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Court steps in to help claimants where an order for security for costs would be damaging to their ability to proceed

Court steps in to help claimants where an order for security for costs would be damaging to their ability to proceed|BDM Blog|BDM Law

A Defendant can make an application for security for costs in a situation where they are concerned that a Claimant may not have the wherewithal to meet a costs order at the end of a trial. It can also be used tactically to try to stifle a claim by placing an onerous obligation on the Claimants, who in shipping cases regularly have little in the way of funds to assist.

In this case*, the Claimant’s ship was involved in a collision resulting in a constructive total loss. The Defendants were the ship’s insurers. When the incident occurred, a third party claimed that they were the rightful beneficiaries of the insurance proceeds, not the Shipowners. Because of this confusion, the insurance company refused to pay out until there was clarification and a judgment by the Court. Despite the third party claim being thrown out by the Court, the Defendants continued to use it as a reason for not paying the Claimants under their insurance policy.

There was an application for security for costs under CPR 25.12 and the Claimants argued that the purpose was to create an obstacle to the Claimant’s claim. If it could be shown that a security for costs order would be oppressive to the extent that the Claimants could not continue, the Court could decline the application even if there was a risk that the Claimants would not be able to satisfy a costs order against them.

The Court had to consider various aspects such as whether the Claimant was able to obtain funds from their shareholder company; the fact that the Claimant had little in the way of funds because the Defendant had not paid under the insurance contract; that a review of the merits of the underlying claim should be avoided if possible.

The Court decided to reject the application for security for costs on the basis that it was going to stifle the Claimant’s ability to proceed with the claim and that the precarious position of the Claimant’s finances was genuine.

This case shows how the English Courts are prepared to deviate from the norm to avoid what they consider to be a potential abuse of process. The Court clearly felt that the balance of justice would be served by allowing the Claimant to continue with their claim rather than imposing onerous terms requiring the provision of security for costs.

*(1) Deleclass Shipping Co. Ltd (2) MWI Shipping Services Ltd v Ingosstrakh Insurance Co. Ltd (2018)

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