Jersey Unreported Judgments

[2011]JRC011

royal court

(Samedi Division)

17^th January 2011

Before     :		J. A. Clyde-Smith, Commissioner, and Jurats Clapham and Allo.
Between	Café De Lecq Limited		Plaintiff/Respondent
And	R A Rossborough (Insurance Brokers) Limited		Defendant/Appellant

Advocate A. D. Robinson for the Plaintiff/Respondent.

Advocate N.F. Journeaux for the Defendant/Appellant.

judgment

the commissioner:

1.        This is an appeal by the defendant R A Rossborough (Insurance Brokers) Limited ("Rossborough") against the decision of the Master made on 14^th October, 2010, to refuse its application for an order for security for costs against the plaintiff, Café de Lecq Limited ("Café de Lecq"). 

2.        The underlying facts are these.  Café de Lecq owns and operates a café business from leasehold premises in Grève de Lecq.  On 8^th May, 2007, the Café burnt down.  The insurers refused to cover the losses, namely the cost of rebuilding the café, business interruption losses and other items totalling some £953,500.  In its Order of Justice, Café de Lecq alleges that the refusal of the insurers to cover these losses arises out of failures on the part of Rossborough as the insurance broker who arranged the cover, and claims damages accordingly. 

3.        The Order of Justice was issued on 25^th February, 2010, and pleadings have been exchanged and discovery made.  Various orders have been made in relation to the amendment of the pleadings, further discovery and the exchange of witness statements of fact and expert evidence and in relation to setting the proceedings down for trial, for which no date has yet been fixed.  The summons seeking security for costs was issued on 21^st July, 2010, and was heard by the Master on 2^nd September, 2010.  No issue of delay in bringing the summons arises.  

4.        In his affidavit of discovery of 1^st September, 2010, Mr Barry Reynolds confirmed that he was the sole director and shareholder of Café de Lecq.  Apart from this affidavit, there was no evidence from either Café de Lecq or Mr Reynolds before the Master or before this Court.  However it was conceded by Mr Robinson that Café de Lecq would not be in a position to meet any costs order made in favour of the defendant should its claim fail.  

5.        The amount of the security sought by Rossborough is £191,612.99, which it estimates would be sufficient to meet its costs already incurred and those to be incurred through to the end of the trial.  Mr Robinson confirmed that if an order in that amount was made against Café de Lecq, then Mr Reynolds would fund it.  In other words, the claim would not be stifled. 

6.        The Master acknowledged that this was a difficult case to resolve.  He helpfully summarised his reasons for refusing the application as follows:-

"(1)     I do not consider that there is any principle which means that an impecunious Jersey company must provide security for costs;

(2)       There is a presumption that Jersey resident plaintiffs should not be required to provide security and I think that presumption applies to both individual and corporate Jersey resident plaintiffs;

(3)       In carrying out the balancing exercise between injustice to the plaintiff and the defendant (as set out in the A E Smith case) I must have regard to all the circumstances of the case;

(4)       The circumstances mentioned in (3) above includes the position of a third party who would fund any security ordered and the potential prejudice to such a third party;

(5)       if the defendant succeeds at trial then there may well be assets of the plaintiff in Jersey against which such orders could be enforced and there is also a possibility of a third party costs order;

(6)       I do not consider that there are exceptional circumstances which would justify my ordering the plaintiff to provide security; and

(7)       The balance of justice is against an order for security for costs in the particular circumstances of this case."

7.        The starting point is Rule 4/1(4) of the Royal Court Rules 2004, which is in the following terms:-

"Any plaintiff may be ordered to give security for costs".

Thus, the Court has a very wide jurisdiction to order security for costs and the issue is the principles upon which that jurisdiction should be exercised. 

8.        In Davest Investments Limited-v-Peter David Bryant (1982) J.J. 213, a decision  made under the Royal Court Rules 1982 which were in similar terms, Dorey, Judicial Greffier, made reference to the long established practice of the Court not to order security for costs against a plaintiff residing within the jurisdiction.  However he accepted the principles enshrined under English statutory law, namely section 447 of the Companies Act 1948 that where a limited company is plaintiff, if there is reason to believe that the company will be unable to pay the costs of a successful defendant, the Court may require security to be given.  Quoting from the judgment:-

"In the case where the plaintiff is a company with insufficient assets to pay the costs of litigation, so that the litigation is financed by the beneficial owner, who could not personally be made liable for the defendant's costs if  the action failed, it is just to order that the plaintiff should give some security for the defendant's costs.  I therefore order the plaintiff to give security in the sum of £500, having first ascertained that this sum will not be oppressive."

Mr Robinson suggested that £500 should be regarded as a nominal sum and certainly today it would be so.  However, bearing in mind the effects of inflation since 1982 and the total amount involved in the claim, namely £6,920, it would not be right to regard it as a nominal order.  

