Costs - Security for costs

Learning Outcomes

This article explains security for costs in civil litigation, including:

• the purpose of security for costs orders and how they protect defendants from unrecoverable costs in SQE‑style scenarios
• the statutory grounds under CPR 25.12–25.15, with emphasis on company impecuniosity, foreign residence and asset‑dissipation cases
• how the court exercises its discretion, including key factors such as proportionality, stifling risk, promptness and parties’ conduct
• the step‑by‑step procedure for making and responding to an application, required evidence and common drafting points for orders
• when security is strategically appropriate during litigation, and how timing interacts with case management and costs budgeting
• the forms, adequacy and calculation of security, including staged security, top‑up orders and the use of ATE insurance or guarantees
• how security applications interact with costs management, access to justice and the overriding objective in exam problem questions
• obtaining security against non‑parties and for appeal costs, and how courts approach commercial funders and other stakeholders
• typical exam traps, such as assuming security is automatic where a claimant is foreign or a company, or overlooking the risk of stifling a genuine claim

SQE1 Syllabus

For SQE1, you are required to understand the rules and practical implications of security for costs, with a focus on the following syllabus points:

• the purpose and effect of security for costs orders
• the statutory grounds for seeking security for costs under CPR 25
• the court’s discretion and relevant factors when deciding whether to grant security
• the procedure for making and responding to an application for security for costs
• the amount, timing (including staged security) and forms of acceptable security
• security for costs against non‑parties (CPR 25.14) and for the costs of appeals (CPR 25.15)
• the interaction with costs management and proportionality
• the impact of security for costs on access to justice and litigation strategy

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is NOT a ground for a security for costs order under CPR 25?
   1. The claimant is resident outside the jurisdiction
   2. The claimant is a company likely unable to pay costs
   3. The defendant is resident outside the jurisdiction
   4. The claimant has taken steps to make enforcement difficult

2. True or false? The court must grant security for costs if the claimant is a foreign company.

3. What is the main purpose of a security for costs order?

4. When should a defendant make an application for security for costs to avoid prejudice?

Introduction

Security for costs is a protective measure in civil litigation. It allows a defendant to ask the court to require the claimant to provide financial security for the defendant’s legal costs, in case the claimant loses and cannot pay. This helps prevent defendants from facing unrecoverable costs, especially where the claimant is outside the jurisdiction or is a company in financial difficulty. Only a defendant (including a Part 20 defendant to an additional claim) may apply. The court must balance the defendant’s legitimate concern about enforcement with the claimant’s right of access to the court and the overriding objective.

Security for costs is distinct from freezing injunctions. A freezing injunction restrains asset dissipation; security for costs is a costs‑risk measure requiring the claimant (or, in some cases, a non‑party) to put up acceptable security to protect the defendant’s potential costs recovery.

Key Term: security for costs
An order requiring a claimant to provide a sum of money or other security to cover the defendant’s legal costs, in case the claimant’s claim fails and they cannot pay a costs order.

Grounds for Security for Costs

The court’s power to order security for costs is set out in CPR 25.12 and 25.13. Security is not automatic. The defendant must show one or more statutory grounds, and the court must be satisfied it is just to make the order.

Key Term: CPR 25
The part of the Civil Procedure Rules that governs interim remedies, including security for costs.

The main grounds include:

• The claimant is resident outside the jurisdiction (the court examines whether enforcement of a costs order would be materially more difficult in the claimant’s state of residence; reciprocal enforcement arrangements may reduce the weight of this ground)
• The claimant is a company or other body and there is reason to believe it will be unable to pay the defendant’s costs if ordered
• The claimant has changed address since the claim started to evade costs
• The claimant failed to give a correct address in the claim form
• The claimant is acting as a nominal claimant and may be unable to pay costs
• The claimant has taken steps in relation to assets to make enforcement of a costs order difficult

For company claimants, the applicant must provide credible evidence of likely recoverable costs and of the company’s inability to pay if ordered. This typically involves recent accounts, credit reports, or other reliable financial information. A mere assertion or suspicion is not enough; the court must have reason to believe the company will be unable to pay any costs that may be awarded.

Where residence outside the jurisdiction is relied upon, the court focuses on practical enforcement difficulty rather than nationality or domicile alone. Evidence about the enforcement route, time and expense, and any relevant bilateral or multilateral enforcement regime will be considered.

Acting as a nominal claimant covers situations where a person brings proceedings for the benefit of another (for example, an insolvent company’s director litigating nominally on the company’s behalf or a person fronting proceedings controlled by someone else) and may be unable to meet an adverse costs order.

Key Term: jurisdiction
The legal authority of a court to hear a case or enforce its orders.

