What are the key considerations in security for costs applications?
An order for security for costs is intended to protect a party in whose favour it is made against the risk of being unable to enforce any costs they may later obtain. It is also a useful tactical tool to focus the other side on the merits and costs of running their case to trial. The rules governing applications for security for costs may be found in CPR 25.12 – 25.15.
This note addresses some of the common considerations relating to applications by a defendant for security for their costs of proceedings (r.25.12). It does not cover applications for security for costs from someone other than the claimant (r.25.14) or security for the costs of an appeal (r.25.15).
Grounds on which security for costs may be obtained
Security for costs may be ordered against a claimant where:
- One or more of the conditions in r.25.13(2) applies or an enactment permits the court to require security for costs; and
- Having regard to all the circumstances of the case it is just to make an Order.
The gateways in r.25.13(2) are:
- The claimant is resident outside the jurisdiction (but not in a state bound by the 2005 Hague Convention).
- The claimant is a company or other body and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so.
- The claimant has changed his address since the claim was commenced with a view to evading the consequences of the litigation.
- The claimant has failed to give his address in the claim form, or gave an incorrect address.
- The claimant is acting as a nominal claimant, other than a representative claimant under CPR 19, and there is reason to believe that they will be unable to pay the defendant’s costs if ordered to do so.
- The claimant has taken steps in relation to his assets that would make it difficult to enforce an Order for costs against him.
Security should not be ordered if the effect of the Order would be to stifle a genuine claim. The claimant must show, on the balance of probabilities, that the effect of an order would be to stifle the claim because they cannot provide security and cannot obtain appropriate assistance to do so. The Court will expect the Claimant to be full and frank in relation to such matters (Goldtrail Travel Ltd v Aydin [2017] 1 W.L.R. 3014).
Where the impecuniosity condition is satisfied, it will ordinarily be just to order security unless the claimant proves that the Order will stifle a genuine claim (Premier Motorauctions v PricewaterhouseCoopers LLP [2018] 1 WLR 2955).
The application
The general rules about applications in Part 23 apply to security for costs applications. Parties should use Form N244 in the usual way (for a form of wording see PF43). The application notice should state which of the grounds in r.25.13 applies and, if the Order is sought under an enactment, should state the enactment authorising the court to make the Order.
In the Commercial Court it is presumed that the hearing of an application for security for costs will not take longer than 1 hour (Commercial Court Guide, para. F.5.5(a)).
The application must be supported by written evidence (r.25.12(2)). Ordinarily, it will be most convenient to rely on a witness statement. An affidavit may be used, but this will generally be unnecessary and there is a risk the applicant may not recover the additional costs thereby incurred. That evidence should:
- Address the grounds for seeking security which are specified;
- Specify the amount of security sought;
- Give details of the costs already incurred by the applicant; and
- Provide an estimate of the likely figure for future costs.
Timing
An application for security for costs can be made at any stage of the proceedings, but it should be made promptly as soon as the facts justifying the order are known. Usually, security is sought at the first case management conference.
In the Commercial Court first applications for security for costs should not be made later than at the Case Management Conference and in any event any application should not be left until close to the trial date (Commercial Court Guide Appendix 10, para.1).
Delay which prejudices the other party or the administration of justice may weigh against the Court choosing to exercise its discretion and cause the application to fail. Alternatively, lateness in the making of an application for security may result in any security allowed being limited to future costs only (Warren v Marsden [2014] EWHC 4410 (Comm)).
More unusually, it may be appropriate for a defendant to apply at a much earlier stage, including prior to serving its defence, although it would be advisable in such circumstances to apply at the same time for an Order extending the time for service of the defence till after security has been provided (Lord Ltd v HSBC Bank plc [2018] EWHC 860 (Comm)).
Amount and form of security
The Court has discretion as to the amount of security, considering what is just in all the circumstances of the case.
A defendant’s approved or agreed costs budget will usually be a strong guide as to the likely costs Order to be made after a trial and should be used as a reference point. The Court will approach the evidence as to the amount of costs which will be incurred on a robust basis and applying a broad brush.
The Court may choose to apply a percentage discount, to reflect the fact the uncertainties of litigation and the fact that the defendant will usually not recover all its costs on a detailed assessment. There are no hard and fast rules, but ordinarily in the Commercial Court, an Order for security will be made by reference to 60-70% of the incurred and expected costs. An exception to this is where there is a possibility of costs being assessed on the indemnity basis (Danilina v Chernukhin [2018] EWHC 2503 (Comm)), though there is conflicting authority on the issue.
However, in determining the amount of security the court must take into account the amount the respondent is likely to be able to raise and should not normally make continuation of the claim dependant on a condition which it is impossible to fulfil.
Security is most commonly provided by way of a payment into Court or by a bank or parent company guarantee.
Consequences of non-compliance
It is recognised in the Commercial Court Guide that it is not usually convenient or appropriate to order an automatic stay of proceedings pending provision of security, as this leads to delay and may disrupt the preparation of a case for trial or other hearing. It is usually better to give the claimant a reasonable time within which to provide security and liberty to apply to the Court in the event of default. This enables the Court to put the claimant to its election and then, if appropriate, to dismiss the case (Appendix 10, para.6).
This reflects the fact that an Order for security for costs is intended to give the claimant a choice as to whether to put up security and continue the action or withdraw the claim. That choice is meant to be a proper choice. An “unless” Order should not be made unless the Claimant has been given a real opportunity to find the money, the period for compliance being a generous one (Prince Radu of Hohenzollern v Houston [2006] EWCA Civ 1575).
