UK: Security For Costs: Is Attack The Best Form Of Defence?

Last Updated: 7 January 2005

There are a host of tactical considerations to weigh up when a defendant wants to do more than merely defend a claim and decides to add counterclaims to his defence. One of the biggest considerations may be the risk of a successful security for costs application by the claimant.

The purpose of the security for costs regime is well known: to ensure that a party which is on the offensive makes provision to the court’s satisfaction for any costs order if he is unsuccessful at the end of the case. The regime applies particularly to companies under s726 of the Companies Act 1995 and under the Civil Procedure Rules (CPR).

Typically orders for security for costs are made against claimants. However defendants are not immune and a claimant faced by a counterclaim made by a defendant who might struggle to pay costs if the counterclaim fails, will give careful consideration to the possibility of forcing the counterclaiming defendant to provide security for costs in the form of a payment into court or a satisfactory bond/guarantee. Counterclaiming defendants should therefore be aware of this risk. Hence the question, is attack always the best form of defence?

This area of the law was considered in Thistle Hotels Ltd v Orb Estates et al (3 February 2004).

In a share sale agreement in March 2002 between Thistle and Orb, 37 out of Thistle’s 55 hotels were transferred to Orb. Thistle continued to manage the hotels pursuant to an operating and relationship agreement. Disagreements arose over aspects of the share sale agreement in relation to managing intra-group debt in a technical payment mechanism and this led to Thistle instigating proceedings.

The position of Orb itself was settled by consent but two of the defendants, Gamma Four Ltd (’Gamma’) and Euro and UK Property Ltd (‘Euro’), both companies within the Orb group, chose to defend the claims against them and launched counterclaims based on breach of warranty and misrepresentation. Thistle applied under CPR Part 25.12 for security for costs.

The conditions to be satisfied are set out in Part 25, and form two separate tests. One must first show that the party falls into an exhaustive category which lists scenarios where the payment of costs would be unlikely to be forthcoming or not easily obtainable. In the usual type of case, security is ordered against an impecunious company or one which is resident out of jurisdiction such that there would be additional costs in enforcing a costs order. As a question of fact, it was held that Gamma’s and Euro’s position fell within this category.

Before the court has discretion to make the order, one must also show that it would be just to do so. Relevant considerations in this regard have included whether the application is made in good faith, whether it is made oppressively to stifle a genuine claim, or whether the actual claim has good prospects of success.

This more interesting question in the present case showed the court’s attitude towards making an order for security for costs on the counterclaim and the factors the court will look at in deciding when a counterclaim goes beyond a defence, making it vulnerable to a security for costs order. This is not always an easy issue and as the judge, Sonia Proudman QC, observed:-

‘‘an impecunious defendant is not to be prejudiced in defending the main claim by an order for security on the counterclaim’’ (para. 28).

Although the counterclaim raised a separate head of claim, Gamma and Euro argued that it nevertheless raised the same issues of fact and the same evidence would be deployed dealing with the counterclaim as with the defence itself. They argued that the court’s discretion to order security should not therefore be exercised.

The authorities confirmed that security for costs should not be ordered against a counterclaiming defendant where the defendant is, as a question of substance, not formality or pleading, simply defending itself. The important contrast was with a situation where the defendant has gone beyond mere self-defence and launches a cross-claim, ‘‘with an independent vitality of its own’’ (Bingham LJ in Hutchinson Telephone (UK) Ltd [1993]). In that case, in the context of disputes arising over an agreement for the marketing of cellular telephones, there were complex discrete issues raised by the counterclaiming defendant, including claims for injurious falsehood. This substantially enlarged the scope of the issues raised in the litigation and the counterclaim would be time consuming and expensive to investigate. Applying those principles to the Orb case, what was called for was that:-

‘‘the substance of each claim … be considered and whether, and if so how far, the counterclaim enlarges the ambit of the action in terms of issues, time and costs’’.

The size of the counterclaim compared to the claim, although a relevant factor, is not determinative as it does not go to the qualitative nature of that claim.

In the event, it was found that Gamma’s and Euro’s counterclaims required detailed investigation into facts well beyond those required to make good their defences. The counterclaim would involve detailed investigations into, and decisions on, law and fact, and related expert evidence. The judge held that the counterclaims therefore went beyond a ‘‘mere defence’’ and did have independent vitality. The alleged misrepresentation and breach of warranty went beyond the disputes on the technical payment mechanism in the share sale agreement on which the claim itself was based. Gamma and Euro were therefore ordered to put up security for Thistle’s costs.

This judgment is a useful remainder that a defendant which launches a counterclaim is not safe from the risk of security for costs. It is not just claimants who need to think in advance about the risk of an order for security for costs, and how they might cope with it. For all parties susceptible to a security for costs order there is scope for tactical thinking. Is it better to wait to be sued rather than take the initiative and face a certain order for security? Is it actually necessary to make a counterclaim in addition to a defence and set-off? If a counterclaim is required can liability issues be linked to the defence with a view to avoiding security on the ground that time consuming issues relating to the quantification of the counterclaim can be deferred to a later date?

A financially weak corporate defendant should therefore think hard about the benefit of launching a counterclaim which is lacking in merit. It is likely to be better off concentrating on its defence and avoiding the tactical set back of a successful security for costs application which may force it to drop the counterclaim in any event. The Orb case helps to highlight that the best form of defence is not always attack. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions