How to Apply for Security for Costs in Commercial Litigation

In commercial litigation in England and Wales, the normal rule is that the unsuccessful party pays the legal costs of the successful party. However, legal costs can be substantial, particularly in complex or high‑value disputes. A security for costs application allows a defendant (or a claimant in limited cases) to ask the court to require the opposing party to provide money or another form of security upfront to cover potential costs. This protects a party from the risk of defending or pursuing litigation only to find that the other side has no funds to pay costs orders at the end of the case. This article explains what security for costs is, when it may be ordered, how to apply, the procedural steps, evidential requirements, and practical considerations relevant to commercial disputes.

What Is Security for Costs?

A security for costs order is a court direction requiring a party to deposit funds with the court or provide an acceptable guarantee so that, if they lose the case, the other side's costs can be met. It acts as insurance for the defendant against the risk of a claimant who may be unable to satisfy a costs award. If security is ordered and not provided within the time set by the court, the proceedings may be stayed or struck out, effectively ending the claim until security is provided.

Security for costs doesn't determine who will win the case; it simply ensures that a successful defendant can recover legal costs. The same principles also apply where a claimant brings a counterclaim or an appeal is being pursued.

Legal Framework: Civil Procedure Rules

Security for costs applications are governed by Part 25 of the Civil Procedure Rules (CPR), specifically Section VI. These rules give the court discretion to order security if it is just to do so and one or more statutory conditions apply.

Under CPR 25.27, the court may make an order if:

• It is just to make the order when considering all the circumstances; and
• A statutory condition is satisfied, or another enactment authorises it.

Statutory conditions are discussed below.

When Can Security for Costs Be Ordered?

Security for costs can be considered when one or more of the specific conditions under CPR apply. These relate to the claimant's financial standing, residency or behaviour in the litigation process.

1. Claimant Is Resident Outside the Jurisdiction

The claimant is domiciled or resident outside England and Wales and not in a state bound by reciprocal enforcement arrangements (such as under the Hague Convention), making enforcement of any costs order difficult.

2. Claimant Is a Company Likely Unable to Pay

The claimant is a company or corporate body (whether incorporated in the UK or overseas) and there is reason to believe it would be unable to pay the defendant's costs if ordered to do so. This is one of the most common grounds in commercial litigation.

3. Change of Address or Erroneous Details

If a claimant has changed its address since the claim was started with an intention to evade litigation consequences, or has given no address or an incorrect address on the claim form, this may justify security.

4. Nominal Claimant or Asset Dissipation

Security may also be considered where the claimant is acting as a nominal claimant on behalf of another, or has taken steps in relation to its assets that would make enforcement of a costs order difficult.

Security for costs can also be ordered in respect of counterclaims or appeals on similar grounds.

Purpose and Practical Importance

A security for costs order protects defendants who may otherwise face disproportionately high financial exposure, especially if the claimant has uncertain or insufficient resources. It reassures the defendant that funds will be available to cover legal costs if they successfully defend the claim, rather than bearing the cost burden themselves.

In practice, defendants often use security for costs as a tactical tool to focus the claimant on the merits and affordability of their case. Early application can also provide clarity on the litigation's cost risks and ensure protection from potential insolvency or asset dissipation by the claimant.

When Should an Application Be Made?

An application for security for costs may be made at any stage after proceedings start. However, the court and practice guides generally expect such applications to be made promptly once the grounds become apparent. Those issued late in proceedings, especially close to trial, may be refused if they significantly prejudice the other party or disrupt the litigation process.

In specialist courts like the Commercial Court, practice directions encourage security for costs applications no later than the first case management conference to avoid undue delay and ensure orderly progression of the case.

How to Apply: Procedural Steps

1. Commence Court Proceedings

Security for costs applications can only be made after proceedings have been issued. Before this stage, no such application is available.

2. Prepare an Application Notice

The application is typically made by filing a Form N244 Application Notice. This notice must state:

• The statutory ground relied on (for example, claimant's inability to pay costs);
• Supporting factual and legal grounds;
• The amount of security sought and basis for that calculation.

3. Support with Written Evidence

The application must be supported by written evidence, usually in the form of a witness statement, that:

• Sets out the claimant's financial position and relevant facts justifying the application;
• Shows costs incurred to date and an estimate of future costs to trial;
• Includes supporting documentation, such as financial accounts, public filings or evidence of asset dissipation.

4. Attend a Hearing

The defendant may need to attend a hearing where the court will consider the evidence and exercise its discretion. The court evaluates whether it is just to order security, taking into account both parties' interests.

5. Court Determines Amount and Form of Security

If the order is granted, the court will:

• Specify the amount of security required;
• Set the manner and timeframe for providing security;
• Direct what will happen if the claimant fails to provide security (for example, stay or strike out of the claim).

The amount might be a lump sum to be paid into court or alternative security such as a bank guarantee; courts have discretion over the appropriate form and level of security.

Defending Against a Security for Costs Application

If an application is made against a claimant, they can oppose it by:

• Providing evidence that they can meet a costs order, such as audited accounts, assets or insurance cover;
• Arguing that making the order would be unjust, stifling a genuine claim;
• Demonstrating that the grounds relied upon (for example impecuniosity or evasion) do not apply.

The court balances the defendant's need for protection against the claimant's right of access to justice.

Consequences of an Order

If security for costs is ordered and the claimant fails to comply by the deadline, the court may:

• Stay the proceedings until security is provided;
• Strike out the claim, effectively ending the litigation.

This emphasises the seriousness of security for costs orders and the importance of timely compliance.

Key Takeaways

A security for costs application gives defendants in commercial litigation a way to ensure that potential legal costs can be met if the claimant's case fails and they lack the means to pay. Under CPR Part 25, the court may order such security where it is just and statutory conditions apply, such as the claimant's inability to pay or residency outside the jurisdiction. Applications should be made promptly after proceedings begin, supported by robust evidence of financial risk, and typically filed using Form N244. The court determines both the amount and form of security, and failure to comply can result in the claim being stayed or struck out. Effective use of this procedural tool can protect defendants from unrecoverable costs and help manage financial risks in litigation.