Security For Costs Under CPR 3.1(5) Ordered As Alternative Sanction To Debarring For Non-Compliance

Where serious but not egregious breaches of costs orders and procedural directions did not justify debarring, the court exercised its discretion under CPR 3.1(5) to order security for costs as a proportionate response to the party’s conduct.

Security for costs CPR 3.1(5) ordered as proportionate sanction for breach of court orders in Commercial Court proceedings

SERIOUS FRAUD OFFICE V LITIGATION CAPITAL LIMITED & OTHERS [2025] EWHC 2876 (Comm)

In Serious Fraud Office & Ors v Litigation Capital Ltd & Ors [2025] EWHC 2876 (Comm) applied to debar Mr Nicholas Thomas from participating in a hearing to determine whether the Harbour Investment Agreement remained enforceable following PACCAR. Harbour relied on Mr Thomas’s failure to comply with a Debarring Directions Order requiring evidence about Dr Gerald Smith’s involvement and funding sources, together with his history of unpaid costs orders. Henshaw J, drawing on principles from Michael Wilson & Partners Ltd v Sinclair and Arrow Nominees Inc v Blackledge, held that while Mr Thomas’s evidence was unsatisfactory and his prior conduct persistent and collusive, debarring was disproportionate. The PACCAR issue was discrete and distinguishable from abuse of process, and outstanding costs orders lacked sufficient nexus to the Enforceability Hearing. However, exercising jurisdiction under CPR r.3.1(5) for breach of court orders, the court ordered Mr Thomas to provide £200,000 security for costs, finding this a proportionate response to his non-compliance where debarring would be unjust in the specific circumstances.

Link to full judgment

In all the circumstances, I am not persuaded that it is abusive for Mr Thomas to have raised the PACCAR argument, or to defend or cross-apply in the Harbour Enforceability Application based on that argument; or, at any rate, that it is sufficiently abusive to justify debarring him from participation in the hearing of that application, either immediately or unless he complies with conditions of the kind proposed (in the alternative) by Harbour.

Citations

Al Saud v Gibbs [2024] EWHC 123 (Comm) The court upheld debarring relief due to failure to comply with costs and disclosure orders, reflecting that such non-compliance can justify serious procedural sanctions, including debarment. Barclay Pharmaceuticals Limited v Mekni [2025] EWHC 1219 (Comm) Demonstrated that failure to comply with court orders regarding compliant pleadings and evidence can lead to debarring orders, showing strict enforcement of procedural compliance. Arrow Nominees Inc & Anr Respondents v Blackledge and Others Appellants [2000] 2 BCLC 167 Established that depriving a party of participation in proceedings is justified only where their conduct has jeopardised fairness, made the judgment unsafe, or constituted such an abuse as to render continuation unjust. Hadkinson v Hadkinson [1952] P 285 Emphasised that a party in continuing disobedience of court orders may be denied a hearing where such defiance impedes justice by obstructing truth ascertainment or enforcement. Assoun v Assoun [No 1] [2017] EWCA Civ 21 Clarified that a ‘Hadkinson’ order barring a litigant from proceedings is a case management order of last resort, applied in cases of wilful contempt to uphold procedural justice. Byers v Ors v Samba Financial Group [2020] EWHC 853 (Ch) Affirmed that debarment or strike-out is a sanction of last resort, appropriate only for serious and deliberate breaches of court orders. JSC VTB Bank v Skurikhin [2021] 1 WLR 434 Stated that abuse of process can arise even without unlawful conduct or dishonesty, requiring a broad merits-based assessment of whether a party is misusing court procedures. Michael Wilson & Partners Ltd v Sinclair [2017] EWHC 2424 (Comm) Set out principles for exercising discretion to impose sanctions for unpaid costs, including need for cogent evidence from the defaulting party and impact on fair proceedings. Siddiqi v Aidiniantz [2020] EWHC 699 (QB) Reiterated that significant weight should be given to unpaid costs orders and the defaulting party’s conduct when considering access to trial or continued participation. Tonstate Group Ltd v Wojakovski [2020] EWHC 1004 (Ch) Confirmed that the connection between unpaid costs and the application or claim at issue is a relevant factor in assessing whether to order debarment. Bochan v Ukraine (No. 2), 5 February 2015 (Grand Chamber) Held that Article 6 ECHR does not guarantee access to reopen finalised litigation unless the extraordinary process is functionally equivalent to an appeal determining civil rights. Financial Conduct Authority v London Property Investments [2022] EWHC 1041 (Ch) Clarified that even when a defence is struck out, the claimant must still demonstrate entitlement to relief at a trial, preserving fairness despite the other party’s default. Komcept Solutions Ltd v Prestige Group [2018] EWHC 1550 (Comm) Approved that orders for money into court under CPR r3.1 may serve as security for costs when linked to litigation conduct and failure to comply with applicable rules or orders. Olatawura v Abiloye [2002] EWCA Civ 998 Indicated that orders for security for costs may be imposed due to prior misconduct or demonstrated lack of will to prosecute or defend economically and proportionately.
X-twitter Youtube Linkedin