Key Term: nominal claimant
A person who brings a claim for the benefit of another and may not have the means to satisfy an adverse costs order.

Additional scenarios to be aware of:

• Non‑party security: CPR 25.14 enables the court, where just, to order a non‑party (for example, a professional litigation funder who substantially controls or funds the claim for their own benefit) to provide security for costs.
• Appeals: under CPR 25.15, the court may order security for the costs of an appeal if it is just to do so, having regard to similar factors and the grounds for security.

The Court’s Discretion

Even if a ground is established, the court has discretion whether to order security. The court must consider all the circumstances and decide if it is just to make the order.

Relevant factors include:

• Whether the claimant’s claim is bona fide and not a sham
• Whether the application is made promptly
• Whether the order would stifle a genuine claim (i.e. prevent access to justice)
• The conduct of the parties (e.g. if the defendant caused the claimant’s financial difficulty)
• The strength of the claim (the court will not conduct a mini-trial, but may refuse security if the claim is very strong or very weak)
• Whether the claimant can provide security (e.g. by payment into court or bank guarantee)
• Whether an order would be oppressive (e.g. used tactically to force settlement)
• Any admissions by the defendant or payments into court already made
• The stage of proceedings, including case management steps and costs budgets
• The likely recoverable costs (proportionality and the overriding objective)

Key Term: stifle a claim
To prevent a claimant from pursuing a genuine claim because they cannot afford to provide security for costs.

Stifling a claim is a central concern. The claimant must put forward evidence if they say they cannot raise security, including efforts to secure funds from shareholders, group companies, insurers or third‑party funders. The court can mitigate stifling risk by:

• ordering a lower sum than sought
• directing staged or phased security (for example, to a procedural milestone)
• accepting an alternative form of security that is less burdensome
• limiting security to particular costs phases or issues

Security is a protective measure, not a weapon. Delay can tell against the applicant; undue delay may suggest oppression and cause prejudice to the claimant who has continued to incur costs.

Worked Example 1.1

A UK company is sued by a claimant company registered in another country. The defendant believes the claimant will not be able to pay the defendant’s costs if it loses. What should the defendant do?

Answer:
The defendant should apply for security for costs under CPR 25.13, showing reason to believe the foreign company cannot pay costs. The court will consider whether it is just to order security, including whether the claim is genuine and if security would stifle the claim.

Worked Example 1.2

A claimant based in a non-EU country sues a UK defendant. The defendant applies for security for costs, arguing that enforcement of a costs order abroad would be difficult. The claimant argues that they cannot afford to provide security and the claim is genuine.

Answer:
The court will consider the difficulty of enforcing a costs order in the claimant’s country, the merits of the claim, and whether ordering security would prevent the claimant from pursuing the claim. If security would stifle a genuine claim, the court may refuse the order.

Worked Example 1.3

A small UK company brings a contractual claim. The defendant seeks security, relying on the company’s latest accounts showing net liabilities. The claimant provides evidence that it cannot raise a lump sum but offers to provide a bank guarantee for part and staged payments into court aligned with the disclosure and witness phases.

Answer:
The ground (company’s inability to pay) appears made out. The court will weigh stifling risk and proportionality. It may accept staged security and/or a bank guarantee and limit security to likely recoverable costs for identified phases, ensuring protection for the defendant while not stifling a bona fide claim.

Worked Example 1.4

A claimant is funded by a commercial funder under a litigation funding agreement. The defendant applies under CPR 25.14 for security against the funder, arguing the funder stands to benefit and substantially controls the litigation.

Answer:
Where it is just to do so, the court can order a non‑party funder who funds and substantially controls or benefits from the claim to provide security for the defendant’s costs. The court will examine the funder’s role, control, and resources, and consider whether ordering security would be oppressive or just in all the circumstances.

Procedure for Applying for Security

The defendant should first invite the claimant to provide security voluntarily. If refused, the defendant applies to the court using an application notice (Form N244), supported by evidence (usually a witness statement) explaining the grounds and reasons for security.

The application should be made promptly. Delay may lead the court to refuse security if the claimant has already incurred significant costs. In practice:

• file an application notice (CPR Part 23) with a draft order
• serve supporting evidence setting out the statutory ground(s), why it is just to order security, the amount sought and why that amount is reasonable
• refer to any costs budget or, if none, provide a phase‑by‑phase estimate of likely recoverable costs
• exhibit evidence on enforcement difficulty (for residence grounds) or financial material (for company impecuniosity)
• address stifling and propose practical alternatives (e.g. staged security)

The application is generally on notice, with at least three clear business days’ notice of the hearing. The respondent may file evidence in answer; the applicant may reply. The court can deal with shorter interim hearings by telephone or video where appropriate.