9.         In Edwards-v-Tretol [1985-86] JLR 64, a decision of Fauvel, Deputy Judicial Greffier, the Court again referred to the well established principle that security for costs would not be ordered against a plaintiff residing within the jurisdiction "unless for exceptional reasons".  Although Davest was not apparently cited, counsel for the Jersey resident corporate plaintiff agreed that the principles set out in section 447 of the Companies Act 1948 were of persuasive authority in this jurisdiction but disputed the defendant's claim that the plaintiff would be unable to meet the defendant's costs if it were successful.  Counsel for the defendant agreed that the plaintiff was not impecunious, but was "concerned as to the plaintiff's ability to pay a substantial claim - he put it no higher than that".  The application failed because the Court found the defendant had not made out its case but by necessary implication, the inability of a corporate plaintiff to pay the costs of a successful defendant was accepted by the Court as an exception to the principle that security for costs would not be ordered against a plaintiff residing in the jurisdiction. 

10.      Heseltine-v-Strachan & Co [1989] JLR 1 involved an unsuccessful appeal by the defendants against a decision of the Judicial Greffier to order two individual non-resident plaintiffs to pay security of £4,000 against estimated costs of £78,000 and to make no order against a Jersey resident corporate plaintiff.  The individual plaintiffs were not the beneficial owners of the corporate plaintiff, the background to which was deemed to be too sensitive for inclusion in the judgment of the Court.  The Court did not dissent from the decision in Davest and cited with approval a number of English cases dealing with section 447 of the Companies Act but it maintained the decision of the Judicial Greffier being satisfied that  the corporate plaintiff had assets (albeit insufficient to meet the costs) which would be preserved until trial. 

11.      Mayo-v-Cantrade 1996/176 concerned orders for security for costs against non-resident corporate plaintiffs, but Le Marquand, Judicial Greffier, acknowledged the inability of an impecunious corporate plaintiff to pay a successful defendant's costs as an additional ground for ordering security, citing extensively from and adopting the principles set out in the then recent case of Keary Developments Limited-v-Tarmac Construction Limited (1995) 3 All ER 534 brought under section 726 of the Companies Act 1985 (the successor to section 447 of the Companies Act 1948). 

12.      The adoption of these principles was confirmed by the Court of Appeal in A E Smith & Sons Limited-v-L'Eau des Iles (Jersey) Limited 1999/319, a case involving a  resident corporate plaintiff that was acknowledged to be insolvent.  Before referring to the Court of Appeal decision, it is relevant to note that in the initial hearing before Le Marquand, Judicial Greffier, (13^th November, 1996) where security was ordered, he made reference to the practice of the Jersey Courts not to order security from plaintiffs resident in the jurisdiction, but recognised an exception to that general practice in the case of impecunious resident corporate plaintiffs following Davest.  In a subsequent ruling on 4^th March, 1999, in which the defendant was seeking an increase in the security ordered, the Judicial Greffier made this observation:-

"In my view, it is clearly unjust that the beneficial owner of the company should be permitted to run the action in the name of his impecunious company without having to furnish security for costs in these circumstances, because that creates an 'uneven playing field' as between the parties".  

13.      It is helpful to set out in full the relevant part of the judgment of Southwell JA in the Court of Appeal:-

"The principles of law relevant in considering whether an order for security for costs should be made by the courts of England and Wales were well-summarized by Peter Gibson, L J in Keary Devs. Ltd-V-Tarmac Constr. Ltd. (2) ([1965] 3 All E.R. at 539-542).  For the purposes of the present application I am content to treat that statement of principles as generally suitable for adoption in Jersey law, while reserving for future consideration some of the details of this statement which may need some reconsideration in the different circumstances in Jersey.  That statement is too long to be quoted fully here, and I summarize the principles as follows:-

(a)       The court has a complete discretion whether to order security. 

(b)       That the plaintiff company will be deterred from pursuing its claim by an order for security is not, without more, a sufficient reason for not ordering security. 

(c)       The court must balance, on the one hand, the injustice to the plaintiff company if prevented from pursuing a genuine claim by an order for security, and, on the other hand, the injustice to the defendant if no security is ordered, the plaintiff's claim fails and the defendant is unable to recover its costs from the plaintiff.  So the court will seek not to allow the power to order security to be used oppressively by stifling a genuine claim by an indigent company against a more prosperous company, particularly when the circumstances underlying the claim and/or the failure to meet the claim may have been the cause or a material cause of the plaintiff company being indigent.  The court will also seek not to be so reluctant to order security that the impecunious plaintiff company can be enabled to use its inability to pay costs as a means of putting unfair pressure on the more prosperous defendant company. 

(d)       The court will broadly take into account the prospects of success in the action, and the conduct of the action so far.  I mention here that it is common ground that the present application is to be decided without dealing with the merits of the cases put forward by either of the parties to the action.  

(e)       The court has a discretion to order security of any amount, and need not order substantial security.

(f)        If the plaintiff company alleges that the effect of an order for security would be unfairly to stifle its genuine claim, the court must be satisfied that, in all the circumstances, the claim probably would be stifled.  The test is one of probability, not possibility. 

(g)       The stage of the action at which security is sought is one aspect of the conduct of the action which the court will take into account. 

