Unit 16 Security for Costs

Question 1

Are interim payments instalments or one sum?

Answer 1

Either. The court may order an interim payment in one sum or in instalments.

Question 2

What are the conditions for the court to grant an interim payment?

Answer 2

a. the defendant against whom the order is sought has admitted liability to pay damages or some other sum of money to the claimant;
b. the claimant has obtained judgment against that defendant for damages to be assessed or for a sum of money (other than costs) to be assessed;
c. it is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for an interim payment whether or not that defendant is the only defendant or one of a number of defendants to the claim;
d. the following conditions are satisfied—
I. the claimant is seeking an order for possession of land (whether or not any other order is also sought); and
II. the court is satisfied that, if the case went to trial, the defendant would be held liable (even if the claim for possession fails) to pay the claimant a sum of money for the defendant’s occupation and use of the land while the claim for possession was pending; or
e. in a claim in which there are two or more defendants and the order is sought against any one or more of those defendants, the following conditions are satisfied—
I. the court is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money (other than costs) against at least one of the defendants (but the court cannot determine which); and
II. all the defendants are either—
a) a defendant that is insured in respect of the claim;
b) a defendant whose liability will be met by an insurer under section 151 of the Road Traffic Act 1988 or an insurer acting under the Motor Insurers Bureau Agreement, or the Motor Insurers Bureau where it is acting itself; or
c) a defendant that is a public body.

Question 3

What is the court limited to in deciding the amount of an interim payment?

Answer 3

a. The court must not order an interim payment of more than a reasonable proportion of the likely amount of the final judgment.
b. The court must take into account—
i) contributory negligence; and
ii) any relevant set-off or counterclaim.

Question 4

What orders may a court make to amend an interim payment order?

Answer 4

(2) The court may in particular—
a. order all or part of the interim payment to be repaid;
b. vary or discharge the order for the interim payment;
c. order a defendant to reimburse, either wholly or partly, another defendant who has made an interim payment.
(3) The court may make an order under paragraph (2)(c) only if:
a. the defendant to be reimbursed made the interim payment in relation to a claim in respect of which he has made a claim against the other defendant for a contribution, indemnity or other remedy; and
b. where the claim or part to which the interim payment relates has not been discontinued or disposed of, the circumstances are such that the court could make an order for interim payment between the defendants under the usual conditions (25.7)

Question 5

If the interim payment is higher than the final judgment will the defendant be reimbursed?

Answer 5

Yes, with interest on the overpayment. Where—
a. a defendant has made an interim payment; and
b. the amount of the payment is more than his total liability under the final judgment or order,
the court may award him interest on the overpaid amount from the date when he made the interim payment.

Question 6

Are interim payments admissible at trial?

Answer 6

No. The fact that a defendant has made an interim payment, whether voluntarily or by court order, shall not be disclosed to the trial judge until all questions of liability and the amount of money to be awarded have been decided unless the defendant agrees.

Question 7

Who can claim for security for costs?

Answer 7

A defendant to any claim may apply for security for his costs of the proceedings.

Question 8

Do you need written evidence to support an application for security for costs?

Answer 8

Yes. An application for security for costs must be supported by written evidence.

Question 9

What must the court be satisfied of to make an order for security for costs?

Answer 9

1. That it is just to make such an order and,
2. One of the following conditions:
   a) The claimant is resident out of the jurisdiction;
   b) the claimant is a company or other body 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 Part 19, 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.

Question 10

In exercising their discretion to award security for costs, what should the court consider?

Answer 10

In considering an application for security for costs against a claimant, the court must take into account admissions by the defendant, open offers and payments into court; but a defendant should not be adversely affected in seeking security merely because they have attempted to reach a settlement. Evidence of negotiations conducted “without prejudice” should not be admitted without their consent.

Question 11

What is the claimant’s main defence to an order for security of costs?

Answer 11

That it will stifle a claim. When a claimant contends that an order for security for costs will stifle a claim, it bears the burden of showing that this is the case on the balance of probabilities. To discharge that burden the claimant will need to show that it cannot provide security and cannot obtain appropriate assistance to do so. The court will expect the claimant to be full and frank in relation to these matters. The test is whether it is more likely than not

Question 12

What is the test the court should apply to assess whether security for costs would stifle a claim?

Answer 12

The test is whether it is more likely than not.  The court will expect the claimant to be full and frank in relation to these matters. To discharge that burden the claimant will need to show that it cannot provide security and cannot obtain appropriate assistance to do so.

Question 13

What must the applicant for security for costs show if they are against an insolvent company?

Answer 13

the applicant must show “there is reason to believe that it [i.e. the claimant company] will be unable to pay the defendant’s costs if ordered to do so”. The opening words “there is reason to believe” have the effect of watering down the obligation which follows, i.e., the obligation to prove the company’s inability to pay costs if ordered to do so. The defendant does not have to show on a balance of probabilities that the claimant company “will be unable to pay” etc.
Applicants will fail to establish this ground if they cannot adduce sufficient evidence to give the court reason to believe that the claimant company “will be unable” to pay costs if ordered to do so; evidence giving the court reason to believe that the claimant company “may be unable” etc is not enough.

Question 14

Where insolvency is relied on in a claim for security for costs, what can the court take into account?

Answer 14

1. whether the claimant’s claim is bona fide and not a sham;
2. whether the claimant has a reasonably good prospect of success;
3. whether there is an admission by the defendants in their defence or elsewhere that money is due;
4. whether there is a substantial payment into court or an “open offer” of a substantial amount;
5. whether the application for security was being used oppressively, e.g. so as to stifle a genuine claim;
6. whether the claimant’s want of means has been brought about by any conduct by the defendant, such as delay in payment or in doing their part of any work;
7. whether the application for security is made at a late stage of the proceedings.

Question 15

If there are multiple claimants, but one claimant company is insolvent, can the court order just that company to give security for costs?

Answer 15

The court may order a claimant company in liquidation to give security for costs, even though it is one of two or more claimants, especially where there is comparatively small overlap between its own claims and those of the other claimants.
Where an order for security for costs against a claimant company might result in oppression in that the claimant company would be forced to abandon a claim which has a reasonable prospect of success, the court is entitled to refuse to make that order, notwithstanding that the claimant company, if unsuccessful, will be unable to pay the defendant’s costs.
In this respect it is sufficient for the claimant to show that there is a probability that it will be unable to pursue the action if the order is granted; it need not show with certainty that it will be unable to.
In Holyoake v Candy the claimant company had a co-claimant who was an individual; counsel for both sides agreed that the burden of proof as to the sufficiency of the co-claimant’s assets fell upon the claimants (see [57]).

Question 16

On who does the burden of proof lie in disputing the solvency in an application for security for costs?

Answer 16

In all cases the burden lies on the claimant company to show that the company’s own means are insufficient to meet an order for security and that it is probable that no funds will be made available from any outside source.

Question 17

Is the court able to pierce the corporate veil in deciding whether funds could be raised for security for costs from an insolvent company?

Answer 17

The court should consider whether the company could raise the money, not whether the shareholder could raise the money. The principle of English law which enabled a court, in very limited circumstances, to pierce the corporate veil applied only when a person was under an existing legal obligation or liability or subject to an existing legal restriction, which he deliberately evaded, or the enforcement of which he deliberately frustrated, by interposing a company under his control. Only in such a case, could the court pierce the corporate veil, for the purpose of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality.

Question 18

If the application for security of costs is based on dissipation of assets, are the claimants intentions important?

Answer 18

No. The test in that regard is objective: it is not concerned with the claimant’s motivation but with the effect of steps which he has taken in relation to his assets.
The requirement is that the claimant has taken in relation to his assets steps which, if he loses the case and a costs order is made against him, will make that order difficult to enforce. It is not sufficient that the claimant has engaged in other conduct that may be dishonest or reprehensible.

Question 19

Can the claimant request to have the defendant’s application for security for costs heard in private if confidential info?

Answer 19

The fact that an application against a claimant due to the dissipation or movement of assets (g) will involve confidential financial information is not, by itself a sufficient reason to persuade the court to make a direction for the application to be heard in private.

Question 20

Where a claimant discontinues, can a defendant apply to have it set aside or is it final?

Answer 20

Yes

1. Where the claimant discontinues under rule 38.2(1) the defendant may apply to have the notice of discontinuance set aside.
2. The defendant may not make an application under this rule more than 28 days after the date when the notice of discontinuance was served on him.

Question 21

What date does discontinuance take effect?

Answer 21

The day when notice of discontinuance is served on the defendant. the proceedings are brought to an end as against him on that date.
However, this does not affect proceedings to deal with any question of costs.

Question 22

If a claimant discontinues the whole claim what happens to costs?

Answer 22

Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.

Question 23

If a claimant discontinues part of a claim what happens to costs?

Answer 23

If proceedings are only partly discontinued—

a. the claimant is liable under paragraph (1) for costs relating only to the part of the proceedings which he is discontinuing; and
b. unless the court orders otherwise, the costs which the claimant is liable to pay must not be assessed until the conclusion of the rest of the proceedings.

Question 24

Do the rules as to costs following discontinuance apply to small claims?

Answer 24

No. This rule does not apply to claims allocated to the small claims track.

Question 25

What are the rules for new claims in pending actions? (read)

Answer 25

1.For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced—
a. in the case of a new claim made in or by way of third-party proceedings, on the date on which those proceedings were commenced; and
b. in the case of any other new claim, on the same date as the original action.
2.In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either—
a. the addition or substitution of a new cause of action; or
b. the addition or substitution of a new party;
and “third party proceedings” means any proceedings brought in the course of any action by any party to the action against a person not previously a party to the action, other than proceedings brought by joining any such person as defendant to any claim already made in the original action by the party bringing the proceedings.

Question 26

Can a claimant make more than one application for interim payment?

Answer 26

Yes. A claimant may make more than one application for interim payment – but shouldn’t unless there is a material change in circumstances.