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Security for Costs: Case Study

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What is the Purpose of a Security for Costs Application?

The general rule relating to costs of litigation is that the party that loses the case pays the winner’s costs. If a Defendant successfully defends a case, or the proceedings are discontinued, then the Claimant will be ordered to pay the Defendant’s costs. A successful party may also become concerned that the paying party is unable to pay, or will not pay the legal costs awarded against them.

This is when a party can apply for security for costs. This will mean that the Court can make an order for security and the Order for costs will require the Claimant to pay money to the Court on account, or to provide some alternative form of security.

In assessing the application for security for costs, the Court will take into account a number of factors, including:

  • The prospects of success of the claim
  • If the security for costs order would restrain a genuine claim
  • Any delays in making the application.

The Court also has discretion in ordering security for costs against individuals and companies, if it is just to do and the following apply:

  • The party resides outside of the UK
  • The Claimant is a nominal claimant
  • If a party changes their address during the proceedings with a view to evading consequences of the case
  • If one of the parties has taken steps regarding its assessing which would make it difficult to enforce an order for costs.

An important factor that will be taken into account by the Court when deciding an application for security for costs is if the party is able to comply with any order made. Of course, as with most Court discretion, the circumstances of the case will be taken into account when assessing an application for security for costs.

 

When Can a Security for Costs Application be Made?

An application for security for costs can be made at any stage throughout the proceedings. It is advisable; however, that the application is made as soon as possible with the sufficient evidence required to prove that the party in question may not be able to pay any costs if ordered, and prior to them disposing of any assets.

For example, in commercial litigation, security for costs can be sought against a company also, where there is reason to believe that the company is unable to pay costs which can be awarded against it. With the application for security, evidence will need to be submitted showing that the companies finances are not certain and evidence regarding the amount of costs which the party may be liable to pay.  In such circumstances, funds can be obtained by the Court on account to fulfil any potential costs order, prior to a company entering into administration and/or disposing of any assets.

 

Which Party may Apply for a Security for Costs Order?

Any party can make an application for a security for costs. It is more often than not, something for which a Defendant applies; however, a Claimant can also apply for a security for costs order in respect of any counter-claim.

 

ARC Costs Recent Case Study

At ARC Costs, we regularly deal with an array of different costs cases and disputes. Recently we represented a Litigant in Person in proceedings relating to the Solicitors Act 1974. The individual we were representing was the Claimant in the proceedings, and the Defendant Solicitors alleged the Claimant was dissipating assets in order to pay their outstanding fees.  As a consequence, they sought a security for costs order from the Court (and the Defendant costs if ordered of the application) asking the Claimant to make a payment to the Court to ensure that the Claimant did not fail to comply with any final Costs Order awarded against them.

In their application for a security for costs order, the Defendant stated that the application was brought under section 44.2(4) of the Civil Procedure Rules (CPR) in relation to the conduct of the parties.

Witness evidence was prepared on behalf of the Claimant in advance of the application hearing. The witness evidence included detail that there was no evidence as to dissipation of assets. The Claimant was not a Director of any company and the Defendant’s witness evidence did not provide any real proof of dissipation, nor did it explain why the application had been only been made 12+ months after the Solicitors Act proceedings had been commenced.  It was clear there had been no real rush to lodge the application, and that the Defendant’s concerns were somewhat ill-founded.

The Senior Courts Costs Office Master agreed that the Defendant’s application failed to provide detail of any compelling evidence of dissipation, which was considered to be a high threshold to prove. The application therefore resulted in an adverse costs order for the Defendant, and the Claimant was awarded their costs of the application and was not required to make any payment into Court or on account to the Defendant.

It is also essential that a security for costs application should also consider the rules set out in CPR 25.13 and 25.12, and the reference in this subject application to CPR 44.2 was incorrect.

 

How Can ARC Costs Assist?

ARC Costs are a team of Costs Draftsman and Costs Lawyers who regularly act as independent costs experts, for either paying or receiving parties.  We can assist in preparing Bills of Costs or Costs Budgets, as well as negotiating the best costs outcome. We also specialise in preparing Points of Dispute and Points of Reply, and as costs advocates, we can provide representation at any CCMC or during detailed assessment proceedings.

At ARC Costs, we will always attempt to resolve issues between the parties in a cost-effective manner, and through alternative dispute resolution before proceeding to the Court if appropriate. However, should the matter proceed to Court we can provide assistance and representation as Costs Lawyers.

Should you wish ARC Costs to assist you in a costs matter relating to a costs issue, or if you just have a query, you may contact us on 01204 397302 or email one of our experts at info@arccosts.co.uk.

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01204 397302

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