Security for Costs – levelling the litigation playing field?

What is it?

An order for security for costs offers protection to a party (usually a defendant) from the risks of their opponent not being able to pay litigation costs if ordered to do so.  The order will usually require the opponent to pay the money into court or provide a bond against which the successful party can subsequently enforce an order for costs.

The ability to apply for security for costs should be considered as an important tactical weapon.  The threat of an application will focus the opponent’s mind on the merits of the case and may therefore assist in the early resolution of speculative or nuisance actions.  For this reason, a carefully made application can do much more than just secure costs.

Who can apply?

An application for security for costs can be made:

• By a defendant against a claimant;
• By a defendant against someone other than the claimant i.e. a third party;
• By a claimant who is a defendant to a counterclaim; and
• At the Courts own initiative, or by a party, against any party, who has failed to comply with a rule, practice direction or relevant pre-action protocol.

Security for costs is particularly important for defendants who (unlike claimants) have no choice about whether they are caught up in court proceedings.  Unless a defendant admits a claim, or the claim is discontinued, he is forced to defend it and incur the costs of doing so.

Are there any time periods?

An application for security for costs should be made promptly, preferably after the acknowledgment of service or defence is filed.  A delay in applying for security for costs can result in no security being granted or in the applicant being deprived of some or all of the costs they have already incurred.

What are the grounds?

Security for costs is only available for specific situations set out in statute and/or the court rules (CPR).  It is also subject to the Court’s discretion.  The grounds include the following:

• A limited company or other body (whether incorporated inside or outside the UK), if there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so;
• A claimant who has changed his address since the claim was commenced with a view to evading the consequences of litigation;
• A claimant who has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him (for example, dissipation of assets, transfer overseas or to places unknown to the defendant); and
• A claimant (whether an individual, company or other corporation) resident out of the jurisdiction.

Is it just to make the order?

The Court will consider all the circumstances of the case when considering if it is just to make an order.  It will try not to fetter the claimant’s ability to make a claim but will also balance the defendant’s interests against those of the claimant.

The Court will always act in accordance with the overriding objective of the CPR which is to enable all cases to be dealt with justly and at a proportionate cost.  This involves a consideration of a number of factors including: the amount of money involved; importance of the case, complexity of the issues; and ensuring the case is dealt with fairly.

In considering whether it is just to make an order for security, the Court will also consider:

• The ground on which the application is based;
• The respondent’s ability to comply with any order made; and
• The likelihood of the claim succeeding i.e. a meritorious claim should not be prevented from progressing due to a requirement to provide security for costs.

In considering an application against a claimant, the court will also take into account:

• Whether the claim is bona fide or a sham;
• Admissions by the defendant; and
• If the claimant’s financial position was caused by the defendant’s actions.

Get in touch

If you have a reasonable prospect of successfully defending litigation and there are genuine concerns about your opponents’ financial position, you should consider applying for security for costs.  For further information, please contact our dispute resolution team on 0161 926 9969 or disputeresolution@mlplaw.co.uk