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Security for Costs and COVID-19: When does it apply and how do I obtain it?

Due to the current pandemic, we have noted an increase of instructions whereby businesses have been looking at alternative ways to boost their liquidity and as such, many businesses have been turning to litigation in an attempt to recover historic debts.

Defendants to such claims should be wary of claims being brought against them during these unprecedented times, where many businesses are struggling financially. This gives rise for a cause for concern as to the Claimant's ability to pay costs under any order of the court. Therefore, security for costs may be more important than ever to a Defendant in order to provide financial certainty if faced with a claim.

This article will discuss a key provision contained within the Civil Procedural Rules in which a Defendant may be able to apply to the court for an order for security of costs, which are likely to be incurred for defending an action. In litigation, the Claimant has the freedom of choosing whether to commence proceedings, and indeed when those proceedings are commenced, the Defendant has no such say in whether the Claimant commences proceedings or not leaving the Defendant with limited options and the exposure of incurring legal costs.

There are various costs involved with bringing a claim and defending it, including court fees and legal costs. Typically, in litigation, it is the loser who pays the winner's costs.

However, where the Claimant may have just enough funds in place to issue a claim in the first instance, the Defendant cannot be sure that the Claimant will have sufficient funds in place to pay the Defendant costs should the Defendant successfully dismiss the claim.

When does Security for Costs apply?

Security for costs is a useful tactical tool which may be employed by Defendants in certain circumstances, including where:

• The Claimant is based outside the EU;
• The Claimant is a company and there is reason to believe that it will be unable to pay the Defendant's costs if ordered to do so by the court;
• The Claimant has taken steps to make enforcement of any costs orders difficult; or
• There are statutory provisions permitting the court to grant security for costs.

These are the most common conditions upon which a Defendant will apply for security for costs. If the Defendant applies for security for costs, the court will then have the discretion to make such an order.

How to apply for Security for Costs?

If the Defendant feels that they are at a real risk of not being paid their legal costs if they are successful in defending the claim, then an application can be filed with the court with a supporting witness statement which sets out and justifies the level of security they are seeking.

The Effect of an Order granting Security for Costs

If the application is successful and an order for security for costs is granted, the court will set out the amount of the security to be given by the Claimant, the date by which the Claimant must provide such security, and the form the security is to take.

It is common for an order granting security for costs to require the Claimant to make a payment into court account if the Defendant is successful in defending the claim, the court will pay this money out to the Defendant to contribute towards their legal costs.

What happens if the Claimant does not provide security?

If the Claimant does not provide security, then the Defendant may be entitled to apply to strike out the claim for non-compliance with a court order.

Therefore, security for costs can be a useful tool for Defendants as it forces Claimants to back up their claims on a monetary level.

For more information contact Faraz Naqvi in our Business Dispute Resolution department via email or phone on 0333 207 1146. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

Learn more about our Business Dispute Resolution department here

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