Paul Lomas welcomes clarification of community law.

Paul Lomas is a partner at Freshfields.

In Chequepoint v McClelland 6/6/96 (Phillips and Aldous LJJ and Bingham LCJ, still sitting as MR), the Court of Appeal expanded on the relationship between the Rules of the Supreme Court and the Treaty of Rome.

The case concerned whether or not the treaty conflicts with order 23 r.l insofar as it permits an order for security for costs from a foreign EC company. It is usually discriminatory for security to be awarded against an EC resident (following the Court of Appeal in Fitzgerald v Williams) because it is not available on the same grounds against a litigant resident in England or Wales. This reflects the judgment of the European Court of Justice in Mund & Fester, where it held that although such provisions seem to rest on residence, they constitute covert discrimination on grounds of nationality, thereby breaching the treaty.

However, under section 726 of the Companies Act 1985, English (but not EC) companies can be subject to security for costs if they may be unable to pay the successful defendant's costs. In this case the test under Order 23 r.l is different: whether (a) the plaintiff is ordinarily resident outside the jurisdiction and (b) the claim is just.

Chequepoint argued that, following Mund, Order 23 r.l discriminated against a French company, as the tests were different; order 23 was to be disapplied in principle and hence was inapplicable to it.

McClelland argued that the only issue was whether order 23 could be operated consistently with the treaty; that it could by use of the discretion; that an EC company could not be immune from security for costs while both an English company and a non-EC foreign company were exposed. It was not contrary to EC law to level the playing field in such circumstances.

The court accepted McClelland's submissions. Discriminatory usage of the order conflicted with the treaty, but to use a discretion consistent with the English position prevented discrimination. Security would be ordered if the plaintiff would have been so obliged if it were English.

This was a lucid approach to a delicate issue, submitted in accordance with EC law.

A rule is only disapplied to the extent necessary. To act as to put nationals of your own member state on an even footing does not itself breach the treaty.