Security for costs: a strategic consideration in litigation
If you are being sued it is, of course, the decision of the claimant to start the court proceedings. But as the defendant, you may be concerned that your opponent may not be able to pay your costs if you win the case. What can you do to protect yourself? Paul Gordon offers a possible solution.
A defendant may apply to the court for ‘security for costs’. This means that during the course of the court proceedings, and before trial, the court can order the claimant to provide security to cover legal costs. In practice, it usually means the claimant has to either pay money into court or provide a bond or guarantee by way of security. Until they comply with the order, they cannot continue with the case.
Although this option is only available to defendants, it can work the other way round: if you are a claimant and the defendant counterclaims, you may be able to bring such an application against the defendant as you are defending his counterclaim.
These orders are usually made against a company or other corporate body although sometimes courts will make them against an individual. Either way, they are not available for small claims (generally cases with a value of up to £5,000).
Before the court will agree to make an order, the defendant has to meet certain criteria. Simply showing an entitlement to apply is not enough. Ultimately, judges have discretion as to whether or not to make an order, so success is never 100 per cent certain.
If you are applying for an order, your conduct is also likely to come under scrutiny. In one recent case, the defendant had breached another order made by the court during the course of the case before trial, and it was held that this conduct was one of the reasons the court refused to order his opponent to provide security.
All things being equal, it is well worth considering security for costs if you are facing a claim. As well as the obvious practical benefit, it can also give you a tactical edge.
Signalling an intention to apply for security for costs will be another factor the claimant has to take into account in weighing up whether or not to proceed through the courts. In tight financial times, it may just tip the balance and persuade them not to sue but to consider alternative dispute resolution or other means of settlement instead.
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