Security for Costs – Law and Procedure

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1. Where a party is facing the prospect of defending a claim there may be real concerns as to whether, should the defence be successful, the costs of doing so can be recovered from the claimant. In such situations it is often sensible to make an application for security for costs in order to protect your client’s financial position. But what restrictions are there on an application and how will the court decide if security should be granted? This article addresses these issues in relation to applications for security pursuant to CPR 25, alongside the procedure for bringing an application. 

What is a security for costs order?

2. An order for security for costs requires a claimant to pay money into court or provide another form of security against the possibility that they may have to pay the defendant’s costs should the claim not succeed. An order for security for costs protects a defendant against the risk that they will win at trial and be awarded costs accordingly but not be able to enforce this award for reasons such as the claimant residing outside the jurisdiction.
3. Security for costs can also be a useful tactical move; the threat of an application can focus a claimant’s mind on the merits of the case and encourage them to undertake a costs-risk analysis which can assist with early resolution.

Who can an order be made against?

4. Ordinarily, security for costs is ordered against a claimant. It can also be ordered against a defendant who has made a counterclaim in proceedings provided that the counterclaim is a separate claim as opposed to simply a defence such as a set-off.^[1]
5. CPR 25.29 allows for security for costs to be ordered against an appellant, or a respondent to an appeal who cross-appeals. Further, there is the jurisdiction to make an order where that party is a limited company and there is reason to believe it will be unable to pay the costs of the other parties should its appeal be unsuccessful.
6. Security for costs can also be ordered against a third party in two circumstances:
   1. Where that party has assigned the right to the claim to the claimant to avoid liability for costs; and
   2. Where they have contributed/agreed to contribute to the claimant’s costs in return for a share of anything recovered in the proceedings.^[2]
7. If security is sought from a third party, the court’s discretion is wide. CPR 25.28 is clear that this can only be ordered when it is satisfied that it would be just in all the circumstances and the third-party is someone against whom a costs order can be made. 

Who can apply for an order?

8. A defendant to any claim can make an application for security for costs.^[3] This includes a claimant where they are defending a counterclaim/Part 20 claim. A claimant who becomes a respondent on appeal is also a defendant for the purposes of this rule.^[4] An interested party does not class as a defendant and so cannot apply for security for costs.^[5]

Which costs can be secured?

9. An order for security for costs can only be sought in proceedings, so cannot cover pre-action costs. It is not available in claims that have been allocated to the small claims track as this would undermine the limited scope of recoverable costs in these cases. An interim application can be classed as proceedings if it raises issues as to the parties’ rights which are independent of the issues in dispute in the main action; this is a matter of substance over form.^[6]
10. Security for costs is usually limited to costs going forward from the application. For this reason, it is important to make an application early in proceedings otherwise significant costs may be incurred which cannot be secured.

Grounds for bringing an application

11. The court can only consider making an order for security for costs if an enactment permits it or if one or more of the grounds are met.^[7] These are where the claimant:
    1. Is not resident in the jurisdiction;Is a company or body, incorporated inside or outside England and Wales (including unlimited companies) and there is reason to believe that it would be unable to pay any costs order in favour of the defendant;Has changed their address since the claim was commenced in order to avoid the consequences of litigation;Failed to give their address/gave an incorrect address in the claim form;Is acting as a nominal claimant (other than a representative under CPR 19) and there is reason to believe they would be unable to pay any costs order in favour of the defendant; and
    2. Has taken steps in relation to their assets that would make it difficult to enforce any order for costs against them.

Claimant resident outside of the jurisdiction

12. A person resides in a place if it is their habitual place of residence and they reside there for a settled purpose, even if their permanent residence is elsewhere. A person is not resident out of the jurisdiction unless and until they actually move there, so this ground is not satisfied by an intention to move. When deciding whether a claimant company is resident outside of the jurisdiction the court will look to where its central management/control is located.^[8]
13. In order to avoid any possibility that an order for security is discriminatory against those resident in a foreign jurisdiction (Article 14 ECHR), where this gateway is relied upon the applicant must also show that there is a real risk that residence outside of the jurisdiction poses substantial obstacles to the enforcement of any future costs order. This test requires objectively justifiable grounds that the obstacles to enforcement or the additional costs burden or delay in enforcement would not be encountered if the costs order were enforced in England and Wales.^[9]

