Security for costs

What do you do if you are served with a claim which is total nonsense? Or you issue proceedings against someone and they file a spurious counterclaim which cannot possibly be maintained. You have to deal with it and put in a defence which will cost you money and probably a lot more if the claim against you continues. And the danger is that you may well not be able to recover these expenses even when successful.

The answer can be asking the court to make a security for costs order. A security for costs order is an order that the party against whom it is made pays into court an amount specified or alternatively provides a guarantee for the amount as a condition of continuing their claim.

Its purpose is to protect the other party when there is reason to believe that a costs order if made would not be met. This could be because the other party has obvious financial difficulties or because enforcement would be problematic as for example where the party is situated abroad.

Before making a security for costs order the court must be satisfied that in all the circumstances of the case it is just to make the order and that one of the following conditions apply:

  1. a) The party is located abroad and is not a resident of the European Union where there is recourse to enforcement procedures;
  2. b) The party is a company and it is reasonable to suppose that they would be unable to pay their debts when due;
  3. c) The address given is incorrect or there has been a change of address with a view to avoiding the claim;
  4. d) The party is a nominee acting on behalf of another;
  5. e) There is other reason to reasonably suppose that enforcement would be difficult such as where the party has taken steps to commit assets so as to avoid a liability.

If both your claim and that of your opponent are based on a different version of the same facts, the security for costs order on a counterclaim is likely only to relate to the additional costs of dealing with the new issues raised.

Obtaining a security for costs order gives you a tactical advantage. It means that your opponent will have to part with money at the start of the case. It must however be supported with evidence in the form of a statement containing a statement of truth.

The application must include the amount that it is requested should be lodged as security. This must be reasonable and even if an order is made the court will determine the amount that is fair. Although a tactical measure, an application cannot be used to prevent a Defendant pursuing a claim. It is a shield and not a sword.