What is Security for Costs?

Security for costs is a court order requiring a claimant to provide financial security (often a payment into court or a guarantee) to cover the defendant’s legal costs, in case the claimant loses the case. In practical terms, it protects defendants from the risk of winning a lawsuit yet being unable to recover their legal costs because the claimant lacks the means to pay. This tool is most relevant when there are concerns about a claimant’s financial standing, for example, when a company with few assets brings a claim, and the defendant fears the claimant could default on any costs order made against it. If a security for costs order is granted, the proceedings are typically stayed (paused) until the claimant provides the required sum or security, ensuring the defendant isn’t dragged through expensive litigation without cost protection in place.

Why does the court order security for costs? The rationale is rooted in fairness and risk mitigation. Defendants, unlike claimants, do not choose to be hauled into litigation, so they should not be left exposed to the possibility of winning but being unable to recover their costs. In English civil litigation, costs generally follow the event (the loser pays the winner’s costs). Thus, if an impecunious claimant company loses, the defendant might never recoup its legal fees. A security for costs order shifts that risk by compelling the claimant to put its money where its mouth is at an early stage. This can also have a strategic side effect, it may discourage speculative or weak claims if the claimant company lacks confidence enough to invest in its case. However, the courts are careful that this mechanism is not used oppressively to shut out genuine claims, striking a balance between protecting defendants and ensuring access to justice for claimants with meritorious cases.

Legal Basis Under CPR Part 25

In England and Wales, the power to order security for costs comes from statute and the Civil Procedure Rules (CPR). CPR Part 25 (specifically the rules in Part 25 Section VI) sets out the conditions and procedure for such orders. Under these rules, a defendant may apply for security for costs against a claimant if the court is satisfied, having regard to all the circumstances, that it is just to make the order. In addition, at least one of several specified conditions must be met unless an Act explicitly gives a right to securit):

• Claimant company with likely inability to pay: The claimant is a company or incorporated body, and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so. This is a common ground when a claimant company has very few assets or is essentially insolvent. The defendant must show credible evidence of the company’s poor financial health, mere speculation is not enough.
• Claimant resident outside the jurisdiction: The claimant is resident outside England and Wales, and not in a state bound by convenient reciprocal enforcement treaties, and there is a risk it will be difficult to enforce a costs order against them abroad. Notably, courts require more than just foreign residence, there must be a real risk of enforcement hurdles.
• Address-related evasion: The claimant has recently changed address with a view to evading the consequences of litigation, or provided an incorrect or false address on court papers.
• Nominal claimant: The claimant is acting as a nominal claimant, for example suing on behalf of someone else for that other’s benefit, and is likely unable to pay costs.
• Assets dissipated: The claimant has taken steps regarding their assets that would make it difficult to enforce a costs order, for instance, hiding or dissipating assets.

These conditions (now found in CPR 25.27, previously CPR 25.13) cover the classic scenarios justifying security for costs. The most frequently invoked ground is the first, where a claimant company’s shaky finances raise doubt about its ability to pay costs. This reflects a policy choice, unlike an individual, a limited company can be required to show it can meet adverse costs, otherwise it may need to post security if it wishes to proceed with the claim. The court’s jurisdiction to order security in this situation originally derived from the Companies Act (to prevent empty-shell companies from litigating with impunity) and is now embodied in the CPR.

Procedure: An application for security for costs should be made promptly, often early in the case, by the defendant, supported by evidence, usually a witness statement exhibiting financial reports, accounts, or other material showing the claimant’s asset position. The court has discretion as to the amount of security and the form it should take, commonly a payment into court, but it could be an insurance bond or an after-the-event (ATE) insurance policy if acceptable to the court. If the order is granted and the claimant fails to provide the security by the deadline set, the claim can be stayed or even struck out, effectively bringing the litigation to an end.

It is important to note that even if a statutory condition is met, for example the claimant is a penniless company) the court retains discretion and will consider all the circumstances to decide if an order is just. A central consideration is whether ordering security would stifle a genuine claim, that is, prevent a legitimate case from being heard merely because of the claimant’s inability to put up money. The court seeks to avoid denying justice to a worthy claimant, while also ensuring defendants are not left without recourse on costs.

Security for Costs Against Individuals

While applications most commonly concern companies of doubtful solvency, the CPR also permits security to be ordered against individual claimants in narrow circumstances. Grounds include where the claimant is resident out of the jurisdiction, where there has been a change of address to evade consequences of litigation, or where assets have been dissipated to frustrate enforcement. The courts exercise particular caution when dealing with individuals, since the principle of access to justice carries even greater weight than in the corporate context. Recent cases illustrate this approach: in Dudnikov v Lyubimov [2021] EWHC 353 (Comm) the Commercial Court stressed that security against an individual should only be granted where there is cogent evidence of real enforcement risk, not mere suspicion; and in Ras Al Khaimah Investment Authority v Bestfort Development LLP [2017] EWCA Civ 1014 the Court of Appeal underlined the need for proportionality when ordering security against individuals said to be dissipating assets. These decisions show that while security for costs against natural persons is possible, it remains exceptional and must be justified on clear factual grounds rather than used tactically to suppress a claim.

