The principle of security for costs exists to prevent a situation arising where one party is forced to defend a claim and has no real prospect of recovering their legal costs. The Civil Procedure Rules allow for a defendant to a claim (or counterclaim) to seek an order from the court for security pursuant to CPR 25.12. If successful, the claim will be stayed until the party against whom the order is made will pays a sum of money into court or provides some other form of guarantee to cover the defendant’s costs. If the claimant is unable to provide security by the deadline set by the court then the claim is liable to being struck out.
An order for security is not available for claims allocated to the small claims track due to restrictions on recovering costs applicable to small claims. It is also not possible to apply for an order prior to a claim being filed with the court, although costs incurred during the pre-action stage may be recoverable if they are directly linked to the claim and an order is secured during proceedings.
The court will consider whether making an order for security would be just and proportionate in all of the circumstances, taking into consideration the importance of the case, the sums involved, the financial position of each party and ensuring that the case is dealt with fairly. The court will, in particular, examine the reasons for the application being made, whether the claimant will be able to comply with the order, should it be made and the likelihood of the claim succeeding. The court will be reluctant to make an order for security where it would “stifle a genuine claim”. Applications for security are often used as a tactic to prevent litigation from proceeding. However, where the claimant has a good chance of succeeding at trial then the courts are less inclined to make an order, particularly where such action would be oppressive or disproportionate.
Any application for security for costs should be made promptly and should set out the grounds on which it is based, together with any supporting evidence. An unsuccessful application will mean that the costs sought in the earlier application cannot usually be recovered in a later application unless there has been a relevant change in circumstances. If an application succeeds and the party against whom the order is made is unable to pay security for the other party’s costs then they may apply to vary or even set aside the order. The likelihood of success in this regard will turn on the merits of each particular case.