Security for costs

Civil litigation proceedings are an extremely powerful way of trying to enforce a duty or seek redress for a wrong or an outstanding liability.

However, litigation proceedings can be costly, potentially time consuming, can absorb a fair degree of your life and carry a number of risks. Issuing proceedings is not to be taken lightly.

• where a claimant or defendant has taken advice, they will of course be in a better position to determine whether the litigation proceedings are appropriate, both in terms of whether they have the legal authority on their side and when determining the risk they face.
• however, the existence of legal funding arrangements, third party funders and after the event insurance policies leads to a general public policy risk that litigation may become too accessible

What risks exist where a litigant is funded?

Once funding has been agreed, it is not unusual for the funding aspects to be forgotten about during the course of proceedings and the client to proceed without any further concern for applications made or legal costs consumed (especially as they will not immediately be paying for them).

However, from the point of view of the client’s solicitors and / or the third party funder, there is a need to maintain an ongoing assessment of risk, if anything to limit any unnecessary time or monies spent if proceedings change such that the prospects of success decrease..

However, from a public policy perspective, the risk attached to litigation funding is twofold as follows;

• there is a risk that a third party may seek to take over the claim by reason of their funding and restrict the original party’s decision-making by seeking an order that benefits the funder rather than an order that would have been sought by the original party (for example by seeking early settlement or extending proceedings without the client’s agreement). In such circumstances a third party costs order could be made against the litigation funder or solicitor.
• more importantly, there is also the risk that the original party (who now considers s/he has limitless access to legal advice and support in the proceedings as a result of the funding agreement) could pursue all types of proceedings or applications haphazardly and to the detriment of the defending party. Where these circumstances exist, particularly upon commencement of proceedings, a defendant could apply to the court for security for costs (see below).
• for defendants, the existence of funding could also lead to similar applications and very ambitious defences filed solely on the grounds that there is no personal risk that a costs order will be made against them, as the funder will cover such costs. Human rights legislation means that a defendant cannot be prohibited from access to such funding and from filing any defence s/he considers appropriate. However, where the defence is unrealistic and has no prospects of success, an application may be made to strike out such a defence if the court considers it appropriate to do so and with a view to limiting the escalation of the litigation proceedings and bringing what appears to be a successful claim to a swift conclusion.

Security for costs

An application for security for costs is only available to a defendant to a litigated claim. A claimant cannot make this application to indirectly strike out a defence, although there remains the power to strike out the defence itself.

• security for costs is the payment of a sum of money into court, to be held by the court against the defendant’s exposure to legal costs arising.
• even where the defendant has also entered into a funding arrangement, such an application can be made as the defendant may have a costs liability upon conclusion of the proceedings either with his/her solicitor or a financier, or both.

A security for costs application is an application made to the court within the existing proceedings and is normally sought very early on. There are certain conditions which the court usually requires as part of granting such an order, the most important of which is where there is evidence to believe that the claimant, if unsuccessful, will not be able to pay the defendant’s legal costs.

If an order for security for costs is made in the defendant’s favour, the claim will not proceed until the stated amount of security has been paid into court by the claimant.

Security for costs from third parties

The third party funder can be required to pay security for costs where they share in the proceeds of the claim via a damages based agreement or have taken assignment of the claim.

This balances the interests of natural justice, as the claimant may have third party funding by reason of a lack of financial resources – the consequence of which would be that the defendant has no recourse to recover his/her legal costs in the event the claim is unsuccessful (unless the claimant has after the event insurance).

• however, if a third party funder is subject to an order for security for costs, this may influence its ability to continue funding the proceedings and accordingly these circumstances need to be discussed with the funder at the outset.
• whilst this should not happen, in reality an order for security for costs will almost certainly have an impact on any funding arrangement.

Benefits of applying for security for costs

The benefit of applying for security for costs is that the claimant now faces a very real risk of loss, such that monies have to be paid into court and will be lost if the claim is unsuccessful. Accordingly, this mitigates any risk that litigation funding could become an abuse of process.

Where the defendant is also subject to such a funding agreement, the costs paid by the claimant under a security for costs order will sit with the court and will provide comfort that the risks of funding the defendant are minimised.

At Francis Wilks & Jones we are experienced in both issuing and defending applications for security for costs, either on behalf of funded or unfunded individuals or companies, and we are willing to discuss such arrangements with you.

Please call any member of our commercial litigation team for your consultation now. Alternatively email us with your enquiry and we will call you back at a time convenient to you.