Guiding Principles from Case Law

Over the years, case law has established guiding principles to ensure the court’s discretion on security for costs is exercised fairly. Key authorities include Keary Developments Ltd v Tarmac Construction (1995) and subsequent cases that refine the approach. Some of the principles established by the leading cases can be summarised as follows:

No oppression and minimal merits assessment (Keary Developments)

Courts must not wield security for costs as an instrument of oppression against the claimant. In Keary (CA 1995), it was emphasised that the order should not be used to stifle a credible claim or be made automatic even when the conditions are met. Judges should consider whether the claimant’s financial difficulties were caused by the defendant’s own conduct, and take that into account when weighing the application. The prospects of success of the claim are a relevant factor but generally the court should not go into the merits in detail, it will not conduct a mini-trial on the case’s strength, unless one party can show a very high likelihood of success or failure. In other words, only if the claim appears hopeless or overwhelmingly strong will merits significantly influence the decision.

Foreign claimants and enforcement (Nasser v United Bank of Kuwait)

For claimants outside the UK, being abroad is not, by itself, a justification for security. The Court of Appeal in Nasser v United Bank of Kuwait [2001] stated that there must be a real risk of substantial obstacles to enforcing a future costs order overseas. The court will balance considerations of international access to justice, especially post-Brexit, similar principles apply to non-UK claimants. It would be unjust to require security from a foreign claimant if, say, enforcement mechanisms are straightforward. Therefore, judges assess the practical enforceability of a costs award in the claimant’s home country before ordering security solely on the basis of foreign residence.

ATE insurance and other security (Premier Motorauctions v PwC)

The development of the ATE insurance market has influenced security for costs decisions. An after the event insurance policy obtained by the claimant can sometimes serve as sufficient security, negating the need for a cash deposit. In Premier Motorauctions Ltd v PricewaterhouseCoopers LLP [2017] EWCA Civ 1872, the Court of Appeal held that a properly formulated ATE policy could satisfy a defendant’s security for costs concerns. Courts will examine the terms of the policy, for example, it should ideally have anti avoidance provisions, preventing the insurer from easily voiding the policy, and name the defendant as a co beneficiary, ensuring the defendant can directly enforce it if costs are awarded. In recent years, judges have become more critical and scrutinising of ATE policies, but a good policy can be a viable alternative to a claimant having to pay money into court.

Quantum of security and indemnity costs (Danilina v Chernukhin)

The amount of security ordered is at the court’s discretion and should be proportionate. If there is a reasonable possibility that the defendant might be awarded indemnity costs, for example, if the claimant has conducted the case in a particularly unreasonable manner, the court can include that in the calculation of security. In Danilina v Chernukhin [2018] EWCA Civ 1802, it was noted that security may be increased to reflect the higher scale of costs recoverable on an indemnity basis in certain scenarios. Moreover, the case law stresses the importance of full and frank financial disclosure by claimants resisting security applications. A claimant who argues it can pay or that an order would be oppressive should put forward evidence of its resources; conversely, a lack of transparency can tilt the balance in favour of granting security. Ultimately, the court aims to do justice to both parties, protecting the defendant’s position without unfairly shutting out the claimant.

In applying these principles, judges perform a balancing exercise. For instance, they will weigh the risk to the defendant of non recovery of costs against the risk to the claimant’s access to justice if the order is made. A recent illustration is the case of Craft Development SCI v Actis LLP (2023), where the claimant was a financially distressed foreign company. The High Court accepted that the claimant had shown genuine financial hardship, and imposing a large security might indeed stifle the claim. The judge still granted security, as the defendant had a reasonable fear of non-payment, but substantially reduced the amount from the £1.6 million sought to £300,000. This reduction reflected a careful calibration, it gave the defendant some protection while keeping the door open for the claimant to continue with the case. The decision highlights that courts are prepared to adjust the quantum of security to ensure it is proportionate and just in all the circumstances.

