Security For Costs: Is Attack The Best Form Of Defence?

There are a host of tactical considerations to weigh up when a defendant wants to do more than merely defend a claim and decides to add counterclaims to his defence. One of the biggest considerations may be the risk of a successful security for costs application by the claimant.

The purpose of the security for costs regime†is well known: to ensure that a party which†is on the offensive makes provision to the†court's satisfaction for any costs order if he†is unsuccessful at the end of the case. The†regime applies particularly to companies†under s726 of the Companies Act 1995 and†under the Civil Procedure Rules (CPR).

Typically orders for security for costs are†made against claimants. However†defendants are not immune and a claimant†faced by a counterclaim made by a†defendant who might struggle to pay costs†if the counterclaim fails, will give careful†consideration to the possibility of forcing†the counterclaiming defendant to provide†security for costs in the form of a payment†into court or a satisfactory bond/guarantee.†Counterclaiming defendants should†therefore be aware of this risk. Hence the†question, is attack always the best form of†defence?

This area of the law was considered in†Thistle Hotels Ltd v Orb Estates et al (3†February 2004).

In a share sale agreement in March 2002†between Thistle and Orb, 37 out of†Thistle's 55 hotels were transferred to Orb.†Thistle continued to manage the hotels†pursuant to an operating and relationship†agreement. Disagreements arose over†aspects of the share sale agreement in†relation to managing...