The company was in financial difficulties but not yet in liquidation. It sold its assets, including a claim against the defendant insurance company, to its principal shareholder Mr. Sood. The company’s action against the defendant was proceeding in the county court and the company had been ordered by the district judge to give security for costs. Mr. Sood applied under the County Court equivalent of R.S.C. Ord. 15, r. 6 to be joined as an additional plaintiff. The judge granted the order subject to a condition that Mr. Sood give security for costs in the sum of pounds 5,000. The reason he gave was that: ‘I think it is important that if the defendant is to be adequately protected here then Mr. Sood should be placed on terms similar to those of the order for security for costs against the plaintiff company . . Of course if he defaults on that, he does not join as a party to the action.’
Held: The court discharged the order. The question was whether it was appropriate for the judge to have exercised his discretion so that the defendant: ‘should enjoy the same protection against costs in relation to Mr. Sood as it already enjoyed against the plaintiff company under the unappealed order of the district judge.’ Sir Thomas Bingham M.R: this was not a proper ground upon which to exercise the discretion: ‘Cornhill is in no worse position than if the company had sold its business to Mr. Sood before bringing proceedings and he had been the plaintiff from the outset. It is in no worse a position than, instead of being joined, Mr. Sood had commenced a fresh action as a plaintiff. And the potential injustice against which the security order was intended to protect Cornhill no longer exists: the company’s action is stayed unless and until it provides the security ordered: but in Mr. Sood it faces a personal plaintiff who is liable to the extent of his available assets to meet any costs order made against him. Depending on his means, he may or may not be able to meet such an order, but the law affords a defendant no protection against costs which may not be paid by impecunious plaintiffs. Had Mr. Sood been ordered to pay, and give security for, the costs occasioned by or thrown away as a result of his joinder, there could in our judgment be no sustainable objection to the order. But we can find no justification for the order in fact made.’
Judges:
Sir Thomas Bingham MR, Auld and Ward LJJ
Citations:
Times 05-Sep-1995, [1995] 1 WLR 1517
Jurisdiction:
England and Wales
Cited by:
Cited – Norglen Ltd (In Liquidation) v Reeds Rains Prudential Ltd and Others; Circuit Systems Ltd (In Liquidation) and Another v Zuken-Redac HL 1-Dec-1997
An assignment of a cause of action by a company in liquidation was valid, even though the dominant purpose was to avoid having to give security for costs, and to get legal aid. In dismissing the argument that the transactions were a device to defeat . .
Lists of cited by and citing cases may be incomplete.
Litigation Practice
Updated: 20 December 2022; Ref: scu.80380