Security for costs

Question 1

What is security for costs?

Answer 1

This is an application made by a person in the position of the defendant (the applicant) who is concerned that the claimant (the respondent) will not be willing / able to pay the defendant’s costs should the claim be successfully defended.

Question 2

Who can an application for security of costs be made by?

Answer 2

*The defendant against a claimant

*A claimant against the defendant in respect of a counterclaim

*A third party against a defendant in respect of an additional claim.

Question 3

What grounds must be satisfied for security for costs?

Answer 3

1. Having regard to all the circumstances of the case, it is just to make an order; and
2. One or more of the prescribed conditions in the rules are satisfied.

Question 4

What are the `conditions’?

Answer 4

1. The claimant is resident out of jurisdiction (but is not resident in a State bound by 2005 Hague Convention)
2. The Claimant is a company and there is reason to believe it will be unable to pay the defendant’s costs if ordered to do so.
3. The claimant has taken steps in relation to assets that would make enforcement of a costs order against it difficult.
4. The claimant changed address since claim was commenced with a view to evading the consequences of the litigation.
5. The claimant failed to give an address in the claim form.
6. Claimant is acting as a nominal claimant and there is reason to believe it will be unable to pay the defendant’s costs if ordered to do so.

Question 5

In relation to the claimant resident out of jurisdiction condition' what is the meaning of resident’ in relation to a company and individual?

Answer 5

Individual: their habitual or normal residence

Company: where the company’s central management and control is exercised, but not necessarily, where it is incorporated.

Question 6

What states are bound by the Hague Convention?

Answer 6

UK
All EU member sates
Mexico
Singapore
Montenegro

Question 7

In relation to the impecunious claimant company condition, what must the defendant show?

Answer 7

a) The company’s inability to pay costs; and
b) The amount of the likely costs

The defendant must show the company ‘will be unable’ (as opposed to ‘may be unable’) to pay its debts when the order is made against it. However, the defendant does not have to show on a balance of probabilities that the claimant company is unable to pay – the defendant may be able to show that there is ‘reason to believe’ that the claimant company will be unable to pay even if the claimant company can adduce substantial evidence to the contrary. This makes security for costs more available for defendants.

Question 8

Explain the `claimant moving assets’ condition

Answer 8

The purpose of this condition is to prevent injustice to a defendant where the assets available to enforce any order for costs have been or are being put beyond the reach of enforcement, for example, the dissipation of assets, the transfer overseas or into the names of third parties or the transfer to places unknown to the defendant.

Question 9

In relation to the court’s discretion in relation to the fact that it is `just’ to make an order, what will the court consider?

Answer 9

The main consideration that the court will take into account is the ability of the respondent to comply with any order for security for costs. The court should not normally make the continuation of a claimant’s claim dependent on a condition which it is impossible for the claimant to fulfil, because this effectively restrict the claimant’s access to the justice system.

Other considerations include:
* The admission of liability by the defendant or substantial open offers will make the defendant’s application less likely to succeed.

• Delay makes the application less likely to succeed.
• A claim which appears not to be genuine, or which has little prospect of success, will make the defendant’s application more likely to succeed.
• If the defendant has itself been responsible for the claimant’s financial difficulties, this will make the application less likely to succeed.

Question 10

What is the procedure for security of costs?

Answer 10

The normal rules in relation to interim injunctions apply. However, in addition:

1. The application notice should state which ground applies
2. The application must be supported by written evidence normally in by way of witness statement which should cover:

*The ground
*The factor’s in the exercise of the court’s discretion
*The likely costs to trial
*The amount of security requested.

Question 11

When considering the amount of security, what factors will the court take into account?

Answer 11

*The amount of the defendant’s likely costs

*The security can be for the whole action or up to a point in time e.g. up to disclosure

*The amount can cover costs incurred (including pre-action) and future costs

*A deduction can be made for the likely reduction upon assessment of costs or the possibility of settling

*Other factors e.g. delay may mean that security is not given for costs already incurred but is given for future costs.

Question 12

What are the different types of security for costs?

Answer 12

A payment into court

A payment to the defendant’s solicitor

A bank guarantee

An undertaking to pay costs

Question 13

What is the usual timing of a security for costs order?

Answer 13

The most frequent order is for a sum to be paid into court by a required date.