Inability of a claimant company to pay costs

14. The defendant does not have to prove on the balance of probabilities that the claimant will not be able to pay any costs order but that there is reason to believe that they will not be able to pay any costs order when it would fall due. Although the burden is on the defendant to prove this, the court can draw inferences if the claimant chooses not to provide full financial information. It is not enough to establish that there is reason to believe that a claimant may not be able to pay as the required threshold is will not be able to pay. 
15. However, where a claimant company is in liquidation there is a presumption that there is reason to believe that they will be unable to pay any costs award and the burden shifts to the claimant to show that it will be able to pay.^[10]
16. This ground applies only to companies and incorporated bodies. There is no ground for a security for costs application against an individual for impecuniosity.

Change of claimant’s address

18. To meet this ground the applicant must show that the claimant has changed address with the aim of avoiding having to pay any future costs or security for costs order. This is more easily shown where a claimant has moved multiple times. Where the court finds there are other reasons for the move such as personal and family considerations, this ground will not be made out.^[11]

Claimant’s failure to provide their address

18. This ground is one which, on its own, is unlikely to justify an order for security for costs even if it is made out. It is therefore best to use this ground only in conjunction with another. Further, if this ground is made out and the court moves to consider whether to apply its discretion, the court is very unlikely to do so unless it finds that the address was withheld as an attempt to evade any future costs order.^[12]

Nominal claimant

19. A nominal claimant is one whose name is used to bring a claim in which they do not have any significant legal or beneficial interest. Typically, there should also be some element of duplicity, but this is not always necessary.^[13] Trustees, liquidators, executors and personal representatives are not usually considered nominal claimants.

Claimant who has taken steps to make enforcement difficult

20. This ground applies to both individual and corporate claimants. To satisfy this ground the defendant must prove that steps have actually been taken to move or otherwise put assets out of reach of any enforcement action; suspicion or intention is not enough. The test is objective so there is no need to prove that the claimant intended to evade enforcement.^[14]

The court’s discretion

21. Once one of the gateway grounds has been satisfied, the court retains a wide discretion to grant security for costs where it is just to do so. The court will take account of all the circumstances of the case and will seek to balance the injustice to the claimant of making a payment for security against the injustice to the defendant if security were not ordered. 
22. In exercising its discretion, the court will usually consider:
    1. The ground on which the application is based;
    2. The claimant’s ability to comply with any order for payment;
    3. Whether any order for security would stifle the claimant’s ability to continue with the claim;
    4. Whether the claimant is able to raise funds from other sources;
    5. Prospects of success of the claim and defence, although the merits of the case should not be considered in detail;
    6. Whether the claim is bona fide or a sham;
    7. The timing of the application and any reasons for delay;
    8. Whether the claimant’s financial position was caused by the defendant’s actions; and
    9. Whether the claimant has taken out ATE insurance which could cover any costs order.

Types and amount of security

23. Security can be ordered in several different forms, including:
    1. Guarantee by a third party such as a parent company or bank;
    2. Payment to the defendant’s solicitors to hold on account for the claimant;
    3. Payment into court (the most common form);
    4. Solicitors’ undertaking; or
    5. A charge over property, although this is rarely used.
24. The court has a wide discretion when determining the amount of security to be ordered. This is case dependant and can vary from an amount covering the additional expenses likely to be incurred if enforcement is required against the claimant, to an amount covering the whole of the defendant’s estimated costs. 
25. The court will usually order the security to be given within a reasonable time. This is often 14 days but can be longer depending on the circumstances of the case.

Consequences of default

26. There is no automatic consequence for failure to make a security payment, so it is important that one is built into the order. Automatic strike out provisions can be added, although this is rarely done. Another option is that the claim be stayed until the security is paid. This is unlikely to be used in the Commercial Court; instead, the court prefers to provide that the defendant have liberty to apply for strike out of the claim in the event of default.

