Security for Costs: Only a Defendant, and not Interested Party, may obtain an Order for Security for Costs
Mrs Justic Joanna Smith recently considered two interesting points relating to security for costs applications in The New Lottery Company Ltd and another company v The Gambling Commission [2025] EWHC 1522 (TCC). The first, a novel issue, relating to the identity of the party who is seeking the order and, the second, whether a parent company with limited assets may rely upon evidence of its control of a wholly owned subsidiary with financial assets to avoid an order for security for costs. It was found that only a Defendant could succeed in an application for security for costs given the specific wording of CPR 25.26 and the lack of any alternative authority which extended that authority to an Interested Party. The Court was also satisfied as to the financial position of the Claimant given the evidence provided.
Background
The claim related to a procurement process run by the Gambling Commission, for the Fourth National Lottery Licence, which was run between 2019 and 2022. The Claimant was unsuccessful in securing the licence and, as a result brought two claims. The first claim brought allegations relating to the fairness of the scoring process and the resulting decision to award the licence to the First and Second Interested Parties, Allwyn Entertainment and Allwyn International. The second claim relates to the modifications to the Enabling Agreement which governs transition to the Fourth Licence and the Fourth Licence itself. Circa £1.3 billion in damages are claimed.
The scoring claim was issued in April 2022 and was then stayed from August 2022 pending actions seeking to set aside the decision. The stay was lifted in January 2024 and the modifications claim was issued shortly after. In June 2024 it was ordered that the cases should be managed together and that a stage 1 trial on liability should take place in Autum 2024. The interested parties were also permitted to participate in the trial on the basis that Waksman J considered it was “perfectly obvious” that the interested parties would have “separate and distinct interests which they are entitled to protect at trial”. The costs to the stage 1 trial were considered likely to exceed £10 million and consequently, a discussion emerged as to how the Claimants would pay an adverse costs order. The Claimants intended to meet any future costs liability from substantial assets available within its corporate group. The parties engaged in discussions regarding suitable security terms however both the Gambling Commission and Allwyn subsequently issued applications for security for costs in March 2025.
The Claimants submitted that there was no reason to believe that the Claimants would be unable to pay and that the threshold “impecuniosity condition” was not met. It was further submitted that Allwyn lacked standing to bring the application.
Legal Principles
The Court considered the relevant principles under CPR 25.26 and 25.27.
The Court also helpfully set out a number of further accepted principles that are relevant to proposed orders of this nature:
- CPR 25.27(b)(ii) is not a question for the court’s discretion but is an issue of fact (Infinity Distribution Ltd (In Administration) v The Khan Partnership LLP [2021] EWCA Civ 565))
- The burden to demonstrate impecuniosity is on the Defendant and it is not for the Claimant to illustrate it has means to pay (Phaestos Limited and others v Peter Ho and others [2012] EWHC 622 (TCC))
- The test is not “on the balance of probabilities”; there must be “reason to believe” the Claimant will not be able to pay (Jirehouse Capital v Beller [2008] EWCA Civ 908))
- If the Claimant choses to not to provide information to address financial concerns raised, that in itself can lead to a belief that the Claimant is unable to pay (Phaestos Limited and others v Peter Ho and others [2012] EWHC 622 (TCC))
- The focus should be from the Claimant’s net, rather than gross, assets (Pisante v Logothetis [2020 EWHC 3332 (Comm))
- Illiquid assets are not a good answer to the application (Wright v Coinbase Global Inc [2023] Costs LR 1403)
- The Court must consider both the Claimant’s current ability to pay and the ability to pay at a future date on which a potential costs award may be made (Thistle Hotels Ltd v Gamma Four Ltd [2004] EWHC 322 (Ch), [2004] 2 BCLC 174)
- Even if impecuniosity is satisfied, the court’s power is discretionary
Allwyn’s Application
Allwyn applied for security for costs orders under CPR 25 and CPR 3.1. It was accepted that CPR 25 referred specifically to a “Defendant” however it was submitted that the court’s jurisdiction was extended to interested parties under CPR 3.1. The Court’s power to “take any other step or make an order for the purpose of managing the case and furthering the overriding objective” under CPR 3.1.(2)(p) was submitted to be broad enough to permit an order in favour of an interested party, particularly given that Allwyn had extensive rights of participation in this instance and there was a high likelihood of an order being made in its favour. A number of authorities were relied on to demonstrate the broad jurisdiction under CPR 3.1 however the Court did not agree that these authorities provided a means to circumvent the provisions of CPR 25. It was noted that the case law referred to by the Interested Parties largely referred to CPR 3.1(3) and (5) with regards to payments into court and did not provide authority for the Court to make a security for costs order in favour of an Interested Party.
The Court also agreed with the Claimant that due consideration should be provided to CPR 3.1(2) which makes it clear that the Court should exercise its case management powers except where the rules otherwise provide. There is no existing procedure for an order for security for costs to be made in favour of an interested party and there is good reason for this; a Defendant has no choice but to defend proceedings whereas an interested party voluntarily assumes the risk that an opponent may not be able to pay. It was noted that, if there was to be an expansion of CPR 25, this would be a matter for the rules committee and not for the Court.
Gambling Commission’s Application
The question in respect of this application was whether the impecuniosity threshold had been met. The First Claimant had been set up as a special purpose entity solely for the purpose of the competition. Its company accounts demonstrated that it had net liabilities of £1.7 million and did not appear to be trading. The Second Claimant, which is the parent of the First Claimant and owns 16 subsidiaries, is a publicly listed company with assets of £174.5 million, with most of these assets being held in subsidiaries. Detailed information was provided with regards to the assets of the Second Claimant and it was explained that the Second Claimant essentially operated as a finance vehicle within the Group. It was demonstrated that significant liquid assets would be available quickly, if needed. It was agreed that the First Claimant would not be able to satisfy a costs award on its own but that its financial position should not be considered in isolation as this would lead to an erroneous conclusion about the Group. It was confirmed that the Group would continue to fund the litigation as needed.
Decision
The impecunious position of the Claimant was accepted by the parties however the question was whether the wider position of the Group could be considered. The Defendants alleged that it is the Claimant’s financial position that it relevant and that no evidence of an enforceable mechanism for payment of any adverse costs order had been provided. The Claimant submitted that the question of ability to pay was in fact a factual one which should be determined on evaluation of the available evidence.
The Court found in favour of the Claimants; it could not be properly concluded that there was reason to believe the Claimant would be unable to pay any costs order. The Group was profitable and had assets to pay. Any failure to pay would be in contention with the Directors’ duties. As such, no orders for security were made.
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