Security for costs relating to Claimant’s based outside of England and Wales 

There is a general principle in litigation that the losing party will pay the successful party’s legal costs. Where a defendant has concerns that the other side may not pay their costs, they can ask the court to make a security for costs order. This will require the claimant to pay money into court so that it can be paid to the defendant if they are awarded their costs at the conclusion of the case.

Defendants can ask for a security for costs order if they have concerns that the claimant does not have the funds to cover their legal fees or if they fear that the claimant might simply refuse to pay. This can be a particular problem if the claimant is based overseas. 

Pursuing a party in another jurisdiction is likely to be difficult, time-consuming, and expensive. Having security for costs gives a defendant the reassurance of knowing that if they are successful, any order for costs is more likely to be at least partly satisfied. 

The courts also have the discretion to award security for the additional costs of enforcing a costs order against a party based outside of the jurisdiction.

When will the courts make an order for security for costs?

The courts will only make a security for costs order if they believe that there is a real risk that a party would fail to pay if ordered to do so. The Civil Procedure Rules provide that the courts can make a security for costs order when it is just to do so in light of the circumstances of the case.

The applicant for the security for costs order will need to provide evidence of one of the following requirements:

• The other party is resident outside of the UK, the EU, or in a country that is not a signatory to the Lugano or Hague Convention or falls within the provision of the Civil Jurisdiction and Judgments Act 1982 and a real risk that the claimant will not pay a costs order is established by the defendant
• The claimant is a company or other corporate body and there is reason to believe that it will be unable to pay a costs order
• The claimant has changed their address during the course of the proceedings, provided a false address, or not provided any address
• The claimant is a nominal claimant representing someone else and there is reason to believe that they will not pay a costs order
• The claimant is dealing with their assets in a way that means it would be difficult to enforce a costs order

If you wish to apply for a security for costs order, you will need to provide details of one of the above. If the other party is UK-based, this could be financial evidence, such as accounts.

You will also need to give an estimate of the costs that you believe you will incur. The court will also look at the strength of your case.

Security for costs can be useful if you believe that the other side is attempting to secure a judgment against you but intends to avoid any liability on their part. However, the courts try to ensure that an application for a security for costs order is not used solely to prevent a case from being brought. It is a balancing act and this means that it is crucial to put forward the best possible evidence in support of an application.

Security for costs applications against overseas claimants

If the other party is based overseas, the courts may be more likely to grant a request for a security for costs order.

You should draw to the court’s attention any issues of concern, such as a failure on the part of the claimant to include their full address, any change of address that could be an attempt to avoid liability, if the claim is made in one name but the entity behind the claim is another party or any action taken by the party to move or hide assets.

While the courts will not grant a security for costs order simply because a party is based overseas, if compelling evidence is available to show an increased risk, then the court will take into account the challenges involved in obtaining adverse costs from a claimant based outside of the jurisdiction.

When should an application for security for costs be made?

It is important to make an application for security for costs early on in the proceedings before costs start to mount. Ideally, the application will be made once an acknowledgement of service and/or a defence have been filed. This means that it is crucial to work quickly to put together relevant evidence in support of the request.

If a claimant receives a counterclaim, they can consider applying for a security for costs order at that point to protect their own position. Security for costs orders can only be requested by defendants or those in receipt of a counterclaim.

Paying a security for costs order

The courts will usually order that money is paid into court or into an escrow account held by a neutral third party. A bank guarantee can also be used, as well as an insurance policy put in place to cover costs.

It is also possible for another party with an interest in the costs to be ordered to pay security for costs. This could include a third-party funder or financier.

Guidance on security for costs in respect of a non-resident claimant

The case of Ras Al Khaimah Investment Authority v Azima [2022] looked at the issue of security for costs in respect of an overseas claimant.

The Ras Al Khaimah Investment Authority (RAKIA), the state investment body of Ras Al Khaimah, claimed that Mr Azima had fraudulently induced it to enter into a settlement agreement. Mr Azima counterclaimed, stating that RAKIA had hacked his emails to use in support of their case.

The High Court found in favour of RAKIA and the Court of Appeal subsequently dismissed Mr Azima’s appeal, but ordered that the counterclaim should be retried in the light of new evidence.

Mr Azima added four additional defendants to the counterclaim and RAKIA applied to the court for security for costs in respect of defending the counterclaim.

Mr Azima was a US resident but objected to the application, asking:

• Whether the court should exercise its discretion to make a security for costs order under the Civil Procedure Rules, which provide that, ‘if it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order’; and
• For clarification on the amount of the security for costs

The judge, Mr Justice Michael Green, made the following observations from existing case law:

If there is a risk of non-enforcement, security for costs should usually be ordered. There should be a real risk of substantial obstacles to enforcement, not just a likelihood. 

He also noted that the court should not discriminate against a non-resident unless there are objectively justified grounds relating to difficulties in enforcing a costs order. 

He said that the court will look at whether the respondent has provided evidence of their assets and the location of all of their assets. The court can infer a real risk of obstacles to the enforcement of a costs order if details of assets are not provided. If assets are located at an individual’s home, any additional difficulty in enforcement could be considered.

The court can also take into account the individual’s character and whether they are untruthful, dishonest, self-serving, or lack probity. 

The judge ordered that as Mr Azima had failed to give the court evidence of his assets and where they were located, he should pay 60% of each of the defendants’ estimated costs by way of security.

Summary

Bringing a claim as a shareholder can be complicated and confusing. If an action fails, there will usually be a liability for costs, both the shareholder’s own and that of the company. For this reason, it is important that anyone dealing with a shareholder action understands the law and the court’s requirements.

For tips on avoiding disputes, see Strategies for preventing shareholder disputes.

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If you would like to talk to one of our expert legal team about any queries you may have, contact the author, Dipesh Dosani, or call the team today on 020 3968 6030 and we’ll be happy to help.

The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor.