Dispute Resolution analysis: Discussing Brainbox Digital Ltd v Backboard Media GMBH, David Reade QC and Alexander Robson argue that the case is a useful authority for individuals seeking an order for security for costs at an early stage of litigation.
What is the background to this judgment? Why did the freezing injunction require further fortification?
The case concerned an application for the continuation of a freezing order. The claimant company was no longer trading and at the without notice application the court had required a sum to be held by the claimant’s solicitors to fortify the cross-undertaking in damages.
The defendants’ case was that this was not adequate and an unlimited cross-undertaking in damages should be given on behalf of the claimant by another person, on the basis that the sums held by the solicitor may not be adequate to meet any losses which might arise by reason of the freezing order if it was found, subsequently, that it should not have been granted.
What principles did the court apply when considering this aspect of the case? How does the case demonstrate the differences between the basis for an application for fortification and a cross-undertaking?
The court considered the issue of fortification applying the approach in Energy Venture Partners Ltd v Malabu Oil and Gas Ltd  EWCA Civ 1295,  1 WLR 2309. Therefore, the party seeking fortification had to show a good arguable case for fortification. That, the court concluded, required it to show a good arguable case that there was a sufficient risk that some estimated loss has been, or will be caused, by the effects of the injunction which the claimant’s cross-undertaking (and any existing fortification) may not cover. The judge accepted the defendant’s submissions that the court might require that fortification to take the form of an unlimited or limited undertaking by a third party, that was a matter for the discretion of the court in continuing the relief.
How did these principles apply to the case? What can practitioners take away from this part of the judgment?
The judge concluded there was a wide discretion as to the terms on which the relief would be continued. The judge, however, held that it remained necessary for there to be an informed and realistic assessment of the likely amount of the loss when considering whether such a condition should be required. On the particular facts of the case the judge found that, as at the return date, the defendants had not shown a good arguable case that there was sufficient risk that the loss they would suffer, if the injunction was found to have been wrongly granted, would exceed the sums which had been held to be ordered to be held with the claimant’s solicitor. However, those acting for defendants may, in an appropriate case, be able to show a good arguable case for losses that are extensive and difficult to quantify. In those circumstances the case is a useful authority for the proposition that an unlimited undertaking may be required from a party other than the claimant as a condition of the injunction continuing.
On what basis did the defendants seek security for their costs? What principles did the court apply and what did the court decide?
The claimant company met the test under CPR 25.13 for the order of security for costs, on the basis that there was reason to believe that the claimant would be unable to pay the defendants’ costs if ordered to do so. The issue was whether it was just to order security. The claimant submitted that the power should not be exercised before the service of the defence. The claimant argued that, until the defence is served, the issues cannot be identified and that the court will be in a much better position to exercise an informed discretion in relation to a properly targeted application for security for costs at the case management conference if it remains relevant. The claimant further submitted that, before the defence is served, no meaningful advice on the case can be provided to justify an application for after the event insurance and that, to order security to be provided before any such application could be considered, would be selfevidently oppressive.
What does the case indicate about the ability of the court to order security at an early stage in proceedings?
The judge concluded that an application for security at this stage was not oppressive and that applications for security for costs should normally be made promptly as soon as the facts justifying the order are known. There is no requirement that a defendant must first serve a defence before making such an application. Were there to be such a requirement, a defendant may find that an impecunious claimant discontinues having received the defence without any provision having been made for payment of its costs. The case therefore is a useful authority for those seeking an order for security for costs at an early stage of litigation.
David Reade QC is recognised as a leading advocate in commercial litigation and employment law and has appeared in many leading authorities. He has wide commercial experience including freezing and search orders. He has extensive experience of partnership and LLP disputes and has also acted on and advised in numerous minority shareholder oppression claims. David has particular experience both in banking litigation and in litigation involving the sale of complex derivative and interest swap products.
Alexander Robson has a rapidly expanding reputation in commercial litigation and employment law. His commercial litigation practice covers the range of business disputes including contractual disputes, commercial fraud shareholderdisputes, disputes between directors/senior employees, disputes arising out of JVAs, agency disputes (including under the Commercial Agents Regulations), and franchising disputes.
In Brainbox Digital Ltd, David and Alexander were counsel for the defendants, instructed by Karim Bouzidi of Clintons.
Interviewed by Kate Beaumont.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor. This article was first published on Lexis®PSL Dispute Resolution on 19 October 2017.