Security for costs is a valuable procedural tool that ensures that defendants are not unfairly burdened by the costs of defending speculative or weak claims. If utilised correctly, it can also provide a strategic advantage. This article gives a general overview of the mechanisms, principles and developments concerning security for costs applications, as well as their strategic use.
What is "security for costs"?
An application for a security for costs order is a procedural device in civil litigation designed to protect defendants from the risk of incurring irrecoverable legal costs. It allows a defendant to request that a claimant provide financial security (typically a payment into court or a guarantee, or increasingly an after the event (ATE) insurance policy) ensuring that if the defendant successfully defends the claim, it can recover its legal costs. This tool is particularly relevant when there are concerns about the claimant’s financial standing or its ability to satisfy a costs order.
How will the court decide the application?
The court will exercise its discretion, considering factors such as the claimant’s financial position, residence, conduct, and potentially the merits of the case. If granted, the proceedings may be stayed until the security is provided.
Why does security for costs exist?
The rationale behind security for costs is rooted in fairness and risk mitigation. Defendants, unlike claimants, do not choose to be involved in litigation. If they are forced to defend a claim, they should not be left exposed to the possibility of winning but being unable to recover their costs. It is designed to protect defendants from the risk of non-payment of costs, especially where the claimant is impecunious, resides outside the jurisdiction, or has taken (or would otherwise be likely to take) steps to frustrate enforcement.
Key principles established by case law
Several landmark cases have shaped the principles governing security for costs:
- The courts must avoid using security for costs oppressively and should consider whether the claimant’s financial difficulties were caused by the defendant. Although prospects of success are relevant, a court should not, however, consider the merits of the case in any detail when deciding whether to grant security for costs, unless either party can demonstrate a strong probability of success. (Keary Developments Ltd v Tarmac Construction Ltd (1995)).
- Residence outside the jurisdiction alone is insufficient to justify a security for costs order; there must be a real risk of enforcement difficulties. Proportionality and access to justice must be balanced against protection of defendants. (Nasser v United Bank of Kuwait (2001)).
- An ATE insurance policy may provide adequate security. The Court of Appeal has held that ATE policies can satisfy security requirements particularly if they contain anti-avoidance provisions and offer sufficient protection. This is very much a developing area of law, with an increasing maturation of the ATE policy market. (Premier Motorauctions Ltd v PwC LLP (2017)).
- If there is a reasonable possibility of indemnity costs being awarded, the amount of security should reflect that. The courts have also reinforced the importance of full and frank disclosure by claimants opposing security applications. (Danilina v Chernukhin (2018)).
Recent developments
ATE insurance and litigation funding
Courts have become more critical of ATE policies, scrutinizing their terms, exclusions, and enforceability. Recent cases emphasize the need for anti-avoidance clauses and direct rights of enforcement. This will be discussed at greater length in a future article as the topic is detailed and complex.
Recent cases
Craft Development SCI v Actis LLP & Ors
The defendants, Actis, sought security for costs against the claimant, Craft Development SCI, a Cameroonian company suing over a failed joint venture to develop the Douala Mall. The claimant, represented by its provisional administrator, alleged breach of contract, conspiracy, and fraud after Actis partnered with a different entity to complete the project.
Actis argued that Craft was impecunious and unlikely to pay costs if unsuccessful. Craft countered that a security order would stifle the claim, as its minority shareholder, had exhausted personal resources funding litigation.
Mrs Justice Stacey found that while Craft had disclosed substantial financial hardship, gaps remained in its evidence, particularly regarding future litigation funding and potential support from associates. The judge concluded it was just to order security, but reduced the amount from the £1.6 million sought to £300,000, highlighting the balancing act the courts will perform when evaluating the risk of stifling the claim against the defendant's potential exposure.
Agrofirma Oniks LLC & Ors v ABH Ukraine Limited & Ors
This case involved a dispute over loan participation notes issued by EMIS Finance BV to fund loans to ABH Ukraine Ltd (ABHU). The claimants sought an extension of time to provide security for costs, citing difficulties transferring funds from Ukraine due to sanctions affecting ABHU and perceived links to EMIS.
Previously, the court had ordered the claimants to pay £500,000 in security by 25 July 2025 or face restrictions on submitting evidence in jurisdictional challenges. Despite initial agreement on holding funds via Fieldfisher LLP, the claimants requested a five-week extension, citing their bank’s refusal to transfer funds potentially benefiting sanctioned entities.
Mr Justice Bright acknowledged the genuine difficulty, but criticized the claimants’ delay and lack of detailed evidence. He granted a limited extension to 14 August 2025, increasing the security amount to £580,000 to cover additional costs. The court emphasized that funds held by Fieldfisher would not be released without judicial approval, ensuring compliance with sanctions.
The judgment highlights the intersection of procedural fairness, international sanctions, and litigation strategy, reinforcing the importance of timely compliance and robust evidence in security for costs related applications.
Summary and strategic considerations
Security for costs is a vital tool in civil litigation, balancing the interests of justice with financial prudence. The principles established in case law underscore the importance of strategic litigation planning.
Practitioners must be vigilant in assessing the financial and jurisdictional risks posed by claimants including both political / judicial realities in foreign nations, but also potentially wider geopolitical realities as demonstrated in Agrofirma Oniks LLC & Ors v ABH Ukraine Limited & Ors.
Applications for security for costs should be made promptly, supported by robust evidence, and tailored to the specific circumstances of the case. Conversely, claimants opposing such applications must provide clear, credible evidence to demonstrate that their claim would be stifled or that adequate security already exists. Craft Development SCI v Actis LLP & Ors in particular emphasises the need for full and frank disclosure by the claimant on this point.
Applications for security for costs are also a valid strategic consideration. While courts are keen to ensure that such applications do not have a stifling effect on legitimate cases, they are an effective means of forcing the claimant to confront the realities of its situation. In particular, applications for security for costs (or at least the threat thereof) can be applied at various 'pressure points' during litigation. For instance, if the claimant is likely to soon begin the process of a costly exercise such as instructing expert witnesses and counsel for trial, a well-timed security for costs application may well be able to enhance financial pressure to a point where a claimant is prepared to re-consider its views on settling the matter.
In an era of increasing cross-border litigation, decreasing global stability and third-party funding, understanding the nuances of security for costs is essential. Parties must remain attuned to not only legal developments but also geopolitical realities, ensuring that their litigation strategies are not only legally sound but are pragmatically grounded and commercially viable.