In summarizing the principles, I have referred in principle (b) to a party being "deterred" from pursuing its claim and in principles (c) and (f) to a claim being "stifled".  It seems to me to be important to appreciate that there is a range of effects which an order for security may have on a plaintiff, extending from, at one end, possible deterrence, through probable deterrence, possible stifling, probable stifling to inevitable stifling at the other end of the range.  There are shades of grey, not black and white, dividing "deterrence" from "stifling"."

14.      It is relevant to note that Keary was a case involving a resident (to England) corporate plaintiff and was brought under section 726 of the Companies Act 1985, the successor as previously noted to section 447 of the Companies Act 1948.  Quoting from the judgment of Gibson LJ:-

"In Kloeckner & Co AG-v-Gatoil Overseas Inc (unreported 16^th March 1990) Bingham L.J. sitting as a single Lord Justice on an appeal from the Registrar of Civil Appeals, who had ordered for security for costs under Order 59 Rule 10(5), pointed out that the system of justice which prevails in this country is founded on the premise that the interests of justice are ordinarily best served if successful litigants recoup the costs of their litigation, or the bulk of those costs, and unsuccessful litigants pay them.  He said that that being the fundamental approach, it was not surprising that the question arose: what should be done, if it appeared that a defendant, if successful, would not be able to enforce an order for costs in his favour against the plaintiff?  The answer, though not a comprehensive one, was, he said to be found in the rules of the Supreme Court, Order 23 Rule 1, and section 726(1) of the Companies Act 1985, to which might be added a reference to Order 13 Rule 8 of the County Court Rules. 

Section 726(1) provides:-

"Where in England and Wales a limited company is plaintiff in an action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the defendant's costs if successful in his defence, require a sufficient security to be given for those costs, and may stay all proceedings until the security is given."

15.      In Les Pas Holdings-v-Receiver General 2002/131, Page, Commissioner, adopted Southwell J A's summary in A E Smith, subject to this qualification:-

"There is a well-established line of authority in Jersey, illustrated by Davest Investments Limited-v-Bryant (1982 JJ 213), to the effect that it is not normal practice for an order for security for costs to be made against a plaintiff resident within the jurisdiction - as the Plaintiff is.  It was common ground in the present case that this is so and Dr Kelleher, not surprisingly, took this as his starting point for resisting the application.  I note that Davest was cited in argument in Smith-v-L'Eau des Iles, though is not mentioned in the judgment of Southwell J A.  It may be that it was one of the matters that he had in mind when he spoke of reserving certain matters for further consideration having regard to circumstances in Jersey.  But it cannot, I think, represent anything more than an indication of what might be called "normal" practice and certainly does not preclude the court from exercising its undoubted, wide discretion to order security where justice so requires, or - as Dr Kelleher put it in his skeleton argument - "in exceptional circumstances"."

16.      The adoption by the Courts of Jersey of the principles applied under English law for the ordering of security for costs was confirmed by Sumption, J. A. in Leeds United-v-Admatch [2009] JLR 186 at paragraph 10:-

"....in practice the principles applied in this jurisdiction have developed by analogy with those applied in England.  In England, it has for many years been the practice, supported by specific power in the rules, to order security for costs to be put up by a plaintiff who resides outside the jurisdiction and has no substantial assets within it.  At one time, the defendant was regarded as being entitled to such an order as of right. But, in Sir Lindsay Parkinson & Co Ltd-V-Triplan Ltd the Court of Appeal in England rejected that view and held that security should be ordered only when the interests of justice required it.  That decision, however, had less impact on the practice than might have been expected.  The English court started from the premise that a defendant ought not to have to pursue a foreign-resident plaintiff abroad for his costs.  The mere fact of his non-residence was therefore enough to make it just to order security unless (i) the plaintiff could be seen , even at the interlocutory stage, to have a high probability of success, or (ii) the plaintiff's financial situation was such that an order for security would be likely to stifle a claim that was at least arguable.  In Jersey, these principles were endorsed by this court, after many years in which they had been applied in practice, in A.E.Smith &Sons Ltd-V-L'Eau des Iles (Jersey) Ltd."  

17.      The history of the exercise of the jurisdiction to order security under English law was explained  by Millett J in DSQ Property Co Limited-v-Lotus Cars Limited (1986) 1 WLR 127 where he says this at page 128:-

"Before 1786 the jurisdiction to require a plaintiff to provide security for costs was seldom exercised, and then only in special circumstances such as the case of a nominal plaintiff.  Neither lack of means nor foreign residence was a ground for ordering security for costs.  The policy was one of free access to our courts for all, rich and poor, English and foreign.  This was to change later, but to this day an individual plaintiff resident in England cannot be required to provide security for costs merely because he is unlikely to be able to meet an order for costs made against him. 

In the 18^th century this applied equally to foreign residents.  Over and over again the courts refused to order security for costs against plaintiffs merely because they were resident out of the jurisdiction.  Pray-v-Edie (1786) 1 Durn-v-E 267, however, marked a dramatic change of practice.  Security for costs was ordered against a plaintiff resident in Georgia on the sole ground that he was resident outside the jurisdiction.  The explanation given was that 'if a verdict be given against the plaintiff he is not within the reach of our law so as to have process served upon him for the costs.'  As Bingham J. was later to observe in Wilson Vehicle Distributions Ltd-v-Colt Car Co Ltd [1984] BCLC 93, 94:-

'Security was ordered because of the difficulty and delay of enforcing orders for costs in foreign jurisdictions and for this purpose England, Ireland and Scotland were independent jurisdictions and accordingly foreign to each other.'

