Security for Costs - Stopping a claim in its tracks!

Security for costs applications and orders are fairly common across most types of commercial disputes before the Commercial and Admiralty Courts in the UK.  Likewise, most forms of commercial Arbitration which are subject to English law enable Arbitrators to order a party to provide security for costs.

A security for costs order requires a Claimant to provide security to a Defendant for the costs of defending a claim.  Such orders are usually made where there is evidence that if the Defendant successfully defends the claim and obtains a costs order in its favour (from the Court or Tribunal), the Claimant might not have the resources to pay the costs, leaving the Defendant out of pocket at the end of the day.

A security for costs application can also be used as a tactical weapon, putting up an obstacle to a Claimant being able to prosecute a claim. 

The recent decision in 'Deleclass Shipping & MWI Shipping Services v Ingosstrakh Insurance (2018)' is an example of the Court exercising its discretion not to require a Claimant to provide security for costs, on the grounds that to do so would prevent the claim being prosecuted at all, thereby amounting to an abuse of process. 

In the case, the Claimant was able to demonstrate that it had very few funds and was unable to raise additional funds from its shareholders.  One the one hand, the circumstances for a security for cost order to protect the Defendant clearly existed.  On the other hand, to order the Claimant to provide security for costs would, inevitably, have stifled its ability to pursue the claim at all.  

The Court decided to allow the Claimant to continue with its claim without having to provide security for the Defendant’s costs, effectively prioritising the entitlement to bring the claim over the risk of non-payment of an eventual costs order made in favour of the Defendant.

Requesting and providing security for costs is often almost a routine step in commercial disputes.  This decision serves as a reminder that the Courts/Tribunals have a wide discretion in this area and can refuse security for cost if an order would have the effect of halting the claim altogether.

If you would like more information on this area please contact Andrew Iyer on: +44 207 1007714, or by email to: [email protected]

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