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Security for costs

23 March 2009

Generally, the question of who pays for the costs of a claim is not determined until the claim is finally settled, by trial or other means. This is because usually, the winner recovers costs from the loser, so the outcome is not known until the end of the process. But sometimes there have to be exceptions, in which case an order can be made for ‘security of costs’. Litigation partner Paul Gordon explains how a recent decision may mean this procedure is more widely available.

If a defendant is concerned that the claimant, should he lose, would not be able to pay, he can apply for an order that the claimant provides security for his costs. If the order is made, the claimant must pay a percentage of the other side’s estimated costs into court before his case can proceed.

Security cannot be applied for in every case: strict criteria have to be met and even then it is by no means automatic. The financial status of the claimant is often subject to dispute and may involve a detailed analysis of his accounts.

Applications for security tend to be relatively expensive, and also fairly uncertain in all but the clearest-cut cases because of the level of judicial discretion applied. They are more usual in high-value cases where the defendant will have to invest considerable sums in defending the claim.

Security is an application that only a defendant can make. However, the courts have now affirmed (in Nicholas G Jones v Environcom Ltd and others 2009) that a claimant can apply in respect of a counterclaim made against him where he is technically a defendant to that claim.

In the present economy, parties are more likely to consider security applications, which will become more significant in any litigation.

Partner Paul Gordon worked for a number of London firms and joined us from the City office of a top Scottish law firm. As a specialist litigator, Paul has acted for major clients including Kohler Mira, American Express, Morgan Stanley, GE Capital, and PizzaExpress. He has wide experience in financial services and banking disputes as well as shareholder and partnership matters, commercial supply, agency distribution and franchise contracts. He frequently acts in construction disputes and advises on intellectual property issues.

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