The new practice was rapidly established, and came to be applied as universally as the contrary practice had been previously.  In the case of a non-resident plaintiff, the extent of his means, and the value of his assets outside the jurisdiction were irrelevant.  By 1894 the rule that a plaintiff resident outside the jurisdiction with insufficient means within it should, on that ground alone, be required to give security for costs had become 'the inflexible rule of the court': see Crozat-v-Brogden [1894] 2 QB 30.  No inquiry into the strength or weakness of the plaintiff's case was permitted; the rule applied even where the plaintiff sued on a foreign judgment. 

Meanwhile, however, two important changes had occurred.  Section 69 of the Joint Stock Companies Act 1856, re-enacted as section 24 of the Joint Stock Companies Act 1857, and which applied throughout the United Kingdom, gave the courts jurisdiction to require a limited company to provide security for the costs of any action in which it was plaintiff, if there was reason to believe that, should the defendant be successful, the assets of the company would be insufficient to pay his costs.  Section 24 applied only to companies incorporated with limited liability; but it applied to every such company incorporated under the Act in any part of the United Kingdom, whether England, Scotland or Ireland.  In return for the privilege of limited liability conferred on it by the Act, any such company suing in any court in the United Kingdom must concede the obligation to provide security for the defendant's costs if its assets appeared to be insufficient to meet them.  Section 24 was re-enacted as section 69 of the Companies Act 1862, and a similar provision has been included in every Companies Act since then.  The provision now in force is section 726 of the Companies Act 1985."

18.      The position under Jersey law prior to the introduction of the European Convention on Human Rights into our law can be summarised as follows:-

(i)        consistent with the policy that there should be access to the Courts for all, rich or poor, and without detracting from its wide discretion to order security where justice so requires, it was the general practice of the Court not to require resident plaintiffs to provide security for costs because there was reason to believe that they will be unable to meet orders for costs against them, save in the case of resident corporate plaintiffs where security might be ordered on such grounds following the principles set out by the Court of Appeal in A E Smith. 

(ii)       because of the difficulty and delay in enforcing orders for costs in foreign jurisdictions, it was the general practice of the Courts to order security for costs against non-resident plaintiffs with no substantial assets within it unless the plaintiffs' case could be seen even at an interlocutory stage to have a high probability of success or the plaintiffs' financial position was such that an order for security would be likely to stifle a claim that was at least arguable.  

19.      The impact of the European Convention on Human Rights on the general practice of ordering security against non-resident plaintiffs was considered by the Court of Appeal in Leeds in which it was held, quoting from the headnote:-

"The appeal would be allowed and the security would be repaid to the appellant.  Applications for security for costs against non-resident plaintiffs should be assessed on an individual basis and the respondent had not established that there was a real need for security in the present case.  The indiscriminate practice of requiring security for costs from plaintiffs resident outside Jersey constituted discrimination on the ground of status under art. 14 of the European Convention on Human Rights in that it impeded their right of access to the courts under art. 6.  "Status" covered any characteristic personal to an individual, including a person's settled residence or a company's place of incorporation and registration.  The residence of an individual or the incorporation of a company in Jersey conferred a different status from residence or incorporation in the United Kingdom, and discrimination between Jersey and UK litigants was therefore prohibited under art. 14.  The protection of the ability of a Jersey defendant, if successful, to enforce a costs judgment in its favour was a legitimate objective but the indiscriminate practice of requiring security from all non-resident plaintiffs was not a proportionate means of achieving it.  First, it could not be said that, even if a plaintiff's claim would not be stifled by providing security, he would not suffer substantial prejudice, as providing security was likely to have significant financial implications.  Secondly, although in certain cases Jersey defendants might have considerable difficulty in enforcing costs judgments overseas, the appellant, like most non-resident plaintiffs in Jersey, was British and the registration of a costs judgment in the United Kingdom was straightforward and inexpensive.  If it were established that there was a probability that a non-resident plaintiff had no assets or would seek to hide them, security for costs would probably be ordered, unless it would stifle the plaintiff's case.  In the present case, however, there was no basis for making such a finding against the appellant.  The trivial expense of registering a costs judgment in the United Kingdom did not even justify an order for security in the reduced amount that had been allowed by the Master." 

Thus whilst the general practice was found to be unlawful, it remained a legitimate objective in the case of non-resident plaintiffs to protect the ability of defendants to enforce costs judgements in their favour, such objective to be achieved by an assessment of the application on an individual basis.  