If the court grants the order, it will specify the amount, form (e.g. payment into court, bank guarantee), and deadline for providing security. Non‑compliance will usually lead to an “unless” provision: the claim will be stayed or struck out if security is not provided by a specified date. The court may allow staged or top‑up security, or vary the order if circumstances change.

At the conclusion of the application, the court will make an interim costs order (for example, costs in the case, costs in any event, or no order as to costs) and often summarily assess those costs if the hearing is short and self‑contained.

Key Term: application notice
The formal court document used to request an order or direction from the court.

Amount and Form of Security

The amount of security is at the court’s discretion. It should be proportionate to the likely recoverable costs, not the full amount claimed by the defendant. The court will not order more security than is reasonable and will avoid using security as a tactic to oppress the claimant or force settlement. As a guide, the court commonly looks to the costs likely to be recoverable on assessment (ordinarily lower than actual costs), and may confine security to future costs or to particular phases. Costs budgets (Precedent H) are frequently used as a helpful cross‑check.

Acceptable forms of security include:

• payment into court
• a first‑class bank guarantee or bond
• a payment to the defendant’s solicitor’s client account on suitable undertakings
• a parent company or group company guarantee, if creditworthy
• an after‑the‑event (ATE) insurance policy or deed of indemnity in an appropriate form, though the court will examine whether such insurance provides equivalent security (e.g. anti‑avoidance provisions, insurer’s strength, exclusions)

Key Term: ATE insurance
Insurance purchased after a dispute arises to cover the risk of paying an opponent’s costs; sometimes proposed as a form of security, subject to the court’s assessment of its adequacy.

Key Term: bank guarantee
A written promise by a bank to pay the beneficiary (here, the defendant) on demand up to a stated amount if the claimant defaults on obligations under the security order.

The court may:

• order staged or phased security aligned to the litigation timetable
• direct a top‑up security later if costs escalate or budgets change
• confine security to a subset of issues or to a proportion of claimed costs, particularly where proportionality or stifling concerns arise

If security is ordered against a non‑party under CPR 25.14, the court assesses amount and form in a similar way, bearing in mind the non‑party’s role, control and means.

Exam Warning

The court will not grant security for costs simply because the claimant is foreign or a company. The defendant must provide evidence of the relevant ground and show it is just to make the order. Security should not be used to stifle genuine claims. Promptness matters: delay can defeat an otherwise meritorious application.

Effect of Security for Costs

If security is provided and the defendant wins at trial, the defendant can recover its costs from the security to the extent ordered by the court. If the security is insufficient, the defendant may still pursue the balance from the claimant in the usual way. If the claimant wins, the security is returned in the form provided (for example, repayment from court or release of a guarantee), usually with any accrued interest on money paid into court.

Security for costs protects defendants from the risk of unrecoverable costs, but must be balanced against the claimant’s right to pursue a genuine claim. Orders should be proportionate, targeted, and devised to avoid stifling access to the court where possible.

Key Term: non‑party security for costs
An order under CPR 25.14 requiring a non‑party (for example, a professional funder who substantially controls or benefits from the claim) to provide security for the defendant’s costs where just.

Revision Tip

Always check the claimant’s residence, financial position, and any steps taken to avoid enforcement when considering security for costs. Prompt applications are more likely to succeed. Use costs budgets or a well‑reasoned estimate to justify the amount sought and consider proposing staged security.

Key Point Checklist

This article has covered the following key knowledge points:

• Security for costs protects defendants from unrecoverable costs if the claimant loses and cannot pay.
• The main grounds for security are set out in CPR 25, including foreign residence, company impecuniosity, incorrect or evasive address, nominal claimant, and asset dissipation steps.
• The court has discretion and must consider all circumstances, including proportionality, stifling risk, promptness, parties’ conduct and the overriding objective.
• Security can also be ordered against non‑parties (CPR 25.14) and for the costs of appeals (CPR 25.15), where just.
• The defendant must apply promptly and provide evidence for the application, including costs justification; interim costs orders will be made at the application hearing.
• The amount and form of security must be reasonable and proportionate; staged or phased security and alternatives (e.g. bank guarantees, suitable ATE cover) may be ordered.
• If security is not provided, the claim may be stayed or struck out pursuant to an “unless” order.
• If the defendant succeeds, it may draw on the security to satisfy the costs order; if the claimant succeeds, the security is released.

Key Terms and Concepts

• security for costs
• CPR 25
• jurisdiction
• stifle a claim
• application notice
• nominal claimant
• ATE insurance
• bank guarantee
• non‑party security for costs