Security for Costs — The Application a Claimant Hopes Never Comes

There is an assumption that runs through a lot of commercial litigation.

Win the case, get your costs paid. It's a reasonable assumption in principle. In practice, it depends entirely on whether the party ordered to pay costs is actually in a position to do so.

Security for costs is the mechanism that addresses that risk. It's one of the most useful tools available to a defendant in commercial litigation, and one of the least understood by the parties on the other side of it.

What security for costs is

An application for security for costs asks the court to order the claimant to provide security against the risk of having to pay the defendant's costs if the claimant loses the claim, usually by paying a sum of money into court. The rationale is straightforward: if the defendant successfully defends the claim and is awarded costs, there should be something available to meet that award. If you have a claimant suing you but there is reason to suspect it can't meet a costs order made against it, security for costs is there to guard against that risk - because defendants do not choose to be sued. 

The jurisdiction sits in CPR 25.26 and 25.27. The court has discretion — it is not automatic — and the applicant must satisfy one of the specified conditions before the discretion arises. The most commonly relied upon condition is that there is reason to believe the claimant will be unable to pay the defendant's costs if ordered to do so.

That's not the same as proving insolvency. It means demonstrating, on the evidence available, that there is a real risk the costs order won't be met. The court then considers whether, in all the circumstances, it is just to make the order. The court will consider whether an order for security would stifle a genuine claim that deserves to be heard. The court will consider the interests of justice to both sides in exercising its discretion. 

Why the evidence matters

Because the application is discretionary and evidence-driven, the quality of the material put before the court makes the difference. 

I had a case where the claimant, in the course of the proceedings, confirmed that the business paid its rent in cash because the bank swallowed any incoming transactions against the claimant's overdraft. The concern was obvious. If the claimant was consciously dealing in cash because money entering its bank account would immediately be swallowed by its overdraft, that was potentially indicative of serious financial pressure. It also suggested that the claimant was deliberately managing its affairs so that money remained outside the ordinary banking system and beyond the immediate reach of creditors.

That was the evidential foundation for the security application.

The judge agreed that the threshold was met. The judge, however, exercised her discretion against making the order. That is a good example that meeting the threshold does not guarantee the order. That said, the judge nevertheless told the claimant in clear terms that a discussion between the parties outside the courtroom might be a sensible idea.

We had that conversation. The case settled within an hour.

That outcome captures something important about security for costs applications. Even where the order isn't made, a well-evidenced application fundamentally changes the dynamic. The claimant has now been told by a judge that their financial position is a legitimate concern. That's a different conversation from the one you have before the application is issued.

The strike out consequence

Where security is ordered, the court will specify the time within which it must be provided. Failure to comply can ultimately result in the claim being struck out, particularly where the court has made an unless order. For a claimant already under financial pressure, that is a very significant consequence: an inability to provide the security may mean an inability to continue the litigation at all.

That consequence, properly explained to a claimant who is already financially stretched, often produces a resolution without anyone needing to push further.

Who should be thinking about this

Security for costs is a defendant's tool, but it's most valuable when identified early. The longer a defendant waits to raise it, the more likely the court is to view the application as tactical delay rather than genuine risk management.

If you're defending a claim and you have a reason to doubt the claimant's financial position — an evasive claimant, thin accounts, CCJs, a company that appears to be trading on thin margins, or conduct during the litigation that suggests financial pressure — the question is worth raising with your solicitor at the outset.

The application itself, even if ultimately unsuccessful, is often the moment a realistic settlement conversation begins.

If you're defending a commercial claim and have concerns about whether you'd recover your costs if you win, it's worth getting an early view on whether a security application is viable. If you're pursuing a claim and you are facing a security application, the same applies: you need to take it seriously.

I'm happy to talk it through — use the link below to book some time.