20.      A presumption or principle as found by the Master that Jersey resident plaintiffs whether natural or corporate should not be required  to provide security is inconsistent with the decision in Leeds in that it discriminates between plaintiffs on the ground of their residence.  We agree with Mr Journeaux that such a general presumption based on residence would be unlawful.  In our view the protection hitherto given to resident plaintiffs must now be extended to all plaintiffs so that the practice following Leeds should be as follows namely that consistent with the policy that there should be access to the Courts for all, rich or poor, and without detracting from its wide discretion to order security where justice so requires, it will be the general practice of the Court not to require plaintiffs (wherever resident) to provide security because there is reason to believe that they will be unable to meet orders for costs against them save in the case of:-

(i)        Corporate plaintiffs (wherever resident) where security may be ordered on such grounds following the principles set out by the Court of Appeal in A E Smith; and

(ii)       Non-resident plaintiffs who may be required to provide security to meet the legitimate objective of protecting the ability of defendants to enforce costs judgements outside the jurisdiction, such applications to be assessed on an individual basis. 

21.      The proper approach of the Court on an appeal from a decision of the Master is well established:-

"..... This is an appeal from the decision of the Master.  In accordance with long established practice in such cases, the Court has therefore to consider the matter afresh and reach its own conclusion whilst, of course, taking due account of the decision of the Master and the reasons for his decision." (Garfield Bennett-v-Philips 6^th November 2002 Unreported 2002/214). 

22.      The Master in this case did not consider that there was any principle which means that an impecunious Jersey company "must" provide security for costs.  His full reasoning is set out in paragraph 32 of his judgment as follows:-

"In coming to my decision, I have to decide whether there is a principle of Jersey law (as argued by Advocate Journeaux by reference to the Davest case) that security should be considered where there is an impecunious corporate plaintiff.  Advocate Journeaux contended that this principle, as encapsulated in England in the Civil Procedure Rules and the Companies Act 1985 should be applied in Jersey.  Having considered this very carefully, I have come to the conclusion that there is no such principle in Jersey.  There are no equivalent Rules or statutory provisions here.  To import such a specific principle would, in my view, unnecessarily and unjustifiably fetter the discretion of the court in deciding security for costs applications.  That wide discretion is both long-established and well-recognised.  In coming to my decision, therefore, I consider that I must look at all the circumstances of the case and take them into account in making a decision on its merits.  I do not consider that I am bound in the way suggested by the defendant."

23.      Mr Journeaux submitted that his case before the Master was not that security should or must be ordered where there is an impecunious corporate plaintiff, i.e. that there is no discretion in the Court, but as stated in his skeleton argument if the necessary threshold had been met, namely there was reason to believe that the plaintiff company would not be able to pay costs ordered against it (following Jirehouse Capita-v-Beller (2009) 1 WLR 751), there was a presumption that the plaintiff company should be ordered to put up security absent a finding that such an order would stifle the plaintiff's claim.  

24.      We see nothing in the language of the Court of Appeal in A E Smith that supports the existence of such a presumption which we agree with the Master would fetter the wide discretion of the Court made clear in the principles adopted by the Court of Appeal in A E Smith. 

25.      However, it is clear from Leeds that the principles applied in this jurisdiction in relation to ordering security for costs have developed by analogy with those applied in England and specifically from A E Smith that the principles applied by the English courts in exercising their powers under section 726 in relation to corporate plaintiffs have been adopted under Jersey law.  Section 726 provides the English courts with the jurisdiction to order security against corporate plaintiffs but does not set out the principles upon which that jurisdiction is to be exercised.  This Court has the jurisdiction to order security against corporate plaintiffs under the wide provisions of Rule 4/1(4), but in exercising that jurisdiction has chosen in the case of corporate plaintiffs to adopt the principles set out under English law in Keary.  The decision of the Court of Appeal in A E Smith is of course binding on us. 

26.      The Master went on to find that there was a presumption that Jersey resident plaintiffs should not be required to provide security, which presumption applies to both individual and corporate Jersey resident plaintiffs.  At paragraph 33 of his judgment, he stated his view in this way:-

"33.    In my view, the principle which does remain as is clear from the authorities is that in the case of a Jersey plaintiff exceptional circumstances are required before an order for security for costs can or should be made.  I consider that this principle applies both to individual and corporate plaintiffs and it applies to this case."

27.      A E Smith makes no reference to the existence of such a principle or presumption, although as Page, Commissioner, pointed out in Les Pas Holdings this may be one of the matters which Southwell JA had in mind when he spoke of reserving certain matters for further consideration, having regard to the different circumstances in Jersey.  However as we have already stated such a principle or presumption based on residence cannot stand following the decision in Leeds.  

28.       Mr Robinson submitted that before the principles in A E Smith can be applied to a Jersey resident plaintiff there was a preliminary step to be undertaken, namely to ascertain whether there was some feature of the case that was exceptional.  The insolvency of the plaintiff would not itself suffice.  It would vary from case to case but the Court would be concerned with litigation conduct.  He further submitted that the principles set out in A E Smith applied to all plaintiffs whether individual or corporate.  He warned that absent an overriding requirement for exceptional circumstances, the floodgates would be opened for security orders to be made against individual plaintiffs who could be required to put up security unless they could show that their claim would be stifled. 

