Relief from Sanctions Refused for Non-Compliance with a Security for Costs Unless Order Where “Impossibility” Is Not Proved, Diligence Is Lacking, and No Practical Route to Compliance Is Offered
Introduction
In Taha Pharmaceuticals v Capsugel Belgium NV [2026] EWCA Civ 38 (29 January 2026), the Court of Appeal (Civil Division) refused permission to appeal against
two Technology and Construction Court (TCC) orders refusing to reinstate a claim that had been struck out for breach of an unless order requiring substantial
security for costs.
The claimant/applicant (Taha Pharmaceuticals) alleged that it purchased a capsule sealing machine that was supplied with used or poor components (breach of contract), alternatively that it was dishonestly represented to be new (misrepresentation).
The defendant/respondent (Capsugel Belgium NV) sought security for costs. Following prolonged delay and earlier non-compliance with a prior security order (made by Eyre J in January 2024),
Deputy High Court Judge Alan Bates made a carefully structured Unless Order on 21 January 2025 requiring security of £800,000 by 21 May 2025, with a “safety valve” requiring £50,000 plus an on-notice extension application in default.
The claimant did not comply. The claim was struck out on 4 June 2025. The claimant then sought (i) to set aside the strike-out and/or obtain relief from sanctions (refused on 1 August 2025 on the papers), and (ii) to vary/revoke that refusal (refused on 13 August 2025).
The core issue on the renewed application for permission to appeal was whether the judge had misapplied the relief-from-sanctions framework in
Denton & Others v TH White Limited.
Summary of the Judgment
The Court of Appeal (with Lewison LJ agreeing) held there was no real prospect of successfully appealing the refusal of relief from sanctions. The key points were:
- The breach of the Unless Order was serious and significant to the highest degree, having stalled the litigation for years at the pleading stage.
- The judge was entitled to find the default was due to the claimant’s lack of diligence, not true impossibility.
- The claimant’s communications with Tunisian authorities were misleading and counterproductive (e.g., describing the case as “fraud/criminal” and implying the money would be paid to the defendant rather than into court), undermining its “beyond control” narrative.
- The claimant failed to explore alternative forms of security expressly contemplated by the Unless Order (e.g., bank guarantee, undertaking), and offered no evidence it could even pay/secure the £50,000 required to unlock an extension application.
- Stage 3 of Denton was not misapplied: read in context, the judge did “stand back” and evaluate all circumstances, including the non-stifling principle and proportionality.
- Even if relief were granted, the claim would remain stayed in limbo because the claimant still asserted it could not comply—making relief unjust and impractical.
Permission to appeal was refused. The 13 August 2025 revocation refusal added nothing of substance.
Analysis
Precedents Cited
Denton & Others v TH White Limited [2014] 1 WLR 3926
Denton supplies the definitive three-stage approach to relief from sanctions under CPR r.3.9:
(1) seriousness/significance of the breach; (2) why the default occurred; (3) all the circumstances, including efficiency/proportionality and compliance with orders.
In this case, the claimant conceded stage 1; the dispute was about stages 2 and 3.
The Court of Appeal’s reasoning is a textbook illustration of how stages 2 and 3 are often determinative where breach is grave: a party must show a credible, evidenced explanation and a realistic compliance pathway.
The court emphasised that “all the circumstances” includes promptness, prior history, and the practical consequences of granting relief (including whether it would simply prolong an unmanageable stay).
The court relied on Abdulle for the principle that, when considering relief from sanctions following breach of an unless order,
the court will not generally re-open the question of the proportionality of the unless order itself. That proportionality assessment is ordinarily “spent” when the unless order is made.
This mattered because the claimant’s “proportionality” arguments risked sliding into an impermissible collateral attack on the original security regime.
The claimant “wisely” did not seek to challenge the Unless Order’s proportionality on appeal.
The court noted that Michael Wilson & Partners v Sinclair was not authority to the contrary of the Abdulle principle.
The mention functions as a boundary-setting move: parties cannot cite general appellate comments to reopen settled case-management decisions when the real issue is compliance with an unless order.
