Recent Developments - Security For Costs

Recent decisions on security for costs provide a useful reminder of how the court will apply the rules and exercise its discretion, together with insight into the scope of the court's powers to make ancillary or related orders.

An order for security for costs requires a person (usually a claimant, although sometimes a third party) to provide an acceptable form of security (whether by way of a payment of money into court, a guarantee or bond or similar) in respect of a party's litigation costs. The order is available in prescribed situations, subject to the discretion of the court.

This protection is afforded to those on the receiving end of a claim (including additional claims, for the purposes of Part 20 of the CPR) or an appeal, because defendants should not be exposed to the risk of there being no assets against which a costs award can be enforced where they have been forced into expending costs defending an unmeritorious claim or appeal, or to the risk of incurring additional costs necessitated by enforcement action in a jurisdiction where the process of enforcement may be more onerous than here.

The primary rules and conditions for such an order are in Part 25 of the CPR (CPR rules 25.12 - 25.15), although security can also be ordered by the court in the exercise of its general case management powers (including under CPR rules 3.1(3), 3.1(5) and 52.9(1)).

The discretion of the court in awarding an order of this nature is wide. The rules provide that the court, having regard to all the circumstances of the case, has to be satisfied that not only are the relevant conditions met, but also that it is just to make the order. The assessment will necessarily be fact dependent.

The following points arise from recent judgments which will be of interest to a party who is considering making or defending an application for security.

1. The standard of proof for the applicant is lower than the balance of probabilities

   Master Matthews confirmed the relevant test in his judgment of 20 April 2016 in Coral Reef Limited v (1) Silverbond Enterprises Limited (2) Eiroholdings Invest [2016] EWHC 874 (Ch), "I have to consider, on the totality of the evidence before the court, whether I am satisfied that there is reason to believe that the Claimant ... will be unable to pay the Defendants' costs if ordered to do so. I do not have to be satisfied that the Claimant will be unable to pay, only that there is reason to believe it. That is a lower standard than...