29.      A E Smith was concerned, however, with a corporate plaintiff and the principles it adopted were drawn from Keary, a case again involving a corporate plaintiff brought under section 726 of the Companies Act.  The language used in Keary is exclusively corporate.  These principles make no reference to an overriding requirement before they are applied and we find that there is no such requirement.  Furthermore there will be no opening of flood gates for orders against individual plaintiffs-the effect of the decision in Leeds as we have said is to extend the protection hitherto given to Jersey resident individual plaintiffs to all individual plaintiffs wherever they reside unless their residence gives rise to difficulties in the enforcement of costs orders. 

30.      Mr Robinson argued that to apply different principles to companies and to individuals is in itself to discriminate on grounds of status.  We doubt that this is the case because it ignores the basic distinctions between a natural person and a company.  In Pearson-v-Naydler (1977) WLR 899, it was held that whereas in the case of a natural person suing as plaintiff the basic rule was that he would not, with certain exceptions, be ordered to give security for costs however poor he might be, in the case of a limited company there was no such basic rule conferring immunity from such liability.  Section 447 of the Companies Act 1948 applied to all companies irrespective of whether or not the company happened to be suing as plaintiff with a natural person as co-plaintiff and conferred on the court a discretionary power to order the company to give security for costs.  In his judgment, McGarry B-C said this:-

"In relation to security for costs, there seems to me to be an essential distinction between natural persons and limited companies as plaintiffs.  For a natural person, the basic rule is that he will not be ordered to give security for costs, however poor he is.  To that basic rule there are certain exceptions, originally evolved in case law but now set forth in the rules of court.  If a natural person is the plaintiff, he will not be ordered to give security for costs unless he is brought within one of the exceptions; and, of course, there may be argument about whether or not a case falls within the exception.  The exception for a plaintiff who is ordinarily resident out of the jurisdiction (whom for brevity may be called a "foreigner") will apply where the sole plaintiff is a foreigner, or all the plaintiffs are foreigners; but in effect it does not apply where the foreigner is co-plaintiff with a person who resides within the jurisdiction.  The exception is merely an exception where the plaintiff is ordinarily resident out of the jurisdiction, or where all the plaintiffs are; and if that is not the case, the basic rule is applied so as to protect all the plaintiffs. 

In the case of a limited company, there is no basic rule conferring immunity from any liability to give security for costs.  The basic rule is the opposite: section 447 applies to all limited companies, and subjects them all to the liability to give security for costs.  The whole concept of the section is contrary to the rule developed by the cases that poverty is not to be made a bar to bringing an action.  There is nothing in the statutory language (the substance of which goes back at least as far as the Companies Act 1862, section 69) to indicate that there are any exceptions to what is laid down as a broad and general rule for all limited companies.  Nor is it surprising that there should be such a rule.  A man may bring into being as many limited companies as he wishes, with the privilege of limited liability; and section 447 provides some protection for the community against litigious abuses by artificial persons manipulated by natural persons.  One should be as slow to whittle away this protection as one should be to whittle away a natural person's right to litigate despite poverty."

31.      The Master took into account the position of the beneficial owner of Café de Lecq, who would be the person funding any security ordered and the potential prejudice of such an order to him.  He expressed himself in this way at paragraph 34 of his judgment:-

"The next question which I have considered is whether, as urged by Advocate Robinson on behalf of the plaintiff, I can have regard to the potential prejudice to a third party funder as well as the plaintiff itself in considering this application.  I consider that I can do so as part of the exercise of reviewing all the particular circumstances of this individual case.  If I were to ignore that prejudice then it would mean that I would be potentially ignoring important and relevant considerations.  I also draw comfort from the extract from the Court of Appeal decision in the Leeds United-v-Admatch case which is cited above at paragraph 25."

32.      The passage in Leeds United-v-Admatch to which he refers is as follows:-

".....we do not accept the Deputy Bailiff's view that, if a plaintiff's claim is not stifled by an order for security, he suffers no substantial prejudice by providing it.  The plaintiff is forced to lay out funds equal to the other side's costs in addition to paying his own, at a time when the court is rarely in a position to form any view of the merits.  The provision of cash security by the usual method of paying it into court has implications for his cash flow which are likely to be significant, even if they are not ruinous.  It ties up funds which would otherwise have been used in his business or deposited at interest.  If the security is not funded from cash balances, it will cause him to incur borrowing or guarantee charges."

33.      We agree with Mr Journeaux that in this passage, the Court of Appeal was explaining how an order for security for costs might give rise to financial implications for a plaintiff in contradiction of the observations of Birt, Deputy Bailiff, in the hearing below that there was no prejudice to a plaintiff at all in making the order absent stifling.  It is not authority to support the proposition that in ordering security against a corporate plaintiff, the Court should take into account any prejudice to its beneficial owner or other backer. 

34.      As Mr Journeaux pointed out there is no authority to support the proposition that the Court can take into account prejudice to a beneficial owner or other backer.  We agree that the Court is concerned with the plaintiff and the effect of any order upon it as a separate legal person.  In Keary, Gibson LJ said this:-

"However, the court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the amount needed from its directors, shareholders or other backers or interested persons.  As this is likely to be peculiarly within the knowledge of the plaintiff company, it is for the plaintiff to satisfy the court that it would be prevented by an order for security from continuing the litigation (see Flender Werft AG-v-Aegean Maritime Ltd. [1990] 2 L1LR 27)."

