High Court considers interesting issues regarding its discretion to grant security for costs
In The New Lottery Company Ltd & Anor v The Gambling Commission [2025] EWHC 1522 (TCC), the High Court rejected applications for security for costs made by the Defendant and an interested party against the Claimants. The applications raised two interesting issues. First, the Court held that it does not have jurisdiction to award security for costs in favour of an interested party joined to the proceedings. Second, when considering whether to make a security for costs order against an otherwise impecunious claimant, the Court may take into account that, as a parent company, that claimant can exercise control over and procure realisation of the substantial assets of a wholly owned subsidiary to satisfy any later adverse costs order made against it.
Background
The underlying dispute concerns a procurement process run by the Gambling Commission for the award of a national lottery licence. The First Claimant is a special purpose vehicle established by the Second Claimant for the purpose of competing in the procurement process. The Claimants were unsuccessful in obtaining the licence and brought proceedings against the Gambling Commission to challenge the procurement process, including alleging that the Gambling Commission breached regulations which governed the running of the competition. The licence had been awarded to another party who were given permission to participate in the proceedings as an ‘interested party’.
The Claimants notified the Defendant and the interested party of their ability to pay any adverse costs order from the substantial assets available to them from their corporate group. However, the Defendant and the interested party separately issued applications for security for costs (i.e. an order from the court that a claimant provide some form of security (often a payment into court) so that the defendant can recover its costs in the event that it successfully defends the claim).
The Court’s jurisdiction to order security for costs does not extend to interested parties
The interested party is not a defendant to the proceedings, therefore, under Civil Procedure Rule (CPR) 25 it had no automatic entitlement to an order for security for costs. However, it argued that the Court had jurisdiction to make such an order pursuant to its general case management powers in CPR 3.1(2)(p), which gives a court power to "take any other step or make any other order for the purpose of managing the case and furthering the overriding objective."
The Court rejected this argument. The Court considered it was not able to rely on its broad discretionary powers to make an order for security for costs in favour of an interested party joined to the proceedings. To do so would circumvent the existing regime for security for costs in CPR 25. The power to order security is clearly set out in the procedural rules (CPR 25.26 and 27), which expressly exclude non-defendants from these rules' application. An express exclusion could not be classified as a lacuna which might otherwise justify the Court making an order under its general case management powers in CPR 3.1(2)(p). The Court considered that, if there were to be an expansion of the CPR to include applications for security for costs by interested parties, that must be a matter for the Rules Committee or for Parliament.
Claimants can rely on their wider corporate group to evidence their ability to pay any adverse costs order
The second issue arose in the Defendant’s application for security for costs. In its application, the Defendant had relied on the ground in CPR 25 that there was reason to believe that the Claimants would be unable to pay their costs if ordered to do so, i.e. the impecunious company ground.
The Court concluded that, on the evidence made available, the Claimants would likely be impecunious on the date any future adverse costs order was made. However, the financial position of the Claimants’ corporate group as a whole was apparently strong. The Court considered that the strong financial position of the Claimants’ corporate group and its ability to liquidate and distribute assets quickly sufficed to defeat the Defendant’s application for security for costs. The Court rejected speculative arguments that directors would not transfer funds or that there was any reason for any genuine concern the Claimants would be put into liquidation to avoid paying an order for costs. The judge was satisfied the Claimants’ corporate group’s intra-company payment mechanism would be adopted in the event of an adverse costs order to put the Claimants into the funds necessary for them to satisfy that order.
Key takeaways
- Interested parties are not entitled to security for costs. The court has power to grant security for costs in favour of defendants only. Interested parties cannot rely on the court’s general case management powers to circumvent the express rules in the CPR.
- Claimants can potentially rely on the financial health of their wider corporate group to evidence an ability to pay any adverse costs order. In exercising its discretion to award security for costs on the ground that a claimant is an impecunious company, a court may consider the company’s control over subsidiaries and access to inter-company support and liquid assets to pay any future adverse costs order.
With thanks to Mathilde Guibert for her assistance in preparing this post.