The claimant relied heavily on Michael v Lillitos, a first-instance decision applying Denton.
The Court of Appeal distinguished it on multiple factual axes:
- In Michael, the breach was at the bottom end of seriousness and did not impede efficient, proportionate conduct of litigation.
- There was no comparable background of prior non-compliance.
- There was a factual nuance favouring relief (a rent cheque held without rejection), absent here.
In contrast, this breach entrenched years of stasis, with prior failures to provide ordered security and substantial unpaid costs.
The distinction underscores that security-for-costs breaches often engage systemic fairness to defendants and the integrity of the “loser pays” regime, making relief harder where the claimant has effectively sought to litigate without financial discipline.
Legal Reasoning
1) Stage 1 (Seriousness and Significance)
Stage 1 was conceded. The court nevertheless stressed the breach was of the “highest degree”:
for around three years after issue, the case remained at the pleading stage, largely because security issues caused prolonged stays.
The litigation could not be conducted “efficiently and at proportionate cost” (CPR r.3.9(1)(a)), and non-compliance with orders was persistent (CPR r.3.9(1)(b)).
2) Stage 2 (Why the Default Occurred): “Impossibility” Rejected
The claimant’s central narrative was “external sovereign regulatory constraints” (Tunisian currency controls / Central Bank refusal) making compliance impossible.
The court held that the judge was entitled—indeed plainly correct—to reject that framing.
The Court of Appeal’s stage 2 analysis is structured around a cumulative evidential critique:
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Post-order inertia: after the Unless Order there was minimal engagement with the defendant or the court and only intermittent correspondence with Tunisian authorities—supporting a finding of non-diligence.
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Mischaracterisation and needless escalation: describing the dispute as “fraud/criminal” (especially where the claimant initiated criminal proceedings) was found to be counterproductive and unnecessary, since the dishonesty pleading did not drive distinct losses beyond the contract claim.
The court agreed that portraying it as ordinary commercial litigation would have maximised the chance of authorisation.
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Misleading assertion about payment destination: the claimant suggested the £800,000 would be paid to the defendant, rather than into the Court Funds Office. The court agreed this was factually wrong, and it gave the “worst possible impression.”
No adequate explanation was provided.
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Inference of tactical non-compliance: the court went further, stating the “only possible explanation” for the misrepresentations was that the claimant wanted refusal so as to litigate without putting up security—i.e., to pursue “risk-free litigation.”
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Refusal was foreseeable and rational: the Central Bank’s reasons (security disproportionate to asset value; heavy legal spend; unclear refund conditions) were treated as sensible and predictable, not arbitrary obstruction.
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Failure to pursue alternative security: the Unless Order permitted multiple forms of security (bank guarantee, undertaking, etc.). There was no evidence the claimant tried any.
This was decisive: if transfer of cash was genuinely blocked, a diligent litigant would seek other routes.
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The “£50,000 safety valve” was not shown to be impossible: the claimant argued it could not trigger the extension mechanism because it could not transfer £50,000.
The court rejected this: there was no evidence the claimant even sought authorisation for £50,000, nor that it could not provide security via other permitted means.
The result is an important practical holding: where a party relies on external regulatory barriers, it must provide
clear, candid, complete evidence of diligent efforts and must demonstrate it pursued
all reasonable alternative compliance methods contemplated by the order. Otherwise, “impossibility” collapses into “choice.”
3) Stage 3 (All the Circumstances): Contextual Reading of Reasons
The primary attack was that the judge failed to “stand back” at stage 3 and consider all circumstances, including proportionality and the non-stifling principle.
The Court of Appeal rejected a “narrow, structuralist” reading and insisted the reasons must be read in context:
the judge had repeatedly assessed the overall position across three reasoned decisions (Unless Order; strike out; refusal of relief).
Three key points emerge:
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No closed mind: references in the refusal reasons (“given the background set out above”; “my assessment of the relevant circumstances…above”) demonstrated that the judge’s stage 3 evaluation incorporated the wider history and was not predetermined.