Key Points

  • A debarring order is a draconian sanction of last resort, which the court will only impose where a litigant’s conduct puts the fairness of the trial in jeopardy, would render any judgment unsafe, or amounts to such an abuse of process as to prevent the court from doing justice. [59, 60]
  • The court has jurisdiction to order security for costs under CPR r.3.1(5) where a party has failed to comply without good reason with a rule, practice direction or relevant pre-action protocol, and has demonstrated a lack of will to litigate a genuine claim or defence as economically and expeditiously as reasonably possible in accordance with the overriding objective. [107]
  • When considering whether to debar a party for failure to pay costs orders, the court will have regard to the degree of connection between the unpaid costs in question and the claim or application in which the respondent wishes to participate. [63, 86, 99]
  • A submission by a party that they lack the means to pay a costs order or provide security, and that such an order would be a denial of justice, must be supported by detailed, cogent and proper evidence giving full and frank disclosure of their financial position. [62]
  • In exercising its discretion to impose a sanction for non-payment of a costs order, the court will consider all relevant circumstances, including the policy of discouraging irresponsible interlocutory applications, the availability of alternative enforcement mechanisms, and whether the order should be an ‘unless’ order. [62]

"I am satisfied that the court does have jurisdiction to order security here, at least under CPR r3.1(5) (failure to comply without good reason with a rule, practice direction or relevant pre-action protocol). Mr Thomas has breached court orders, both in relation to costs and in relation to the DDO, and an order for security is justifiable in circumstances where Mr Thomas has (in the ways I have already outlined) demonstrated a lack of 'will to litigate a genuine claim or defence as economically and expeditiously as reasonably possible in accordance with the overriding objective'." [§107, quoting Olatawura v Abiloye [2002] EWCA Civ 998]

Key Findings In The Case

  • Mr Thomas failed to discharge four court-ordered costs liabilities due to Harbour and other Settlement Parties—totalling over £350,000—as at the time the Debarring Directions Order was issued in March 2023, and only paid them belatedly in July and October 2024, after the current applications were underway [84–85].
  • Although Mr Thomas paid the majority of outstanding costs orders referred to in the DDO, he remained in default of significant additional costs liabilities, including £334,777.10 arising from contempt proceedings and £112,273.06 awarded by the Isle of Man court, which, while not owed to Harbour directly, affected the asset pool available to the Settlement Parties and were therefore relevant to the security for costs application [84, 99].
  • In considering whether to order security for costs under CPR r.3.1(5), the court found that Mr Thomas had failed to comply with earlier costs orders without good reason and had demonstrated a pattern of litigation conduct inconsistent with the overriding objective, thereby justifying an order for him to provide £200,000 security for costs of his cross-application [107–111].
  • Mr Thomas failed to provide cogent, detailed financial evidence demonstrating an inability to pay the outstanding costs or security, and although his cross-application was supported by third-party litigation funder LitFin, that funder expressly declined to submit to the jurisdiction or provide security, increasing the justification for the order sought [80–82, 105].
  • The court found that the unpaid costs orders relating to separate but related litigation, including the contempt and statutory demand costs, lacked a strong or direct connection with the Harbour Enforceability Application or Mr Thomas’s cross-application, and therefore, while relevant, did not alone justify debarring Mr Thomas from participation in the forthcoming hearing [86, 99].

"When considering debarring for failure to comply with costs orders, it is appropriate to consider the degree of connection between the unpaid costs in question and the claim or application in which the respondent wishes to participate: see Tonstate Group Ltd v Wojakovski [2020] EWHC 1004 (Ch) at [42]-[47]) (Zacaroli J)." [§63]

The Commercial Court’s decision in Serious Fraud Office v Smith (Thomas debarring application) [2025] EWHC 2876 (Comm) illustrates how, where a party’s non-compliance with procedural requirements is serious but does not justify the draconian step of debarring, the court may exercise its discretion under CPR 3.1(5) to order security for costs as a proportionate sanction.