35.      The issue in this case is therefore whether Café de Lecq can raise the amount needed if security is ordered from its beneficial owner, not the prejudice to the beneficial owner in providing it.  Mr Robinson made it clear that such funding would be made available by the beneficial owner if security was ordered. 

36.      The Master found that if Rossborough succeeded at trial then there may well be assets of Café de Lecq in Jersey against which such orders could be enforced and there is also a possibility of a third party costs order.  The Master expressed himself in this way at paragraph 35:-

"Another factor which I have taken into account in coming to my decision is that put forward by Advocate Robinson regarding the enforcement after trial of any cost orders made by the Royal Court.  He contended that if any such cost orders were made against the plaintiff this would not be a cause of great injustice to the defendant as local enforcement procedures would be available.  These would include the usual procedures relating to property and assets belonging to the company.  In addition, there is also the possibility of third party costs order being made.  I express no view on whether such an order would be appropriate because I consider that it would not be right for me to do so.  I do, however, take note of the possible availability of such a sanction."

37.      There was no evidence before the Master or indeed before us as to the assets of Café de Lecq.  The Master was informed that a new 25 year lease had been negotiated and had value, but no details or valuation were provided.  In any event, Mr Robinson conceded before us that Café de Lecq would not be in a position to meet an adverse costs order from its own assets. 

38.      It is the case, however, that unlike the position in 1982 when Davest was decided, it would be open to Rossborough as a successful defendant to seek a third party costs order against the beneficial owner Mr Reynolds.  Some encouragement for the prospects of such an order can be gleaned from the Court of Appeal decision in Planning and Environment Minister-v-Yates [2008] JLR 486 where it was held that a non party who promoted or funded proceedings by an insolvent company solely or substantially for his own financial benefit would be liable for costs.  The Court of appeal quoted from the judgment of the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd-v-Todd (2004) 1 WLR 2807 at paragraph 29:-

"In the light of these authorities their Lordships would hold that, generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails.  As explained in the cases, however, that is not to say that orders will invariably be made in such cases, particularly, say, where the non-party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests."

39.      Mr Robinson understandably reserved the position of Mr Reynolds should such an order be sought from him following an unsuccessful outcome to these proceedings.  However as Gibson JA said in Keary:-

"....a backer might well be prepared to put up money to assist a company to pursue a case when the trial has not yet occurred, but the same backer would be extremely unlikely to put up money after the trial has been unsuccessfully concluded against the company."

40.      There is no guarantee that Mr Reynolds would not resist a third party order against him should the claim of Café de Lecq fail.  The purpose of ordering security against a corporate plaintiff is to provide a level playing field between the litigants as the Judicial Greffier in A E Smith described it and to give effect to the underlying principle referred to in Keary that the interests of justice are served if the unsuccessful litigant pays the costs of the successful litigant or the bulk of them. 

41.      It is not sufficient in our view, or commensurate with the interests of justice, for the corporate plaintiff to avoid providing security on the basis that the successful defendant has a cause of action against a third party at a time (following trial) when circumstances may have changed, thus potentially propelling the successful defendant into a further bout of litigation against that third party, with all the costs and risks attendant upon any litigation. 

42.      As is clear from the above, we have with respect reached different conclusions to those of the Master on the principles to be applied in this application for security for costs.  Our conclusions are as follows:-

(i)        There is no presumption or principle that Jersey resident corporate plaintiffs are not required to provide security for costs or that security for costs orders will only be made against Jersey resident corporate plaintiffs in exceptional circumstances. 

(ii)       The principles to be applied when considering an application for security for costs against a corporate plaintiff are those set out in A E Smith. 

(iii)      The Court is concerned with the effect of such an order upon the corporate plaintiff, not upon its directors, beneficial owners or other backers. 

(iv)      The possibility that the successful defendant may be able to apply for a costs order against a third party in the event that the assets of the unsuccessful corporate plaintiff are insufficient to meet its costs should not be taken into account. 

43.      We have gone on to apply these principles to the facts of this case.  We discount, as did the Master, Café de Lecq's prospects for success because at this interlocutory stage the merits are not obviously and heavily in favour of either party.  It is conceded on Café de Lecq's behalf that (a) it would be unable to meet an adverse costs order from its own assets and (b) that if a security for costs order is made in the full amount requested, funding will be provided by its beneficial owner and that accordingly the cause of action will not be stifled. 

44.      Thus, applying the balancing exercise set out in A E Smith, there will be no injustice to the plaintiff to an order for costs being made because it can raise the funds from its beneficial owner and therefore it will not be prevented from pursuing its claim.  As against that, there will be an injustice to the defendant if no security is ordered in that if it is successful, it will be unable to recover its costs from the plaintiff.  On the facts as presented, we conclude that the balance of justice is in favour of security being ordered. 