Procedure

27. It is best practice to first seek security for costs by consent, so a letter should be sent to the other party setting out the basis for the request, the type of security and the amount sought. Any requests for further information which could strengthen the client’s application should also be requested.
28. The timing of the application is important as the court is unlikely to order security for costs incurred pre-application. Where a case is clearly a nuisance claim, the pre-application letter could be sent prior to any defence. However, where it is unclear as to whether the claim is a nuisance it is best to send the letter after a defence has been filed so that the client cannot be accused of attempting to stifle the claim. It is also important to note that an application for security does not prevent the claimant obtaining default judgment if no acknowledgment of service or defence has been filed.
29. If agreement cannot be reached, an application notice, draft order and witness statement should be filed at court and served on the party from whom security is sought.^[15]  The appropriate fee should also be paid.
30. Form N244 should generally be used, or N244(CC) in the Commercial Court. The application notice must contain:
    1. The applicable grounds for security from CPR 25.27, 25.28 and/or 25.29;
    2. If security is sought pursuant to a statute, the details which authorise the court to make the order;
    3. The level of judge required. This is usually a master in the King’s Bench Division, a judge in the Chancery Division and Technology and Construction Court and a master or a district judge in the Commercial Court; and
    4. Whether a hearing is necessary and a time estimate for the same.
31. Although an order for security for costs can be given on consideration of papers alone, it is unlikely that the court would do so. An oral hearing is almost always required.
32. If the application is made against a non-party to proceedings, an application must also be made to join them pursuant to CPR 19.4 for the purpose of costs only.
33. The witness statement in support of the application should ideally cover:
    1. The grounds on which security is sought and the evidence in support. Where multiple grounds are relied upon it should be clear which evidence relates to which ground;
    2. Any factors relevant to the court’s discretion including the location of the claimant’s assets and any practical difficulties in enforcement;
    3. The amount of security sought and why. Details of costs already incurred and an estimate of future costs would assist here; and
    4. Any pre-application request for security by consent and the response, if not without prejudice.
34. The application should be made on notice, so it is important to ensure that the respondent is served with the application notice and evidence in good time before the hearing. These times differ depending on the court.
35. If the respondent wishes to oppose the application, they should file and serve a witness statement in reply containing details as to their financial circumstances or other evidence as to why it would not be just to make the order.
36. If an application for security for costs is refused further applications can be made but only if there is some relevant change in circumstance.

Conclusion

37. Security for costs can be a powerful tool in a defendant’s toolkit, but it is important that one of the grounds for bringing an application is properly made out or security will not be granted. The court’s discretion is wide, and its consideration focuses on balancing the injustice of making an order against that suffered by the defendant if it is not made. As such, it is difficult to predict the outcome of any application. When successful, security for costs can protect your client’s financial position and even provide incentive to the claimant to settle or withdraw the claim.

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^[1] TC Developments (South East) Ltd v Investin Quay House Ltd [2019] EWHC 1432 (TCC).

^[2] CPR 25.28.

^[3] CPR 25.29.

^[4] Ibid.

^[5] New Lottery Co Ltd and another Gambling Commission and others [2025] EWHC 1522 (TCC).

^[6] GFN SA and others v The Liquidators of Bancredit Cayman Ltd [2009] UKPC 39.

^[7] CPR 25.27(b)(i) – (vi).

^[8] Re Little Olympian Each Ways Ltd [1995] 1. W.L.R. 560.

^[9] Bestfort Developments LLP v Ras Al Khaimah Investment Authority [2016] EWCA Civ 1099.

^[10] Vacek v Triload Invest S.R.O (In Liquidation) [2020] EWHC 3264 (Ch).

^[11] Aoun v Bahri [2002] EWHC 29 (Comm).

^[12] CPR 25.27.21.

^[13] Tamiz v Offley and another [2022] EWHC 305 QB.

^[14] Bush and another v Bank Mandiri (Europe) Ltd [2014] EWHC (Comm).

^[15] CPR 25.27.

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Whilst every effort has been taken to ensure that the law in this article is correct, it is intended to give a general overview of the law for educational and/or informational purposes. It is not intended to be a substitute for specific legal advice and should not be relied upon for this purpose. 

This article represents the opinion of the author and does not necessarily reflect the view of any other member of St Philips Chambers.