Background

The matter concerned long-running proceedings under the Criminal Justice Act 1988 to enforce a confiscation order made against Gerald Martin Smith. A key element of the litigation was the resolution of competing proprietary claims to assets alleged to be Dr Smith’s realisable property. This included claims by Harbour Fund II LP, which had funded underlying litigation (“the Orb Litigation”) pursuant to a Harbour Investment Agreement. A substantial trial took place before Foxton J in 2021 (“the Directed Trial”), which determined the beneficial interests in the assets, including the establishment of the “Harbour Trust” under which Harbour had priority and Mr Nicholas Thomas was a residual beneficiary. Mr Thomas had fully participated in the Directed Trial, adopting Harbour’s arguments. Following the trial, Mr Thomas engaged in a series of applications and actions which Foxton J found formed part of a co-ordinated attempt to frustrate the outcome of the Directed Trial. In response to this conduct, Foxton J made the Debarring Directions Order (“DDO”) on 31 March 2023. The DDO provided that if Mr Thomas brought a “Relevant Claim”, the claim would be automatically stayed until a “Debarring/Stay Application” was determined. Before that application could be heard, Mr Thomas was required to file evidence addressing the involvement of Dr Smith or his associates in the claim and identifying his source of funding. Following the Supreme Court’s decision in PACCAR, Mr Thomas indicated an intention to challenge the enforceability of the Harbour Investment Agreement. Harbour subsequently issued the Harbour Enforceability Application on 31 October 2024, seeking to confirm the finality of the Directed Trial orders. Mr Thomas issued a cross-application on 28 November 2024, seeking declarations that the Harbour Investment Agreement was unenforceable. Mr Thomas accepted that his cross-application was a “Relevant Claim” under the DDO, triggering the requirement to file evidence and the automatic stay of his application pending the determination of Harbour’s Debarring/Stay Application. Harbour contended that Mr Thomas had failed to comply adequately with the DDO’s conditions and sought orders debarring him from participating in the forthcoming Enforceability Hearing, or, in the alternative, an order for security for costs.

Costs Issues Before the Court

The court was required to determine Harbour’s Debarring/Stay Application, which sought to debar Mr Thomas from bringing further claims or applications connected to the subject matter of the Directed Trial. The specific costs-related issues arising were: (1) whether Mr Thomas’s failure to provide satisfactory evidence concerning the involvement of Dr Smith and his associates, as required by the DDO, warranted debarring him from participating in the Enforceability Hearing; (2) whether Mr Thomas’s history of non-payment of outstanding costs orders justified debarring him; and (3) whether, in any event, Mr Thomas should be required to provide security for the costs of his cross-application as a condition of being permitted to participate further. Harbour’s fallback application, filed on 1 August 2025, sought security for costs in the sum of £290,700.

The Parties’ Positions

Harbour’s position was that Mr Thomas should be debarred from participating in the Enforceability Hearing. It argued that his evidence filed pursuant to the DDO was vague, incomplete and unsatisfactory, particularly regarding the involvement of Dr Smith. Harbour pointed to metadata in Mr Thomas’s witness statements identifying Dr Smith as the “author” and the failure to produce a document Dr Smith had allegedly provided. Harbour also cited a history of unpaid costs orders against Mr Thomas, arguing that a litigant should not be able to continue claims without satisfying existing costs orders. Harbour submitted that an immediate debarring order was appropriate given Mr Thomas’s multiple opportunities to comply and the serious adverse findings already made against him. In the alternative, Harbour sought an order that Mr Thomas could only participate if he provided full further evidence, satisfied all outstanding costs orders, and provided security for costs. Harbour quantified its security for costs application at £290,700, representing a proportion of its costs incurred to date and estimated future costs attributable to Mr Thomas’s cross-application.

Mr Thomas’s position was that he should not be debarred. He contended that his evidence had complied with the DDO, confirming that Dr Smith’s involvement was limited to providing ad hoc, voluntary assistance and background information. He explained the metadata issue by stating his solicitors had used a document from Dr Smith as a “template” but had overwritten all its content. He argued that his cross-application was not an abuse of process but a legitimate attempt to rely on the Supreme Court’s decision in PACCAR. He noted that he had, albeit belatedly, discharged the outstanding costs orders owed to Harbour. He opposed the security for costs application, arguing there had been delay in bringing it and that his funder, LitFin, was under no obligation to submit to the jurisdiction or offer security. He indicated he was in the process of arranging After The Event insurance to address costs concerns.

The Court’s Decision

The judgment was delivered by Henshaw J in the Commercial Court on 5 November 2025. The court refused to debar Mr Thomas from participating in the Enforceability Hearing but granted Harbour’s application for security for costs in a reduced sum.