45.      Turning to the question of quantum, the Master said this in his judgment:-

"37.    As I have refused the application I do not need to address questions of quantum of security which were also in dispute.  I would merely say that the amount claimed did cause me to raise a judicial eyebrow!  I do not however, make any decisions on quantum as it is unnecessary and inappropriate for me to do so."

46.      Mr Robinson submitted that the costs estimate of £191,612.99 is wholly excessive.  Rossborough are claiming the time costs of six fee earners in its Jersey lawyers.  It is not reasonable to expect a party to pay the costs of six fee earners working on any given matter.  The number of fee earners will undoubtedly give rise to a significant degree of unnecessary duplication which would not be allowed on taxation and should not be allowed now.  Furthermore, the cost of English solicitors is claimed together with the costs of a QC and junior counsel.  

47.      Rossborough respond by saying that there are two experts on each side dealing with the claimed costs of rebuilding the café and accepted insurance broking standards.  It points to the amount being sought in the claim, namely some £953,000 and argues that the amount sought by way of security is not disproportionate. 

48.      In Procon (G.B.) Limited-v-Provincial Building Co. Limited (1984) 2 All ER at 379, the English court put a stop to a two thirds fixed practice.  Quoting from the judgment of Griffiths LJ:-

"I can see no sensible reason why the court should not order security in the sum which it considers the applicant would be likely to recover on taxation on a party and party basis if the court considers it just to do so.  This, as I understand it, is the practice of the judges in the Commercial court and it is a practice that ought to be followed in the rest of the Queen's Bench Division.  It is, of course, for the party seeking an order for security to put before the court material that will enable the court to make an estimate of the costs of the litigation.  In the normal course of things, it is to be expected that the court will, to some extent, discount the figure it is asked to award.  Allowance will have to be made for the unquenchable fire of human optimism and the likelihood that the figure of taxed costs put forward would not emerge unscathed after taxation.  It is to be observed in the present case that it was this element that led Bingham, J. to make a substantial discount in the order of 19%.  If the estimate includes future costs, these discounts may be large to allow for the possibility of the settlement of the litigation and this will be particularly so if application is made at the commencement of the litigation and costs are assessed on the assumption that the litigation will proceed to a final trial.  In such cases it may be sensible to discount by as much as one-third and I strongly suspect myself that, because some of the masters were doing this where they were asked to estimate security at a very early stage, the note in The Supreme Court Practice emerged in its present form. 

Furthermore, if very little information is put before the court on which it can estimate costs, then again it will be reasonable to make a large discount, particularly when it is borne in mind that, if the security proves inadequate as litigation progresses, it is always possible for a further application to be made for more security.  

But, having said that, it would be quite wrong, in order to avoid the mental discipline involved in examining the particular facts of the case to determine what is a just figure, to apply a rule of thumb and just reduce every estimate by one-third to avoid trouble, and if any such practice has been insidiously developing it is, as I say, time that it was stopped."

49.      We note from A E Smith that we have discretion to order security of any amount and need not order substantial security.  This litigation involves a claim by a local trading company against its local broker and cannot be described as unusually complex.  We do not think it fair in the exercise of our discretion at this stage and absent the detailed examination that would take place on taxation to order security for the costs of two firms of lawyers and of a QC (in addition to junior counsel).  The sums claimed for the English solicitors and for the QC up to trial total £61,029 which we have therefore deducted from the total claimed by Rossborough reducing it to £130,583.99.  In our view, that amount is not likely to emerge unscathed after taxation and we have therefore determined to make a substantial further discount in the sum claimed of 20% bringing the total down to £104,467.20. 

50.      In conclusion:-

(i)        We set aside the order of the Master dated 14th October, 2010. 

(ii)       We order Café de Lecq to provide security for the costs of Rossborough in the sum of £104,467.20. 

(iii)      Pending provision of such security, the proceedings on Court File 2010/85 shall be stayed.

Authorities

Royal Court Rules 2004.

Davest Investments Limited-v-Peter David Bryant (1982) J.J. 213.

Royal Court Rules 1982.

Companies Act 1948.

Edwards-v-Tretol 1985-86 JLR 64.

Heseltine-v-Strachan & Co [1989] JLR 1.

Mayo-v-Cantrade [1996] JLR 176.

Keary Developments Limited-v-Tarmac Construction Limited (1995) 3 All ER 534.

Companies Act 1985.

A E Smith & Sons Limited-v-L'Eau des Iles (Jersey) Limited [1999] JLR 319.

Les Pas Holdings-v-Receiver General 2002/131.

Leeds United-v-Admatch [2009] JLR 186.

DSQ Property Co Limited-v-Lotus Cars Limited (1986) 1 WLR 127.

European Convention on Human Rights.

Garfield Bennett-v-Philips 6th November 2002 Unreported 2002/214.

Jirehouse Capita-v-Beller (2009) 1 WLR 751.

Planning and Environment Minister-v-Yates [2008] JLR 486.

Dymocks Franchise Systems (NSW) Pty Ltd-v-Todd (2004) 1 WLR 2807.

Procon (G.B.) Limited-v-Provincial Building Co Limited (1984) 2 All ER at 379.