Security for costs: delay isn’t always fatal

23-01-2020


A balancing act

Under CPR 25.13, the court may grant an order for security for costs if a two part test is satisfied. First, at least one of the gateway conditions listed at CPR 25.13(2) must apply. Secondly, it must be just for the court to make the order in all the circumstances of the case.

Part one of the test is relatively straightforward: put simply, the court must determine whether or not a particular set of facts falls into one or other of the gateways. Part two is harder to predict because of its discretionary nature. Here, the court is required to balance two competing rights: while a good claim must not be stifled, a successful defendant’s entitlement to recoup its costs should also not be compromised.

So, how does the timing of the application affect that balance? While a defendant may issue an application for security for costs at any stage of the proceedings, the court will often take a dim view of any unnecessary delay. There are two important reasons for this. First, the claimant must be given a proper opportunity to raise the required funds. Secondly (and equally importantly), the claimant must have a real choice as to whether to pay up or withdraw. As Mr Millet QC explained at paragraph 36 in Hniazdzilau v Vajgel and others:

“The later the order for security is made and the more a claimant has to spend on legal costs before that date, or in any case before the application, the smaller the opportunity for the claimant to have a real choice… [The claimant’s choice would] not be between putting up security as the price of continuing or else giving up, but doing so as the price of not only continuing but saving his past investment”.

Quite rightly, any delay to the application will tip the balance towards the claimant; but it need not be fatal.

Optaglio

In Optaglio v Tethal, the defendants’ application was heard over five years after the claim was issued and less than four weeks before trial. That application was successful. The “highly unusual” circumstances underlying Judge Barker QC’s decision were as follows:

Fine Care Homes

In Fine Care Homes Limited v National Westminster Bank plc, the defendant’s application was heard just two months before trial. The defendant issued the application after an unsuccessful mediation but before witness statements had been exchanged.

While there was some debate as to the claimant’s solvency, the judge concluded that the first part of the test had been satisfied: there was reason to believe that the claimant would be unable to pay the defendant’s costs (CPR 25.13(2)(c)). As to the second part, the judge considered the seven criteria listed at paragraph 25.13 of the White Book. While that commentary is helpful, for the purposes of this blog we will focus on just two of those criteria:

While the claimant was impecunious, its shareholders were “wealthy individuals” who seemed to believe that the claim was compelling. It was not right that they should litigate “risk-free” while the defendant was exposed to the risk that its costs would not be paid. On that basis, the second part of the test had been met, albeit the claimant was granted a generous timeframe in which to raise the security sum.

Tipping the balance

As we explain above, once a defendant has traversed the first part of the test at CPR 25.13, security for costs is all about balance. While delay may help to swing the pendulum towards the claimant, a late application isn’t necessarily doomed to fail. Optaglio and Fine Care Homes both show that there are a number of factors that may help to tip the balance back towards the defendant:

This blog first appeared on the Practical Law Dispute Resolution Blog on 23 January 2020.


Katie Dyson

Associate
Commercial Disputes

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