Security for costs - safe haven or strategic trap?

An order for security for costs can be a crucial step in litigation to protect a defendant from the risk of a claimant failing to pay any litigation costs it is ordered to do so. It can also be a tactical weapon and will usually require a claimant to pay money into court. This can focus a litigant’s mind on the merits of their claim as well as the costs of battling on.

Alexa Jones and David Gooding reflect on their recent success in obtaining security for costs in the High Court in a multi-million pound claim against a firm of solicitors.

Why did we want an order for security for costs?

The claimants were companies located in offshore tax havens. We could not obtain information on their finances and had reason to believe that one of the claimants was a shell company. We were concerned about:

• How the claimants would fund any costs order made in our client’s favour
• The costs of enforcing a costs order in these jurisdictions

Our client’s estimated costs to trial were significant so we needed a large sum to be paid into court to provide our client with any comfort. Tactically, this could also cause the claimants difficulty.

What steps did we take?

CPR 25.12 and CPR 25.13 provide the framework for a security for costs application. The rule we focussed on was where a claimant is resident outside of the jurisdiction but not in a Brussels, Lugano or 2005 Hague Convention state or a “Regulation State” (s1(3) Civil Jurisdiction and Judgments Act 1982).

Our first step was to write to the claimants’ solicitors, explaining our concerns about their clients’ ability to pay any future costs award. We asked for evidence of their clients’ means and for confirmation that they would provide security by way of a payment into court. We set out details of our costs to date and our estimated costs to trial, explaining that we would seek security for the total sum.

The claimants’ solicitors did not engage with us in any kind of meaningful way. In the absence of a satisfactory response, we issued an application for security for costs.

Grounds for the application

We sought security for our client’s costs pursuant to CPR 25.13(2)(a) and/or (c)) and CPR 25.13(2)(e) on the following grounds:

• The claimants were resident outside of the jurisdiction and not in a convention/ regulation state
• We had reason to believe the claimants would be unable to pay a costs award
• One of the claimants only gave a “care of” address on the claim form
• To enforce any costs award, satellite litigation would be required outside of the jurisdiction with the costs of this being much higher than if the claimants were based in a convention /regulation state

To prove the final point, we exhibited letters from firms in the jurisdictions in question setting out the steps required to enforce a costs order and what it would cost.

Offer of security

Shortly before the application hearing, an offer of security by way of a charge over a UK property was made. Security in this form is not usually acceptable but here, after we looked into the security offered, we discovered that the property did not even belong to the claimants. The offer was rejected.

What did the court look at?

The court considered Nasser v United Bank of Kuwait (2001) where the Court of Appeal held that, to comply with Articles 6 & 14 of the European Convention on Human Rights (preventing discrimination on the grounds of national origin in terms of access to the courts) a court cannot order security for costs in a discriminatory way. If an order for security for costs can be objectively justified, no breach of Article 14 will occur. Showing that enforcement would be difficult and costly is a way of providing such justification. The evidence we presented from our foreign lawyers helped tick this box.

Also in Nasser, if there is a realistic prospect of enforcement against the claimant, the court will limit the security ordered to any additional enforcement costs (in Nasser this was £5,000).

In our case, the court shared our concern around both:

• The claimants’ finances, finding our evidence compelling (with no evidence of means put forward by the claimants)
• The difficulties our client would encounter in enforcing a costs award

The court agreed that we were right to reject the claimants’ offer and the claimants were ordered to make two staged payments into court for the sums we requested, else the claim stood struck out.

Key points

• Do your homework. Investigate a claimant’s finances, the steps you would need to take to enforce a judgment in that jurisdiction as well as the likely costs of this.
• Give the claimant the opportunity to provide evidence and offer your client security before issuing an application. If they do not come up with anything or ignore your requests, this will add to the strength of your application.
• Make sure your Precedent H costs budget is properly scoped – this demonstrates the level of security your client will need.