a legitimate claim. However, HCL contended that in the present case it had been unable to pay and therefore its failure to do so was not deliberate. It relied on Goldtrail, which was decided after the First Action had been struck out and which had changed the test for establishing whether such an order would be stifling. HCL argued that, under the new test, the First Action would not have been struck out.
In Goldtrail, the Supreme Court considered the proper approach to determining whether an order would be stifling in circumstances where the paying party had limited means, but was closely connected to a wealthy third party who could feasibly pay the required amount on its behalf. (Goldtrail concerned an order to pay a judgment sum into court as a condition for pursuing an appeal, but it was common ground that the decision applied equally to an order for security for costs.) Prior to Goldtrail, there had been a string of Court of Appeal decisions establishing that the courts could look behind a corporate claimant to the means of its owners or controllers in assessing whether it would be stifling to order security. However, the Supreme Court overruled those decisions in Goldtrail, holding that the question should never be whether the corporate claimant’s shareholder could raise the necessary funds but, rather, whether the corporate claimant itself could raise the funds.
It was common ground in the present case that HCL did not itself have the funds to satisfy the security for costs order in the First Action and that it would rely on obtaining funding from its owner, who had funded its conduct of the First Action. HCL submitted that it had not been able to raise the necessary funds from its owner and that, following Goldtrail, it could not be said that the resulting failure to provide security had been a deliberate breach of the order.
The Court of Appeal dismissed the appeal. It was for DWHL, as the party asserting that the Second Action was an abuse of process, to show this and to do so clearly. However, the burden was on HCL to show that it could not have obtained the necessary funds.
In assessing HCL’s claim that it could not have obtained the necessary funds from its owner, the High Court had correctly had regard to Lord Wilson’s comments in Goldtrail. Specifically, Lord Wilson had commented that the courts should not simply take at face value any claim by the paying party and/or its owner that the owner would not make the necessary funds available. The court should instead judge the probability of available funds against the underlying reality of the company’s financial position and its relationship with its owner, including the extent to which the owner was directing and financially supporting its affairs.
In the present case, the High Court had been entitled to find, on the basis of the information before it, that had HCL’s owner considered it to be in HCL’s interests to continue to pursue the First Action, he would have made the necessary funds available to it. The owner having decided (in his capacity as HCL’s directing mind) not to provide the funds, the High Court had been entitled to find that HCL had deliberately breached the unless order and abandoned the First Action. Accordingly, the High Court had been entitled to exercise its discretion to strike out the Second Action as an abuse of process.