“Security for costs” A fair tool for a Defendant or a lawful way to unfairly halt a legitimate claim?

With financial pressure rising as a result of the state of the UK economy, parties involved within legal disputes are looking, more than ever, at utilising whatever tools they have to gain an advantage in obtaining a favourable outcome.

In numerous matters, particularly recently, proposed Claimants that are seeking or have already begun their litigation journey, are met with financial constraints. Hiring lawyers is always expensive, however sometimes necessary, when dealing with complex, complicated legal issues.

However, when Defendants become aware of their opponent’s financial position, a potential mechanism in slowing the claim, and even potentially concluding it altogether, is to seek an order for security for costs. In summary, this is where if a Defendant can show that the Claimant will potentially not be able to settle their legal costs, should the Claimant be unsuccessful, then monies should be paid into court to cover such a scenario. The mentioned payment then protects the Defendant from being unable to recover their costs from the Claimant, who may be unable to pay.

The basic arguments that are placed before the court, put them in a difficult situation in that in many scenarios, it is as a result of the Defendant’s actions as to why the Claimant is in their current financial plight. It is therefore a decision for the court to determine, in all the circumstances of the case, whether security should be offered and if so, how much. That being said, the threshold is relatively low to meet and so security would normally be ordered. By way of a defence to the application, a Claimant can attempt to show that an order for security would stifle a genuine claim, that they are not in a position to provide security and could not / have not been able to obtain any appropriate assistance to do so.

Should the court order security, the level of which will depend on how much the Defendant has sought within their application and is usually based on the incurred and estimated costs they have recorded within their cost budget. Most security applications are dealt with at the first Case Management Conference, however an application can be made at any time during the litigation.

The form of security is normally a payment into court however can be provided by way of a charge on property, bank or parent company guarantee.

The court will provide a date for which the Claimant must provide the ordered security, or normally following the deadline, the claim is stayed pending the security being satisfied. In some circumstances, the court will make an unless order, which means that should security not be provided by a certain date, the claim will be struck out. An order of this type is fairly draconian and is usually only ordered following the Claimant being given a real opportunity to source the security and the period in doing so being a generous one.

With more Claimants being faced with providing security, this has seen an increase in the number of insurance products which provide sufficient cover and is becoming a further source of security. Policies are put in place to cover the Defendant’s costs, should the Claimant be unsuccessful in their claim If the Claimant be successful, a premium is normally required to be paid to the provider, which is a percentage of the costs which would have been due to the Defendant, had the claim been lost. In other policies, Claimants may also be required to pay a deposit to the provider, as well as pay a premium at the conclusion of a successful case. Such policies enable a party to continue with their claim, without having to physically raise any funds themselves, which to cash strapped litigants, is a very appealing option.

Despite certain rulings concerning specific clauses within policies that meant Defendants could not enforce against the providers, it may well become the norm that the courts accept such insurance policies as sufficient security so Claimants can continue with their matters, further cementing the ethos of “justice for all”, not to just those that can afford it.

If you are involved in a dispute and are concerned about your opponent not having the financial resources or believe you have a claim but are worried that you do not have the economic means to potentially deal with an adverse costs order, please get in touch with a member of our Commercial Litigation team who can advise you accordingly.