Considerations for Claimant Companies with Limited Assets

From a claimant company’s perspective, the prospect of a security for costs application is a critical strategic factor to consider before embarking on litigation. Companies with minimal assets or cash flow, often start-ups or entities formed solely for a development project, should be aware that defendants will likely seize upon any signs of insolvency or not a strong financial basis to seek security. What can such claimants do? Here are a few practical points:

• Prepare for financial scrutiny: A claimant company expecting a security for costs request should gather evidence of its ability to meet a costs order. This could include providing up to date accounts and balance sheets not just those filed at Companies House which can be over a year old, bank statements, or details of backing by shareholders or litigation funders. If you can demonstrate a solid financial backing or insurance, it may undermine the defendant’s argument that you will be unable to pay their costs. Remember, the burden is on the defendant to show a reason to believe the claimant cannot pay, robust evidence of financial stability, even if modest, can sometimes prevent an order. Conversely, silence or opacity about your finances will make it easier for the court to infer inability to pay.
• Consider After-the-Event insurance or third-party funding: One way to proactively address the security for costs issue is to obtain an ATE insurance policy that covers the defendant’s costs, or secure a third-party funder’s indemnity. ATE insurance, if available for your case, can be a powerful tool: as noted above, courts increasingly accept ATE policies as an alternative to cash security, especially policies with robust anti-avoidance clauses ensuring the defendant can claim on them. If you present a credible ATE policy early on, a defendant might even refrain from applying for security, or the court might refuse an application on the basis that the insurance provides adequate security already. Similarly, if a litigation funder or parent company is willing to guarantee the costs, that may be acceptable, some defendants will agree to security in the form of a parent company guarantee or payment into an escrow account, for example.
• Address the risk of stifling upfront: If your company truly has very limited resources, be candid about it when opposing security. The court will not allow a claim to proceed if it sees no prospect of costs ever being paid; but if you can persuade the judge that your claim has real merit and will be stifled by a security order, the court may exercise its discretion to either refuse security or order a smaller amount than the defendant asks for. To succeed in this, you should present evidence, for example witness statements, detailing your company’s financial position and attempts to raise funds. Showing, for example, that the company’s impecuniosity is due to the very wrongdoing alleged in the claim can be persuasive, a point stemming from Keary Developments is that if the defendant’s actions caused the claimant’s loss of funds, a security order might be unjust. Ultimately, judges will sympathise with a claimant who can demonstrate both a solid case and genuine inability to put up money; but they will also expect the claimant to explore alternatives, like those insurance or funding options above,
• Be mindful of timing and compliance: Security for costs applications often come early, but they can also be made later if new concerns emerge,for example, if a claimant’s financial condition worsens during the case. As a claimant, budget for the possibility that you might have to ring fence some money for the defendant’s costs. If an order is made, compliance is crucial, failing to pay the ordered sum by the deadline will likely freeze your claim until you do, putting settlement or judgment on hold indefinitely. In some cases, non-compliance can even lead to the claim’s dismissal. Therefore, if security is ordered, treat it as a priority obligation, sometimes courts will stagger payments or order security in stages corresponding to phases of the litigation, you can request such flexibility to help manage the burden.

For companies pursuing claims in reputational torts like defamation or malicious falsehood, these considerations are particularly pertinent. Such cases (libel, slander, trade disparagement and so on) are notoriously expensive to litigate, and if a claimant company’s finances are slender, a well advised defendant will almost certainly seek security early on. Corporate claimants in defamation must prove special damage, financial loss, to succeed, which by definition often implies the company has already suffered losses, potentially weakening its financial position. This dynamic means a defamation claimant company could face a catch-22: it needs to sue to recover its lost reputation and revenue, yet the very lack of revenue (caused by the reputational harm) might trigger a security for costs order. The key for claimants is to come prepared: demonstrate the merits of your claim, for example clear evidence of a false and damaging statement, and, if possible, marshal resources (insurance or backing) to show you can carry the case through. If your company cannot realistically bear the upfront security that might be required, it may be wise to seek alternative dispute resolution or a financier to support the litigation.The companies poor financial position also makes any ability to offer a conditional fee agreement also unattractive to a solicitor.

Considerations for Defendants

From the defendant’s perspective, security for costs is a defensive weapon to deploy when appropriate. If you are being sued by a claimant that appears to have no significant assets, an application for security for costs can protect you from the risk of an unrecoverable costs order. Here are practical points for defendants to consider:

