Security for costs
Security for Costs Applications
What a security for costs application is, when the court can grant one, and how a claimant can respond without tying up cash.
- A judgment or award won
- A judgment against you
- Funder capital deployed
- Law firm fees and WIP
- Security for costsThis cover
- The opponent's costsThis cover
- Disbursements
- Own legal costs
Illustrative. The exposures a dispute can put on a balance sheet. What a policy responds to is set by its wording.
What is a security for costs application?
It is an application by a defendant asking the court to order the claimant to provide security — money paid into court, a guarantee or another acceptable form — so the defendant can recover its costs if the claim fails. In England and Wales the court must be satisfied that a specified condition applies and that an order is just in all the circumstances.
On this page3 min read
Key points
- Only defendants (including defendants to a counterclaim) can apply.
- The court must find a qualifying condition and that an order is just.
- Security is often ordered in stages rather than for the whole case at once.
- A suitably worded ATE policy may be accepted instead of cash.
When the court can order security
In England and Wales the rules list the conditions, which include a claimant resident outside the jurisdiction (subject to exceptions), a company claimant with reason to believe it will be unable to pay the defendant's costs if ordered to, a claimant who has changed address to evade the litigation, a nominal claimant, and a claimant who has taken steps with its assets that would make enforcement difficult.
Meeting a condition is necessary but not enough: the court must also consider it just to make an order.
How the court decides
The court weighs the strength of the claim only where it is clearly strong or weak, whether an order would stifle a genuine claim, the timing of the application, and whether the claimant's lack of funds was caused by the defendant's conduct.
It then decides the amount, usually by reference to the defendant's estimated recoverable costs, often split by stage.
How claimants respond
A claimant can contest the application, agree an amount, or offer an alternative form of security.
Common alternatives to cash are a bank guarantee, an ATE policy with an anti-avoidance endorsement, an ATE policy supported by a deed of indemnity in the defendant's favour, or an undertaking from a funder.
Security in arbitration
Arbitral tribunals can also order security for costs under most institutional rules and many arbitration laws; in England, section 38 of the Arbitration Act 1996 gives tribunals that power unless the parties agree otherwise.
Tribunals weigh similar factors, including third-party funding.
Timing
Defendants are expected to apply promptly.
A late application can be refused or reduced. Claimants who expect an application do well to arrange acceptable security early, before a hearing date is fixed.
Frequently asked
Who can apply for security for costs?
A defendant, including a defendant to a counterclaim. A claimant cannot usually seek security against a defendant who is only defending.
Can security for costs be ordered against an individual?
Yes, if a qualifying condition applies — for example the individual lives outside the jurisdiction or has taken steps with assets that would make enforcement difficult — and an order is just.
How much security will the court order?
Usually an amount based on the defendant's estimated recoverable costs, often up to a particular stage, rather than the full amount the defendant expects to spend.
What happens if the claimant does not provide security?
The court usually stays the claim until security is given and may later strike it out if it is not.
Can an insurance policy be used as security for costs?
Often, if the wording gives the defendant real protection — typically through an anti-avoidance endorsement or a deed of indemnity — and the insurer is of adequate standing.
Does a funded claimant have to give security?
Funding does not by itself justify an order, but a defendant may point to it, and funders are often asked to provide or support security.
General information only. This page is not legal, financial, investment or insurance advice. Any insurance is subject to underwriting and to the terms of the policy wording issued.