Obtaining security for costs where claimant is a UK based individual or company.

05/02/2009

Security for costs is outlined at Parts 25.12 and 25.15 of the CPR.

Under this part, a defendant may make application for security for their costs in the proceedings where the Court is satisfied that (a) it is just to make such order and (b) where one of the following circumstances applies:

1. Where the claimant is resident out of the jurisdiction but not resident in a Brussels Contracting State (per Civil Jurisdiction and Judgments Act 1982);


2. Where the claimant is a company or body (incorporated inside or outside of Britain) and there is reason to believe that they will be unable to pay the defendant's costs if ordered to do so; or


3. Where the claimant has taken steps in relation to their assets that would make it difficult to enforce an order for costs against them.

(i) Security for Costs against UK Resident
On the face of it, it seems difficult to obtain security for costs against a UK resident unless it can be proven that the claimant has taken steps in relation to their assets which would make it difficult to enforce an order for costs against them.
It may also be the case that a defendant may be able to obtain security for costs against a UK based claimant if they are nominal claimant who is suing for the benefit of another person and there is reason to believe that they will be unable to pay the costs of the defendant if ordered to do so (they must not merely be a claimant suing in a representative capacity). In Envis v. Thakkar [1997] BPIR 189, CA it was found that in order to be considered a 'nominal claimant', a person must show elements of "deliberate duplicity or window dressing operating to the detriment of the defendant". That is, the claimant must act as "front man" (not merely an agent), and must not benefit from a successful claim. It must be third party alone who will benefit from the claim.

The principle behind the current rules, which makes it more difficult for UK residents to obtain security for costs is that a UK resident would ordinarily be less immune to the consequences of a costs order against them as their available funds rest within the jurisdiction, whereas foreign claimants are more immune to costs orders by virtue of their domicile. However, the courts have found that residence abroad on the face of it seems to be a condition of obtaining security for costs (unless otherwise in exceptional circumstances), it is not necessarily sufficient to justify an order for security. Thus, discretion should be exercised on objectively justified grounds relating to obstacles to the enforcement of a costs order.

(ii) Security for Costs against UK Claimant Company
Where the Claimant is a company (incorporated inside or outside of Britain), the Court may in its discretion order security for costs against such company where it "appears by credible testimony that there is reason to believe that the company will be unable to pay the defendant's costs if successful". Thus, in such circumstances the Court may require sufficient security for such costs or stall all proceedings until this is given. This discretion is supported by Rule 25.13 of the CPR and Section 726(1) of the Companies Act 1985.

Thus, security for costs against a claimant company resident in the UK will only be given in such an instance where it can be credibly or reasonably shown that the company can not meet an order for costs, or that there would not be sufficient cash-flow to meet such an order. It was also found in [i]Kim Barker Ltd v Aegon Insurance Co (UK) Ltd (1989) Times, 9 October, CA, that a mere issue of a debenture charge or an acknowledgment of debt is not a sufficient reason to order security for costs.

Contact: fredaz@city-law.net

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