A Defendant may apply under CPR 25.12 to 25.15 for an order requiring the Claimant to give “security for costs”. Security for costs is generally only available against a Claimant or a party in the position of being a Claimant (eg a Defendant advancing a Counterclaim or a Petitioner on an unfair prejudice petition under CA 2006, s.994).
Condition (a) in CPR 25.13(2)(a) applies to a Claimant, whether a natural or legal person, who is resident out of the jurisdiction and outside the States covered by the EU’s Jurisdiction and Judgments Regulation.
CPR 25.13(c) allows Security propose to be ordered where:
“the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the Defendant’s costs if ordered to do so”
This is the main ground relied on in practice, both pre-trial, and on appeal. Impecuniosity is no ground for ordering security for costs against an individual claimant, the principle being that individual should not be prevented from seeking justice through want of means. Companies and other artificial persons attract no such protection. The question of whether there is “no reason to believe” a company could not be able to pay an order for costs is one of “evaluating the risk”, and does not have to be established on the balance of probabilities. No gloss (such as the phrase “insignificant danger” used in Re Unisoft Group Ltd (No.2) (1993) BCLC 532) should be put on the words of the test in the rule (Jirehouse Capital v Beller (2008) EWCA Civ 908).
Applications based on this ground usually require a comparison between the company’s assets and not to costs (of the proceedings to the stage at which security is sought). The crucial question is whether the company will be able to meet the costs order at the time when order has to be paid (Re Unisoft Group Ltd (No.2) (1993) BCLC 532). A “net asset balance” is therefore not determinative of whether a company can pay a cost liability when it falls due: the court must consider the nature and quantity of the company’s assets (Thistle Hotels v Gamma Four Ltd (2004) EWHC 322). Judges are entitled to look behind the accounts of reality of the situation, and to bear in mind the costs of the company would have to pay for its own representation (Autoweld Systems Ltd v Kito Enterprises LLC (2010) EWCA Civ 1469). Inability to pay may be inferred from evidence that the claimant has declared unusually large dividends after the dispute arose (Frost Capital Europe Ltd v Gathering of Developers Inc Ltd (2002) LTL 20/6/02). It may not be right to order security against a company which has no assets about which can meet the costs out of income (Kim Barker v Aegon Insurance Co (UK) Ltd (1989) The Times, 9th October 1989).
Often a statement in support of this ground will cover the following:-
It is not uncommon for an application to seek 2/3rds of its costs to and including trial.
If the bill of costs includes trial then there is a strong submission that that party cannot then apply for another security for costs order (as the last order covered the costs for trial) and unless the applying party can show “a change of circumstances”. It is not uncommon to have a number of security for costs applications to different stages of the proceedings. There is a usual provision on a security for costs application that “unless Claimant pays into court the sum of £X (usually within 14 days) then the action is struck out”.
The court can order security against a “nominal claimant” if there is reason to believe that he will be unable to pay Defendant’s costs if ordered to do so. The fact that others will benefit from the claim does not render the claimant a nominal one.
CPR 25.13(2)(d) is aimed at the Claimant who goes to ground to avoid the possibility of having to pay the Defendant’s costs (Aoun v Bahri (2002) EWHC (Comm) 3 All ER 182).
any security should be such as the court “thinks fit in all the circumstances” (Procon (Great Britain) Ltd v Provincial Building Co (1984) 1 WLR 557). The amount ordered should be neither “illusory” nor “oppressive” (Hart Investments Ltd v Larchpark Ltd (2007) EWHC 291 (TCC). The court will need assistance on the amount of costs the defendant is likely to incur in the claim, and for this reason it is usual to exhibit a summary statement of costs to the Defendant’s evidence in support. Security may be ordered from the entire cost of the proceedings, or to a future point the claim, and may include past as well as future costs. Whilst security for costs Include pre-action costs, the court should be slow to exercise its discretion to include these as there is a risk that such an order would become payable in nature (Lobster Group Ltd v Heidelberg Graphic Equipment Ltd (2008) EWHC 413). There is no “rule of practice” that the court will always reduce the Defendant’s estimate by third (Procon (Great Britain) Ltd v Provincial Building Co (1984) 1 WLR 557); But it is usual to make a deduction from the Defendant’s costs estimates take into account any likely reduction on assessment of costs, and also to make an arbitrator discount in respect of future costs to take account of the chances of the action settling.