A defendant who is engaged in litigation, but feels the claimant may be unable to satisfy any costs order made against him may, in certain circumstances, apply to the court for an order for security for costs.
The rationale behind this is that a defendant will not usually have chosen to be embroiled in litigation (although his behaviour may have been such that the claimant had no other option but to commence proceedings). Defending a claim can cost a considerable amount of money. A defendant's armoury to protect him from the legal costs he may incur includes making an application for security for costs under rule 7.27 of the High Court Rules 2009.
Making An Application For Security For Costs
An application for security for costs is an interim application only a defendant can make in the conditions set out under Rule 7.28. Under Rule 7.28(1) the court has a wide discretion to grant a defendant security for costs. It may grant an order for security for costs if:
(a) it is satisfied, having regard to all the circumstances of the case that it is just to make such an order and
(i) one or more of the conditions in paragraph (2) of Rule 7.28 applies, or
(ii) an enactment permits the court to require Security for Costs.
The conditions are:
(a) the claimant is ordinarily resident out of the jurisdiction;
(b) the claimant is a company or other body (whether incorporated in or outside the Island) and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so;
(c) the claimant has changed his address since the claim was commenced with a view to evading the consequences of the litigation;
(d) the claimant failed to give his address in the claim form, or gave an incorrect address in that form;
(e) the claimant is acting as a nominal claimant, other than as a representative claimant under Chapter 6 of Part 3, and there is reason to believe that he will be unable to pay the defendant's costs if ordered to do so;
(f) the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him.
Thus, a court can order security for costs if one or more of the conditions set out in rule 7. 28(2) apply to the case.
Flexton Limited v Breeze dealt with applications for security for costs under Rule 7.28. Deemster Corlett, at paragraph 31 of his extempore judgment stated that, "the purpose of granting security for costs is to give costs protection to a defendant who is forced into litigation at the election of someone else."
A successful application for security for costs will result in the claimant being ordered to pay a sum of money into court. The sum so held by the court can then be used to satisfy all or some of any costs which the claimant may be ordered to pay to the defendant should he/she successfully defend the matter. The overarching condition is that the court will only order security for costs if it is satisfied, having regard to all the circumstances of the case, that it is just to do so. It could be argued that it would therefore be unjust to make an order when to do so would stifle the claimant's claim: for example, by restricting his financial viability or flexibility such that he is no longer able to fund and pursue his claim. In these situations, the court will have to balance the interests of the claimant and the defendant in any order it makes.
Determining The Amount Of Security
The amount of security awarded is at the discretion of the court, which will fix such sum as it thinks just having regard to all the circumstances of the case. The cases of Dinky International SA, Ali v World Duty Free v Pattni,, Bockarie Kakay v. William Frearson, and in the matter of the petition of International Asset Recovery limited, all stated the following with regard to Security for Costs;
In some cases the amount of security may be limited to the extra burden or risk involved in seeking to enforce costs orders subsequently obtained. In other cases the amount of security may relate to the total costs likely to be incurred in opposing the claim or appeal but it is seldom the practice to order security on a full indemnity basis.
If security for costs is sought at an early stage of the proceedings, as is often the case, then the court will fix an amount having regard to the costs already incurred by the parties and the costs likely to be incurred in the future. One of the factors for the court to consider is the possibility that the proceedings may soon settle. In such a case it may be a wise decision to make an arbitrary discount of the costs estimated as likely future costs, but there is no hard and fast rule. In essence, the court considers each case on its own circumstances.
In the English case of Procon (GB) Ltd v. Provincial Building Co. Ltd. and Another, which predates the UK's Civil Procedure Rules, it was reported that the security awarded should be such as the court in considering all circumstances of the case thought just, and that any purported practice of making an arbitrary deduction of one third of the estimated party costs was unsupported by either statutory provision or authority, accordingly, the Court of Appeal found that, given that the bulk of the plaintiffs' estimated costs had already been incurred, and that the judge at first instance had accepted the estimated costs as reasonable and had made an appropriate reduction to take into account the likelihood of the estimated figure being reduced on taxation, there were no grounds for interference with the judge's order.
Per curiam. The Court, in the exercise of its discretion as to the quantum of security to be ordered, is entitled to take into account the prospect of settlement, particularly where the security is sought at a very early stage of the proceedings: if the security claimed is based on the assumption that litigation will proceed to a final hearing it may be sensible to discount by as much as one-third.
Moreover, the amount of security allowed often takes into account costs incurred in complying with pre-action protocols. However, in the case of Lobster Group Ltd v Heidelberg Graphic Equipment Limited security for costs was not awarded for the pre-action period, including a lengthy period of mediation, as the costs of mediation were unlikely to be recoverable in the subsequent proceedings and the parties had agreed to bear their own costs of the mediation. Therefore, the court will frequently seek to estimate the likely costs up to a particular stage in the proceedings, e.g. the pre-trial checklist stage.
Determining The Amount Of Security
The court must consider the amount of security which the claimant is likely to be able to raise. The court should not normally make continuation of their claim dependant upon a condition which it is impossible for the claimant to fulfil. Thus, the amount has to be a reasonable figure. Any impairment of the claimant's right of access to the courts which is disproportionate to the need to protect other parties is likely to be in breach of Article 6(1) of the European Convention of Human Rights, the Right to a Fair Trial.
In contrast, where the claimant opposes the making of an order for security for costs or seeks to limit the amount of security by reason of impecuniosity, the onus is on the claimant to put forward sufficient evidence before the court, and in doing so, to make full and frank disclosure of his/her financial resources. If the claimant gives an incomplete or misleading account of his/her resources, the court may, in exercising its discretion, set an amount which represents the court's best estimate of what he/she can reasonably afford. The requirement that that the court should have regard to all the circumstances of the case may sometimes prevent the defendant from obtaining adequate security.
- Steele v. Paz Limited (in liquidation) and Others 1993 - 95 MLR 102 (CHD)
- (Unreported) Deemster Corlett's judgment January 29 2013 in Summary Court
- As stated at rule 7.28 (1) (a) Rules of the High Court of Justice 2009
- 2008 MLR 264 (CD)
- 2004 CLA 8
- 2009 MLR 123 (SGD)
- Order 48 Rules 2 and 3 of the Rules of the High Court of Justice of the Isle of Man
- CA  1 W.L.R. 557
-  EWHC 413 (TCC)
- MVYorke Motors v Edwards  1 WLR 444
- Al-Koronky v Time-Life Entertainment Group Ltd  EWCA Civ 1123; Kuenyehia v International Hospitals Group Ltd  EWCA Civ274; Blue Sky One Ltd v Mahan Air  EWCA Civ 544
- S. 7.28 (1) (a)of High Court Rules 2009; and rule 25.13(1)(a) English Civil Procedure Rules
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.