On the issue of debarring, the court held that while Mr Thomas’s explanation for Dr Smith’s involvement was “unsatisfactory and incomplete” [§69], his misconduct did not make it just to debar him from defending Harbour’s application and pursuing his cross-application. The court observed that Mr Thomas’s previous conduct in the proceedings had been persistent and collusive, aimed at avoiding the consequences of the Directed Trial judgment [§93]. Nonetheless, the discrete PACCAR issue was not itself an abuse of process – it was a distinct legal point arising from a subsequent Supreme Court decision and distinguishable from an obvious abuse involving recycled arguments [§97].

While Mr Thomas had belatedly paid the outstanding costs orders owed to Harbour and most others, the court noted that compliance had been slow and some residual uncertainty remained over a small sum [§85-86]. The court found that the outstanding costs orders, while relevant, did not have a sufficient nexus with the Enforceability Hearing to justify debarment [§99]. The court emphasised that a debarring order is “draconian in its effect” [§59] and, as stated in Byers v Samba, “must be a sanction of last resort” [§60].

On the application for security for costs, the court held it had jurisdiction under CPR r.3.1(5) due to Mr Thomas’s failure to comply with court orders, including the DDO and costs orders [§107]. Henshaw J rejected the argument that Harbour’s application for security had been delayed, finding that the issue had been raised consistently since early 2025 [§108]. However, the court reduced the amount of security sought from £290,700 to £200,000, finding this to be the just amount attributable to Mr Thomas’s cross-application [§110]. The court ordered that security be provided promptly by payment into court or a first-class UK bank guarantee, with the possibility of it being replaced by acceptable ATE insurance if agreed by the parties or directed by the court [§111] and, noting that Mr Thomas had been adjudged bankrupt on 23 September 2025, indicated it would hear further submissions on whether that development affected the form of order [§112].

YouTube player

Additional Security For Costs Ordered For Inquiry And Detailed Assessment Despite Discharge Of Injunction

Unless Orders In Respect Of Outstanding Costs Orders | Can’t Pay Or Won’t Pay?

Security For Costs Application Under CPR 25 | Financial Difficulties and Late Claims

CPR 25.27 | £6m Security For Costs Denied As Escrow Funds In UK Account Deemed Sufficient To Satisfy Any Costs Order

Applications To Stay Enforcement Of Interim Costs Orders | The Principles

Claimant’s Costs Reduced By 40% Due To Chaotic Litigation Conduct

Specialist costs services across the UK

TMC Legal provides expert costs drafting, negotiaton and costs budgeting services together with representation in detailed assessment hearings. Our experienced costs lawyers and law costs draftsmen act nationwide. Contact us today.

SFO V SMITH (THOMAS DEBARRING APPLICATION) [2025] EWHC 2876 (COMM) | MR JUSTICE HENSHAW | INDEMNITY BASIS | SECURITY FOR COSTS | DEBARRING ORDER | CPR 3.1(5) | ABUSE OF PROCESS | CPR 3.4(2)(B) | FINALITY OF LITIGATION | RES JUDICATA | PACCAR [2023] 1 WLR 2594 | LITIGATION FUNDING AGREEMENT | AFTER THE EVENT INSURANCE | NON-COMPLIANCE WITH COURT ORDERS | LITIGATION FUNDING DISCLOSURE | HENDERSON V HENDERSON ABUSE | HADKINSON ORDER | RELIEF FROM SANCTIONS | UNPAID COSTS ORDERS | COLLATERAL ATTACK | THRESHOLD COMPLIANCE | ACCESS TO JUSTICE | COURT’S INHERENT JURISDICTION | DR GERALD SMITH | DR GAIL COCHRANE | MR NICHOLAS THOMAS | HARBOUR FUND II LP | FOxton J | SFO V LCL [2021] EWHC 1272 (COMM) | ORB LITIGATION | CONSEQUENTIALLY APPORTIONED TRUST ASSETS | COMMERCIAL COURT | ATE COVER AS SECURITY | CPR 3.1(3)(A) | MARSHALL ISLANDS LITIGATION | SELF-INTERESTED LITIGATION | CPR 44.2 | LITFIN JUSTICE S.R.O | PROPORTIONALITY OF SANCTIONS | EQUITABLE LIEN | SMITH FEE AGREEMENT | COLLUSIVE BEHAVIOUR IN LITIGATION | COST CONSEQUENTIALS ORDER | FURTHER COSTS ORDERS | SECTION 77 CRIMINAL JUSTICE ACT 1988 | TRUSTEE MISCONDUCT | DEFAULT ON COSTS OBLIGATIONS | CROSS-APPLICATION BARRIERS | METADATA EVIDENCE | BYERS V SAMBA FINANCIAL GROUP [2020] EWHC 853 (CH) | JSC VTB BANK V SKURIKHIN [2021] 1 WLR 434 | MICHAEL WILSON & PARTNERS LTD V SINCLAIR [2017] EWHC 2424 (COMM)