Security for Costs: What You Need to Know

This article is your guide to an application for security for costs; how it helps you protect your financial interests during litigation, how and when to make the application and what factors are important to the court when granting an order for security for costs. 

What Is Security for Costs?

Security for costs is a court order that requires a claimant (the party bringing a claim against you) to pay money into court or provide another form of security, such as a bond or guarantee, to cover your legal costs of defending the claim. This ensures that if you, the defendant, are successful in the action and an order for costs is granted in your favour, you will be paid. 

Why Apply for Security for Costs?

Books about costs rules could fill a library, but the basic principle is that in a court case in England, the loser will be ordered to pay the winner’s costs. If you have to defend a claim, you will want to make sure that the claimant will be able to pay your costs in the event of you successful seeing off their case.  

Alarm bells will start to ring if the claimant is a company without any assets or income, if there is reason to believe they are either insolvent, overseas, or otherwise unable to pay your costs.  

Security for costs provides a mechanism for ensuring that your costs will be paid, by requiring the claimant to deposit money or provide a guarantee upfront. This not only minimises your financial risk but can also act as a deterrent, discouraging claimants who would otherwise have little to lose from pursuing weak or opportunistic claims. 

security for costs

When Can You Apply?

You can apply for an order for security for costs at any stage of the court proceedings, but it is generally done as early as possible to minimise potential cost exposure.  

Grounds for Applying

The court will consider granting an order for security for costs if two key conditions are met. 

  • It is just to make the order, considering all the circumstances. 
  • At least one of the following applies: 
    • The claimant lives outside the UK. 
    • The claimant is a company or other body and there is reason to believe it cannot pay your costs if ordered to do so. 
    • The claimant has changed their address to avoid the consequences of litigation. 
    • The claimant has failed to provide a correct address. 
    • The claimant is acting as a nominal party for someone else who may not be able to pay costs. For example, the parent company doesn’t have the funds either. 

Forms of Security That Can Be Requested

There are a few options when it comes to the type of security that you are requesting through your order. One of the most common types of security is for funds to be paid to the court or to a solicitor to be held on specified terms. Another common option is a guarantee or bond, which is a commitment from a bank or parent company to pay the specified sum if required.  

Alternatives To Security for Costs 

An option that has become increasingly popular is using an insurance policy, particularly an after-the-event (ATE) insurance policy, which can provide security by covering the defendant’s costs in the event the claimant loses. 

security for costs

How to Defeat an Application for Security of Costs Made Against You

To avoid an application for security of costs being made against you, it’s important to show that either you have the financial means to cover the defendant’s legal costs if the claim is unsuccessful or persuade the court that it would not bein the interests of justice to make a security for costs order.  

Courts typically grant security for costs orders when there is a genuine concern that the claimant might be unable to pay the defendant’s costs, but this concern can quickly be overturned by having clear evidence of your financial stability, such as audited accounts or proof of funding arrangements, such as legal expenses insurance or third-party funding guarantees.  

Courts will also be reluctant to grant security for costs if such an order will effectively bring an end to the claim by putting a financial burden on the claimant that it will be unable to meet.  

For a case where the court made a decision based on the interests of justice please read our article on Craft Development SCI v ACTIS LLP and Other Companies.

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Book your free 30-minute meeting now to see just how security for costs can protect your business in litigation. Click “Book a Meeting” button and secure your business’s future today.

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Litigation can appear daunting because there is possibly a lot at stake. We are here to help guide you through the process and reach a resolution together.

We welcome all genuine enquiries and will provide you with the answers you need to your questions.

Please use the Book a Meeting button, or contact us by email or telephone, to speak to a specialist solicitor.

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