Security for costs—relevant factors when making an order

10 Jun 2016 | 3 min read

33381850_xlIn New Tasty Bakery v MA Enterprise, HHJ Hacon, in making an order for security for costs, explains why he did not take into account either the defendant’s delay in making the application or the fact it had made a settlement offer. The case also reiterates the need for a claimant to provide evidence to support any contention that the making of such an order would stifle its claim.

Practical implications of  the decision

One basis on which security for costs may be ordered is that the claimant is insolvent (CPR 25.13(2)(c)). Where the debt of the claimant is owed to the sole director and shareholder it may be argued that as the debt will never be called in the company is not technically insolvent so as to seek to avoid the insolvency requirement. This was the situation in this case but HHJ Hacon did not consider this to be a relevant factor in determining whether or not to grant a security for costs order. Instead, he considered the following three factors to be relevant:

  • delay—there had been a considerable delay by the defendant of over a year in making its application for security for costs. However, HHJ Hacon considered that this delay should not be taken into account by the court. While such applications are generally dealt with at a case management conference, this had not been heard when it should have been. Practitioners will be aware that such applications should not be delayed and that if they are this can result in either a reduction in the amount sought being ordered or no order being made at all. In this case, however, HHJ Hacon took into account the disorderly progress of the case, something for which both sides had some culpability, and determined that the issue of delay was not one that should be taken into account
  • defendant's settlement offer—the fact that there had been an offer of settlement by the defendant was not a factor to be taken into account when determining whether to make an order for security for costs. HHJ Hacon considered that all that could be inferred was that the defendant wished to settle the litigation, although clearly that had not happened
  • the claimant sought to argue that an order for security for costs would stifle the litigation evidence. However, no great weight can be given to this unless that argument is substantiated with evidence which shows that the claimant:
    • is unable to provide security sought
    • cannot obtain the necessary financial assistance from a third party (Al Koronky)

Further Guidance

Lexis®PSL Dispute Resolution subscribers enjoy a wealth of expert analysis. For further guidance on the establishing security for costs, see Practice Note: Security for costs—procedure

Click here for a free trial to access if you are not a PSL subscriber.

Area of Interest