Defendants often feel aggrieved to have to pay legal fees to defend an opportunistic claim. That feeling gets worse when the claimant does not have the funds to repay the defendant’s costs if/when the claim fails.
Clearly it is not fair for a defendant to be put to expense it cannot ever recover. But nor is it appropriate to prevent access to the courts to anyone who is not rich. The Court consequently has formal rules governing when a judge can require a claimant to pay some money into court – known as security for costs.
In standard circumstances the basic features of security for costs are:
- Security is usually against a claimant, appellant or someone funding or standing in the place of a claimant (not against a defendant)
- It is available when: “it is just to make such an order” and
- The claimant is resident outside of a signatory country to one of the conventions governing reciprocal enforcement of judgments; or
- the claimant is a company and there is reason to believe that it will be unable to pay the defendant’s costs; or
- the claimant has changed his address since the claim was commenced with a view to evading the consequences of the litigation; or
- the claimant failed to give his address in the claim form, or gave an incorrect address in that form; or
- the claimant is acting as a nominal claimant, other than as a representative claimant under Part 19, and there is reason to believe that he will be unable to pay the defendant’s costs if ordered to do so; or
- the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him.
In practice, whether a payment into court by the claimant is required is a matter of discretion by the judge even if one of these categories is fulfilled.
Two cases in November 2013 have expanded on this. WU & ors v Hellard & anor confirms that the court powers to require a payment into court do not extend beyond the gateway categories above. i.e. you must fall into one of them to get security for costs and there is no point threatening it or bringing an application if you cannot (however unfair that may seem).
The second case involves Andy Murray (famous for being apparently cantankerous, aggressive, focussed and competitive – all good traits for a litigant) who is being sued by David Cody his former (and apparently now impecunious) sponsorship agent in connection with agency fees claimed by Mr Cody to be due to him.
Mr Cody lives in Texas. The US is not a member of any reciprocal enforcement conventions (the Americans have always stood aloof from such things and most of the rest of the world does not want the fallout from American litigation to touch their shores).
The question is therefore whether that triggers the first gateway criterion (claimant’s residence). Here it is important to have reference to the Court of Appeal case of Nasser v United Bank of Kuwait. Nasser sets out the law as:
- Simply being resident abroad is not enough
- There must be some other reason to suspect that enforcement of a costs order would be difficult or impossible (although the court can take notice without evidence that enforcement will be difficult in certain, less salubrious, jurisdictions)
- There is no such concern regarding the US
- However, additional costs may be incurred in enforcing abroad above and beyond those which would be incurred in a convention country, and security can be awarded for those additional costs (i.e. not the actual court costs but only the additional ones of enforcing abroad).
In passing, the Court in Cody also took note of the special circumstances of Texas where a Defendant can put beyond reach of enforcement USD30k and a city block (or country ranch) as a homestead (as well as various other things) and consequently awarded security for USD30k to protect against this abnormality.
Finally, Cody stated that he had an ATE policy and as such no security should be awarded. This is in line with other case law which has determined that such policies can sometimes defeat the ‘gateway’ categories which depend upon likeliness to pay. The court took no notice because the ATE policy itself had not been provided.
So:
- Security for costs is strictly curtailed to claimants who fall within one of the gateway categories
- Even if a claimant is within such a category the court still has a discretion about whether and, if so, how much to award – this may simply reflect additional costs of enforcing rather than the underlying costs claimed
- Security based solely on the claimant being based in the US is unlikely
- If you are putting forward ATE as a reason to avoid impecuniosity – make sure you hand up the actual policy.
Ian Tucker comments on developing issues from a litigation perspective.