A security for costs application is a way for a party to legal proceedings to get protection against the risk of the other party in the claim not paying their legal costs at the end of the case if they are successful.
What is security for costs?
An order by the court for “security for costs” is intended to give protection (usually to a defendant) against the risk that an order for costs against an unsuccessful opponent might not be satisfied.
- the order will ordinarily require the party subject to such an order (normally a Claimant) to pay money / funds into a specified Court bank account to be held there until the outcome of the case and any liability to pay the legal costs of the losing party is known.
- this can give comfort to Defendant who has no choice but to incur legal costs defending a claim that there is a pot of money available to repay those legal cost if he / she successfully defends the claim.
- otherwise they could be left chasing the Claimant for that money which can often be difficult and expense itself.
Security for costs applications can be quite complicated and the riles need to be followed carefully for them to succeed. The Court has a very wide discretion in deciding whether to order security and in what sum. Historically, the Court has been reluctant to make such an order unless the applicant can meet certain common law criterion required to make such a costs order.
Who can be subject to a security for costs order?
Any claimant who brings a civil litigation claim and who fulfils the necessary conditions (see below) is at risk of a Security for Costs Order being made.
Additionally, any party who funds a litigation claim (even though not directly mentioned) and who stands to profit from the claim may be subject to an Order that they provide Security for Costs.
The Civil Procedure Rules also provide that parties who file an Appeal (whether originally a claimant or defendant) may be subject to an application for an order for security for costs, in circumstances where the appeal process is being misused (although this is likely to be rare, as the Court has safeguards to prevent fruitless appeals being filed).
Applying for security for costs
Where you are faced with a claim that may lead to ongoing litigation (which could last up to 1-2 or more years) then you need to understand how you are going to recover your wasted costs of such legal proceedings.
- in a lot of scenarios, this may persuade a defendant to seek to make an Offer to Settle the claim, as opposed to expending similar sums in legal costs (especially where there is a concern that repayment of such legal costs is unlikely).
- however, when faced with this situation is may be wise (when served with a claim form) to issue an application to the Court that a sum of money be paid into Court as security for any potentially wasted legal costs.
This is best done early – leaving it too late may undermine your request.
All parties should have access to justice and should be able to issue a claim against any legal person in the UK (which includes companies). Accordingly, a request for Security for Costs is an impediment to such rights and so there are rigorous conditions applied by the Civil Procedure Rules as a condition on any such request.
- that the claimant is not a UK resident and is not bound by the Hague Convention; or
- the claimant is not a human being (i.e., a company or other body) and there is good reason to believe they could not meet the defendant’s legal costs; or
- the Claimant has changed its address or is representing another and/or there is a reasonable belief that they would be unable to pay the defendant’s legal costs if ordered to do so; or
- the Claimant is moving or transferring their assets outside of the Court’s jurisdiction.
If you are unable to demonstrate any one of the above, then a Security for Costs Order may not be available to you.
Even where the Court is satisfied that one of the grounds listed above apply, that is not, by itself, enough for an application for security for costs to succeed. The Court still retains an unfettered discretion as to whether an order should be made in all the circumstances and if it is just to make the order.
How much security will be awarded?
It is important to be aware that even if a security for costs order is made, the Court has a wide discretion in determining the amount of security to be ordered.
The Court will not be ignorant to the risk that this type of application could be misused (and such attempts are common) to frustrate a claim and the Court must balance the access to justice for the Claimant with the rights of the Defendant not to be subject to such extensive costs with no ability to recover such losses.
Security for Costs: an overview
Where a claim is threatened or issued at Court, this can lead to a potentially expensive process of dispute resolution for both parties. With the advent of litigation funding, as with well-resourced claimants, then the respective financial strength of each side can be very imbalanced.
As the Courts consider litigation a route of the last resort and are increasingly encouraging parties to resolve their differences through Alternative Dispute Resolution then these provide a less affordable route for the parties to (hopefully) settle their differences and resolve the dispute.
If this does not work, and formal litigation starts, the question is what protection does a defendant have if they think the claim has no merit or is an abuse of process to put the defendant under such pressure that a settlement is almost inevitable?
The answer is the risk of a costs order against the Claimant.
- the Civil Procedure Rules 1998 (which govern Court proceedings in the UK) provide that if a party loses a claim (or loses a defence) then they may pay the legal costs incurred in having to pursue the litigation process to recover such sums (or to defend themselves from such claims).
- these costs aware can be more severe of a party acts unreasonably – see our webpage which deals with costs.
However, a Court order is one thing – but what if the party at fault does not or cannot pay. It is best to plan ahead of this risk and seek Security for Costs.
Each case will depend on its relative circumstances. At Francis Wilks & Jones we act regularly for parties defending claims and seeking security for their potentially wasted legal costs. We can advise and assist on the above matters and whether it is appropriate for such an application to be made or, if you are a claimant, the risk of facing such an application. Contact us today to find out more.
We approached Francis Wilks & Jones following the termination of a large contract by a client on the basis of repudiation. The principal solicitor I dealt with was extremely responsive, assertive and able to redirect the problem against other company which agreed to reinstate the contract fully – with no loss of earnings – and even to pay a substantial sum towards my legal costs! I am very grateful for the assistance of FWJ.A happy company director