Being sued in a commercial context is bad enough, especially if you believe that you have no case to answer or you expect to win, but matters could be made worse if you are running up substantial costs in defending a claim whilst in fear that the claimant may not have the means to compensate you if you win. In such an unwelcome scenario, however, help is at hand in the form of the security for costs regime, which provides judges in civil proceedings in England and Wales with a discretion to order a claimant to provide security, most often by way of a payment into court, if certain criteria are met. In addition, a judge’s comments in a recent High Court judgment would suggest that such protection may be available more comprehensively than was previously thought.

One of the most common situations in which the court may make an order for security for costs is where the claimant is a company and there is reason to believe that the company will be unable to pay the defendant’s costs if ordered to do so. An inability to pay does not need to be proved beyond doubt or even on the balance of probabilities (there need only be “reason to believe”), although the words “will be unable to pay” require more than mere doubt as to whether a defendant will be unable to pay if the need arises.

Other situations which may prompt the court to order such protection for defendants include cases involving individual claimants who have changed their address after bringing their claim so as to avoid the adverse consequences of the unsuccessful litigation, or the individual claimant who has taken steps to move his assets so as to put them out of reach of a defendant seeking to enforce a costs order.

What about the amount of security? Will a security for costs order effectively make the successful defence of a claim a cost-free exercise for defendants? Not quite. The court will award such amount as it thinks fit in all the circumstances, bearing in mind that the standard recovery for the winning side is generally only such costs as are reasonably incurred, reasonable in amount and proportionate to the matters in issue. However, in a recent case involving a dispute over whether the parties’ approved costs budgets should be used as a basis for assessing the level of security, the judge proposed that they should, with a further effect being that the defendant would be entitled to security for not just future costs but also costs referred to in their budget which had already been incurred.* The judge concluded that his understanding of the costs management regime “might in some circumstances result in it inflating rather than reducing recoverable costs, but I cannot otherwise interpret it.” The judge’s comments are not strictly binding on other courts, as they were not relevant to his final decision, but they are bound to be relied upon by hopeful defendants bringing future security for costs applications nonetheless.

It should be underlined that the court’s discretion to award security for costs is wide, and the court must take the view that such an order would be just in all the circumstances of the case, but it remains a tool which can lighten the load of litigation for defendants and perhaps now to an even greater degree.

For more information, email blogs@gateleyplc.com.

* Sarpd Oil International Ltd v Addax Energy SA Queen’s Bench Division (Commercial Court), 14 August 2015 [2015] EWHC 2426 (Comm)

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.