What is security for costs? Part 1 of 3
An Order for security for costs protects a party against the risk that it will win at trial and be awarded its costs, but will then be unable to enforce the costs Order against the unsuccessful party.
The Order requires a party to physically pay money into the Court’s account or provide a bond or guarantee as security in respect of their opponent’s costs. Until this security is provided, the claim is “stayed” (i.e. placed on hold) and the effect of the Order is to provide a fund against which the successful party can recover the costs that it may later be awarded within the litigation.
Security for costs is particularly important for Defendants who, unlike Claimants, do not have the luxury of choice as to whether they will get involved in proceedings and incur the costs involved. Therefore, unless the Defendant rolls over and admits the claim, persuades the Claimant to discontinue the claim or reaches a commercial settlement, the Defendant is forced to defend the claim and incur the costs of doing so.
If a party has reasonable prospects of defending litigation successfully and there are concerns about the opponent’s financial position or how a costs Order might be enforced, that party should consider applying for security for costs. Note, however, that the award of security for costs is only available in specific situations, as set out in statute and the Court rules and subject to the Court’s discretion. If in doubt, advice should be sought on the specific facts of each base before issuing any application for security for costs.
Notwithstanding the above, it would be remiss not to comment that security for costs applications are a valuable tactical weapon within litigation as the threat of having to pay a substantial amount of money into Court often helps focus the receiving party’s attention on the merits (or otherwise) of their case, which can in itself inspire settlement.
Keep an eye out for further security for costs updates from Howat Avraam Solicitors regarding “who and against whom can security for costs applications be made?” and “when can applications for security for costs be made?”.