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Security for costs

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Security for Costs

Security for costs is a procedural mechanism in civil litigation whereby the court orders a party (usually the claimant) to provide security for the potential costs of the opposing party if the claimant's case is unsuccessful. This provision aims to protect the defendant from being unable to recover their legal costs if they prevail in the case and the claimant cannot pay due to insolvency or other reasons. Security for costs is particularly relevant in cases involving claimants from outside the jurisdiction or where there is concern about the claimant's financial stability.

Circumstances Justifying Security for Costs

The court may order security for costs under several circumstances, including:

  • ★ Claimant's Financial Instability: If there is evidence that the claimant may not be able to pay the defendant's costs if ordered to do so, the court may require the claimant to provide security.
  • ★ Claimant Residing Outside the Jurisdiction: When the claimant resides outside the jurisdiction and it may be difficult to enforce a costs order, security for costs can be ordered to mitigate this risk.
  • ★ Corporate Claimants: If the claimant is a company and there is reason to believe it will be unable to pay the defendant's costs due to insolvency or lack of assets, security for costs may be ordered.
  • ★ Previous Conduct: The court may consider the claimant's previous conduct in litigation, including whether they have a history of not paying costs orders.

Procedure for Applying for Security for Costs

The application for security for costs follows a specific procedure:

  • ★ Application Notice: The defendant must file an application notice, supported by evidence, outlining the reasons why security for costs should be ordered. This includes demonstrating the grounds for the application and the amount sought as security.
  • ★ Supporting Evidence: The evidence should include details of the claimant's financial position, any relevant jurisdictional issues, and the estimated costs the defendant seeks to secure.
  • ★ Court's Discretion: The court has broad discretion to grant or refuse security for costs. It will consider the strength of the claimant's case, the amount of security requested, and whether the order would stifle the claimant's ability to pursue their case.
  • ★ Terms of Security: If granted, the court will specify the amount and form of the security, which can include payment into court, a bank guarantee, or other suitable forms of assurance.

Example 1 - Security for Costs Ordered

Scenario:

In a contract dispute, Defendant G applies for security for costs against Claimant H, a foreign company with limited assets in the jurisdiction. G argues that if they win, enforcing a costs order against H will be challenging.

Outcome:

The court grants the application, ordering H to pay £50,000 into court as security for G's costs. The court finds that there is a real risk that G would not be able to recover their costs if they prevail, given H's lack of assets within the jurisdiction.

Example 2 - Security for Costs Refused

Scenario:

Claimant J, a small UK-based business, sues Defendant K for breach of contract. K applies for security for costs, arguing that J's financial statements indicate potential difficulties in paying costs if K wins.

Outcome:

The court refuses the application, determining that ordering security for costs would unfairly stifle J's access to justice. The court finds that J has a reasonable chance of success, and the financial evidence does not sufficiently demonstrate an inability to pay costs if required.

Security for costs applications must balance protecting defendants with ensuring claimants can pursue legitimate claims. The court will consider:

  • ★ Stifling the Claim: The court must avoid making orders that prevent a claimant from pursuing a legitimate claim due to financial constraints.
  • ★ Reasonableness of Security Amount: The amount of security ordered should be reasonable, reflecting the estimated costs but not excessively burdening the claimant.
  • ★ Timing and Compliance: The court sets deadlines for providing security. Failure to comply may result in a stay or dismissal of the claim.

Conclusion

Security for costs is a critical tool in civil litigation, providing protection for defendants against the risk of unrecoverable costs. While it ensures fairness by safeguarding a party's potential costs recovery, it also requires careful judicial consideration to prevent unjustly barring access to justice. Understanding the grounds for and implications of security for costs orders is essential for both claimants and defendants in managing litigation risks and strategies.

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