• Apply early and gather evidence: Timing is important. It is often tactical to apply for security at an early stage of proceedings, not only to protect your position on costs but also to put pressure on the claimant, who will need to disclose their financial standing sooner rather than later. To succeed, you will need solid evidence supporting the ground you rely on. For the common ground of a claimant company’s inability to pay, obtain whatever financial information is publicly available: company accounts, credit reports, filings from Companies House, or any admissions the claimant has made about lack of funds. Courts generally require objective evidence creating a reason to believe the claimant lacks means. For example, showing that the claimant company is in debt, has defaulted on obligations, or has a balance sheet deep in the red will strengthen your application. If the claimant refuses to divulge financial details, that refusal itself can sometimes be used to infer they have something to hide. In short, be prepared to justify the need for security, vague suspicions will not cut it. If it’s a large and complicated claim and will lead to costly litigation then you will need to look to see whether the companies balance sheet shows sufficient net assets to meet a cost order on conclusion of the claim. Sufficient to pay an interim payment within 14 days.
• Choose your grounds wisely: If multiple CPR 25 grounds might apply, focus on the clearest one. The company unable to pay ground is often straightforward if the claimant’s accounts show a poor balance sheet. The resident abroad ground can be viable post-Brexit for EU-based claimants now that EU regulations no longer guarantee easy enforcement, but remember the court will expect you to demonstrate likely enforcement difficulties (for example, no reciprocal enforcement treaty with the claimant’s country, or evidence of the claimant’s assets being inaccessible). If the claimant has behaved evasively, for example gave a false address, include that as it bolsters the narrative that they might dodge cost liabilities. In some cases, defendants also consider Part 25.28, which allows seeking security from someone other than the claimant (such as an entity funding the claim behind the scenes). If you suspect a third party (like an investor or beneficial owner) is the real force behind an insolvent claimant, this rule could be invoked to require that third party to put up security. This is complex but can be effective where applicable.
• Quantum: be realistic, not punitive: When requesting an amount of security, it should be a reasonable estimate of your likely recoverable costs through to the end of the case, or sometimes to the next stage of proceedings. It is unwise to inflate the figure to try to choke off the claim, judges will see through that. In fact, the court might only grant a percentage of your estimated costs rather than one hundred per cent. It is not uncommon for courts to order, say, two-thirds or three-quarters of the projected costs as security, to leave some room and not make it overly burdensome. So, ask for a sensible amount that you can justify with a detailed costs schedule. If you claim an extravagant sum, you risk losing credibility or having the application refused in part.
• Be ready to argue on ATE and funding arrangements: If the claimant presents an ATE insurance policy as a counter to your application, be prepared to critically assess it. Not all ATE policies are equal, check if the policy genuinely protects your ability to recover costs (does it cover your full costs budget? Can the insurer terminate the policy? Is the insurer financially sound?. Recent cases shows courts will not order security if an existing ATE policy adequately secures the defendant’s position. But as a defendant, you can highlight any weaknesses in the policy. For instance, if the policy has a clause allowing the insurer to void it for non disclosure, or if it does not cover interim adverse cost orders, argue that it is not sufficient security. Similarly, if a third party funder is backing the claim without offering a costs indemnity, point out that the funder stands to gain from the claim but has ring fenced itself from liability, a factor that may prompt the court to order security either from the claimant or directly from the funder under CPR 25.28.
• Leverage the pressure, but act reasonably: Strategically, a security for costs application can put significant pressure on a claimant, it raises the stakes by forcing them to confront the financial realities of litigation. Defendants sometimes use the prospect of such an application as leverage in settlement discussions. This is a legitimate tactic, but be mindful of the flip side: if a claimant genuinely cannot afford the security and the court thinks the claim is arguable, a very heavy handed approach could draw sympathy towards the claimant. Always ground your application in bona fide concerns (the courts can detect if it is purely tactical with no real substance). If the claimant is a cash-starved company bringing, for example, a malicious falsehood or defamation claim against you, it is fair to seek protection, given the expensive nature of those proceedings. Just be prepared that the claimant will argue their side of access to justice. Often, the outcome lies in demonstrating to the judge that your aim is fair protection, not oppression.

Conclusion

Security for costs remains a vital feature particularly in commercial disputes and niche claims like defamation or malicious falsehood where one party is a corporate claimant with limited resources. The English courts strive to maintain an equitable balance, allowing sincere claimants (even impecunious ones) their day in court, while shielding defendants from unwinnable financial risks. For claimants, especially companies of modest means, the lesson is to plan ahead, anticipate a security for costs challenge and fortify your case, both legally and financially, accordingly. For defendants, it is about using the tools at your disposal in a measured way to ensure that a victory in court does not become a hollow victory in practice.

if you are a company wishing to bring a claim don’t imagine you can bring a claim, on a conditional fee agreement from a solicitor and then if you lose liquidate the company and avoid payment of all the costs.

The Civil Procedure Rules and case law provide a framework: eligibility criteria (CPR Part 25) and guiding precedents (from Keary to modern cases) set the stage. Yet each case is fact specific, the court retains a broad discretion to weigh all the circumstances and impose terms that are just. By understanding the principles discussed above and preparing for the potential hurdles, companies can make informed decisions about bringing claims, and defendants can tactically safeguard their interests when on the receiving end of dubious or financially risky lawsuits.