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Only genuine “factor in favour” was already accounted for: the claimant’s bona fide claim and the court’s desire not to stifle it were expressly considered when making the Unless Order. But those considerations were outweighed—both then and later—by persistent default and prejudice to the defendant.
The court observed the claimant could identify no other countervailing features.
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Proportionality did not save the claimant: the court rejected the notion that striking out a bona fide claim is automatically disproportionate.
To accept that would make the security-for-costs regime “redundant,” allowing endless delay and refusal to comply.
Proportionality had already been embedded in the January balancing exercise and could not be relitigated.
4) Agency and Solicitors
The claimant suggested its solicitors bore responsibility. The court treated this as largely irrelevant:
solicitors are agents; their failures are generally attributed to the party. Moreover, the crucial correspondence with Tunisian authorities was conducted by the claimant itself.
The criticism of Kennedys (that they should have applied for variation before 21 May) failed on the facts: they had no proper instructions or evidential basis until the eve of expiry.
5) Futility / “Limbo” Consideration
A significant (and practically oriented) aspect of the court’s reasoning was: what would happen if relief were granted?
The claimant still asserted it could not provide security. Reinstatement would therefore likely restore a stayed claim “in legal limbo.”
This is a powerful stage 3 factor: relief from sanctions is not an abstract indulgence; it must advance a just and workable litigation trajectory.
Impact
Although the decision applies well-established principles, it clarifies and strengthens several operational messages for security-for-costs litigation and relief applications:
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“Impossibility” requires disciplined proof: parties invoking foreign regulatory barriers must show diligent, transparent engagement and must avoid misstatements that undermine credibility.
Courts may infer deliberate non-compliance where a party’s own communications appear designed to trigger refusal.
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Alternative security is not optional: where an order lists acceptable forms of security, a claimant must evidence genuine attempts to use them if one route (e.g., cash transfer) is blocked.
Failure to try will usually defeat stage 2 and heavily damage stage 3.
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Relief is unlikely where reinstatement changes nothing: if the applicant cannot propose a credible plan to comply or progress, relief may be refused as futile and disproportionate.
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Security-for-costs discipline is integral to “loser pays”: the court explicitly rejected any approach under which bona fide claims can resist strike-out simply by asserting disproportionality—protecting defendants from being forced into unsecured, stalled proceedings.
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Re-opening the Unless Order is generally barred: consistent with The Commissioner of Police of the Metropolis v Abdulle [2015] EWCA 1260, proportionality challenges to the unless order itself are usually out of bounds at the relief stage.
Complex Concepts Simplified
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Security for costs: money (or equivalent protection) a claimant may be ordered to provide to ensure the defendant can recover its costs if it wins—especially relevant where enforcement risk is high.
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Unless Order: a conditional order that imposes an automatic sanction (here, strike-out) if the party does not comply by a specified date.
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Strike-out: termination of a claim (or defence). When triggered by an unless order, it is often effectively final.
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Stay: the case is paused; no steps can be taken until the stay is lifted (here, generally tied to providing security).
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Relief from sanctions (CPR r.3.9): the court’s discretionary power to disapply a sanction for breach, assessed via the Denton three-stage framework.
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“All the circumstances” at Denton stage 3: a broad evaluative judgment that includes (but is not limited to) efficient conduct, compliance culture, prior history, promptness, prejudice, and whether granting relief would lead to a workable litigation plan.
Conclusion
Taha Pharmaceuticals v Capsugel Belgium NV confirms a stringent approach to relief from sanctions where a claimant breaches a security-for-costs unless order after prolonged default.
The Court of Appeal endorsed findings that the claimant’s non-compliance was not truly beyond its control: the claimant’s lack of diligence, misleading communications with foreign authorities, and failure to pursue alternative security mechanisms defeated the “impossibility” case at Denton stage 2 and made relief unjust at stage 3.
The decision reinforces that the security-for-costs regime is not a formality: it is a core mechanism protecting defendants within the “loser pays” system, and courts will not permit claimants to keep claims alive in a stayed, unsecured limbo—especially where the evidence suggests an attempt to litigate without financial risk.