Security for costs

Security for costs

To counteract the injustice that might arise if a party must defend proceedings with no real prospect of recovering its costs, even if it is successful, the Civil Procedure Rules allow defendants to seek an order for security for costs.  The claim is stayed (and so cannot continue) until the security is provided.  In deciding the amount of the security, the court will consider the costs already incurred and likely to be incurred in the future and may grant security in stages as the action proceeds 

 

Security is usually given by one of the following: 

 

  • Bank bond
  • Guarantee (for example, by a parent company or bank)
  • Payment to the applicant’s solicitors to hold for the paying party (or to an account in the joint names of both solicitors), subject to the order for security
  • Payment into court.  This is often the most convenient method and incurs no charges, although the payer suffers reduced liquidity and loses the opportunity to use the funds for other purposes
  • Solicitors’ undertaking (covered by an equivalent amount in cash) 

 

In 2010 the High Court made it clear that while it’s possible, in principle, for a claimant to use anATE insurance policy as security for the defendant’s costs, in practice, it’s highly unlikely that such a policy would ever be adequate security.  This is because insurance policies are voidable and subject to cancellation by the insurers and because the promise to pay under the policy is made to the claimant, not the defendant.  However, a claimant might be able to argue that the existence of an ATE insurance policy should be taken into account and that the amount of the security for costs ordered should be reduced accordingly 

 

Third party litigation funding can extend to the provision of security for costs 

Glossary

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