Security for costs: a sensible approach

Guardian Barriers IP Ltd v Global Vessel Security, decided by Judge Hacon on 22 September in the Intellectual Property Enterprise Court (IPEC), England and Wales, is a useful little decision on security for costs. Again, this is an extempore ruling which has been picked up only on the increasingly useful Lawtel subscription-only case note service.

In short both parties, which sold anti-piracy devices for ships, were involved in a patent dispute [somewhat annoyingly Lawtel identifies them only as X and Y: it would cost little but add substantially to the value of the note if the parties' real names were used].  In these proceedings X sought an order for security of costs against Y to the tune of £50,000 [which happens to be the amount at which IPEC costs are capped]. Y's published accounts showed that they only had assets of approximately £1,000 and X, citing an email written by Y's solicitor which stated that their funds were limited, was concerned that, if Y lost the action, it would be unable to pay costs to the sum in question.  Y resisted the application for the order for security for costs, showing documents which, they said, showed prospective orders worth £4 million.  Since, if they lost, they wouldn't be ordered to pay X's costs until after the trial -- which was likely to take place in over a year's time -- they would by then have the funds to do so.  Meanwhile such money as they did have was needed for business growth.

Judge Hacon made the security for costs order.  In his view the prospective orders were not firm orders: most of Y's evidence consisted of documents showing that buyers were interested in the product, but there was no confirmation that they were actually going to place orders. What's more, even if Y did sell £4 million worth of products, there was no guarantee that they would make a profit. Looking at the firm and non-speculative side of things, on the evidence Y would not be in a position to pay X's costs if X succeeded at trial so it was appropriate to make an order.  However, security would be fixed at £17,000 (around one-third of the sum for which security was sought), this being the sum that had already been spent by X.  The issue would be reassessed at a case management conference.

It's always interesting to see how issues like this are handled, particularly since the need to give security for costs is frequently cited by SMEs as a reason for shying away from patent infringement litigation even when it is their own patent that is being allegedly infringed and they have received advice that their case is a strong one.  So far as one can see from the skeletal account of the dispute, Judge Hacon's decision here looks like a good, commonsense one.