Costs - Security for costs

Learning Outcomes

After reading this article, you will be able to explain the purpose and operation of security for costs in civil litigation. You will understand the statutory grounds for making an application, the court’s discretion, and the procedure for obtaining security. You will also be able to identify when security for costs is appropriate and the key factors the court considers, enabling you to answer SQE1 questions on this topic with confidence.

SQE1 Syllabus

For SQE1, you are required to understand the rules and practical implications of security for costs. Focus your revision on:

  • the purpose and effect of security for costs orders
  • the statutory grounds for seeking security for costs under CPR 25
  • the court’s discretion and relevant factors when deciding whether to grant security
  • the procedure for making and responding to an application for security for costs
  • the impact of security for costs on access to justice and litigation strategy

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Which of the following is NOT a ground for a security for costs order under CPR 25?
    1. The claimant is resident outside the jurisdiction
    2. The claimant is a company likely unable to pay costs
    3. The defendant is resident outside the jurisdiction
    4. The claimant has taken steps to make enforcement difficult

  2. True or false? The court must grant security for costs if the claimant is a foreign company.

  3. What is the main purpose of a security for costs order?

  4. When should a defendant make an application for security for costs to avoid prejudice?

Introduction

Security for costs is a protective measure in civil litigation. It allows a defendant to ask the court to require the claimant to provide financial security for the defendant’s legal costs, in case the claimant loses and cannot pay. This helps prevent defendants from facing unrecoverable costs, especially where the claimant is outside the jurisdiction or is a company in financial difficulty.

Key Term: security for costs
An order requiring a claimant to provide a sum of money or other security to cover the defendant’s legal costs, in case the claimant’s claim fails and they cannot pay a costs order.

Grounds for Security for Costs

The court’s power to order security for costs is set out in CPR 25.12 and 25.13. Security is not automatic. The defendant must show one or more statutory grounds, and the court must be satisfied it is just to make the order.

Key Term: CPR 25
The part of the Civil Procedure Rules that governs interim remedies, including security for costs.

The main grounds include:

  • The claimant is resident outside the jurisdiction (except in certain states with reciprocal enforcement arrangements)
  • The claimant is a company or other body and there is reason to believe it will be unable to pay the defendant’s costs if ordered
  • The claimant has changed address since the claim started to evade costs
  • The claimant failed to give a correct address in the claim form
  • The claimant is acting as a nominal claimant and may be unable to pay costs
  • The claimant has taken steps in relation to assets to make enforcement of a costs order difficult

Key Term: jurisdiction
The legal authority of a court to hear a case or enforce its orders.

The Court’s Discretion

Even if a ground is established, the court has discretion whether to order security. The court must consider all the circumstances and decide if it is just to make the order.

Relevant factors include:

  • Whether the claimant’s claim is bona fide and not a sham
  • Whether the application is made promptly
  • Whether the order would stifle a genuine claim (i.e. prevent access to justice)
  • The conduct of the parties (e.g. if the defendant caused the claimant’s financial difficulty)
  • The strength of the claim (the court will not conduct a mini-trial, but may refuse security if the claim is very strong or very weak)
  • Whether the claimant can provide security (e.g. by payment into court or bank guarantee)

Key Term: stifle a claim
To prevent a claimant from pursuing a genuine claim because they cannot afford to provide security for costs.

Worked Example 1.1

A UK company is sued by a claimant company registered in another country. The defendant believes the claimant will not be able to pay the defendant’s costs if it loses. What should the defendant do?

Answer: The defendant should apply for security for costs under CPR 25.13, showing reason to believe the foreign company cannot pay costs. The court will consider whether it is just to order security, including whether the claim is genuine and if security would stifle the claim.

Worked Example 1.2

A claimant based in a non-EU country sues a UK defendant. The defendant applies for security for costs, arguing that enforcement of a costs order abroad would be difficult. The claimant argues that they cannot afford to provide security and the claim is genuine.

Answer: The court will consider the difficulty of enforcing a costs order in the claimant’s country, the merits of the claim, and whether ordering security would prevent the claimant from pursuing the claim. If security would stifle a genuine claim, the court may refuse the order.

Procedure for Applying for Security

The defendant should first invite the claimant to provide security voluntarily. If refused, the defendant applies to the court using an application notice (Form N244), supported by evidence (usually a witness statement) explaining the grounds and reasons for security.

The application should be made promptly. Delay may lead the court to refuse security if the claimant has already incurred significant costs.

If the court grants the order, it will specify the amount, form (e.g. payment into court, bank guarantee), and deadline for providing security. If the claimant fails to comply, the claim may be stayed or struck out.

Key Term: application notice
The formal court document used to request an order or direction from the court.

Amount and Form of Security

The amount of security is at the court’s discretion. It should be proportionate to the likely recoverable costs, not the full amount claimed by the defendant. The court may order payment into court, a bank guarantee, or another form of security.

The court will not order more security than is reasonable, and will avoid using security as a tactic to oppress the claimant or force settlement.

Exam Warning

The court will not grant security for costs simply because the claimant is foreign or a company. The defendant must provide evidence of the relevant ground and show it is just to make the order. Security should not be used to stifle genuine claims.

Effect of Security for Costs

If security is provided and the defendant wins at trial, the defendant can recover its costs from the security. If the claimant wins, the security is returned. Security for costs protects defendants from the risk of unrecoverable costs, but must be balanced against the claimant’s right to pursue a genuine claim.

Revision Tip

Always check the claimant’s residence, financial position, and any steps taken to avoid enforcement when considering security for costs. Prompt applications are more likely to succeed.

Key Point Checklist

This article has covered the following key knowledge points:

  • Security for costs protects defendants from unrecoverable costs if the claimant loses and cannot pay.
  • The main grounds for security are set out in CPR 25, including foreign residence and inability to pay.
  • The court has discretion and must consider all circumstances, including access to justice.
  • The defendant must apply promptly and provide evidence for the application.
  • The amount and form of security must be reasonable and proportionate.
  • If security is not provided, the claim may be stayed or struck out.

Key Terms and Concepts

  • security for costs
  • CPR 25
  • jurisdiction
  • stifle a claim
  • application notice
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