When deciding to bring or fight a claim, an important factor is costs. Any party that is seeking to resolve a commercial dispute must have the sufficient resources to fund their case. A party to a dispute may be liable for any legal fees and disbursements they incur, as well as the costs of the other party, unless an alternative method of litigation funding or insurance is put in place. The availability and suitability of alternative funding approaches should always be considered: The SRA Handbook, particularly the SRA Code of Conduct, the SRA Financial Services (Scope) Rules and the SRA Financial Services (Conduct of Business) Rules, set out guidelines for solicitors around litigation funding and ATE insurance. The SRA handbook was updated last year to implement the EU Insurance Distribution Directive (EU) 2016/97, which details obligations for lawyers assisting clients directly with ATE insurance. The penalties for non-compliance are severe and breaches can lead to lasting reputational damage as well as costly professional negligence claims.

Annecto Legal fills the gaps when clients need access to professional legal advice on any issue. It removes financial uncertainties and the need for balance sheet protection against unforeseen major uninsured legal expenses at a low cost. We understand that covering the costs of legal support is not always simple, and that disputes can be disruptive and inconvenient.

What are the benefits of a security for costs application?

 There are a number of benefits that a security for costs application can provide, one of which is that an application significantly reduces the financial risk of litigation for defendants. In the circumstances that their claim is successful, the claimant will be required to pay the defendant’s costs if ordered to do so.

If the claimant does not have the funds required to pay the defendant, the defendant could be left out of pocket if security for costs is not obtained. The costs will sit with the court in order to comfort the defendant so that the risks of recovering costs are minimised, meaning that defending the proceedings can be fully focused on. 

The court also has the discretion to order security for costs if the claimant is a company or individual outside of the UK. The same can be said if the claimant is a ‘nominal claimant,’ meaning that they are pursuing on behalf of another person if there is potential that they will be unable to pay the defendant’s costs if ordered to do so. This can also be done if the claimant’s address is not stated on the claim form.

Requirements for a security for costs application

To be eligible to apply for security for costs and pursue it, evidence must be presented to the court in order to prove that the opposing party’s finances are in an uncertain state. This evidence is usually provided in the form of the party’s latest accounts. This will also give the opposing party the opportunity to show that they would have sufficient funds to cover any adverse costs orders made against them.

The amount of costs, both actual and future, that the party may be liable for must also be presented. This aids the court in determining the amount of security that should be awarded. If the court is persuaded that the claimant would not be able to pay these costs, it may then grant an order that security should be given.

What amount of security might be awarded?

The amount of security that will be ordered must be proportionate and not oppressive, and determining the exact amount cannot always be done. The court takes into consideration the costs already incurred and those that are likely to be incurred.

The court will also consider if a trial is imminent, as it could be deemed disproportionate to order a substantial security amount at such a late date. Security is not typically given on an indemnity basis, meaning that not all of the defendant’s costs will be secured.

What form can security for costs take?

Security for costs may take a number of forms, these include: 

• Payment of funds to a solicitor or to court under specified terms
• Bank bonds
• Bank guarantees or parent company
• An insurance policy which is typically an after the event (ATE) insurance policy

After the event (ATE) insurance for security for costs                   

After the event insurance policies may provide sufficient protection for claimants. If a claimant is covered by After the Event (ATE) Insurance, it will be taken into consideration by the court when assessing the need to grant security for costs.

ATE insurance policies typically cover parties entering litigation and the inevitable costs that will arise from proceedings. The terms included in the ATE policy will be examined, as well as the insurer’s rating and location. It is often common for claimants to provide either anti-avoidance endorsements (AAE) or a Deed of Indemnity should an application be made against them for security for costs.

This is an important role as many genuine claims fail to secure ATE as a result of poor presentation and preparation. Annecto Legal has vast experience in working with litigation funders and ATE underwriters and gives clients the opportunity of securing the right product at the best price to protect against the real risks of litigation.

How can Annecto Legal assist with security for costs applications?

A security for costs order is an effective method for defending against potentially troubling claimants and helping to obtain financial security when a claimant faces the brink of insolvency. Annecto Legal can discuss the best options available to meet a request for security for costs in commercial litigation.

We provide our services to a range of clients, including businesses, liquidators, insolvency practitioners and solicitors, commercial insurance brokers and individuals. We can also assist our clients by putting them in touch with professional solicitors for dispute resolution purposes, as well as assist in the presentation and preparation of claims, in order to maximise success in the underwriting and due diligence phase.

Get in contact with an expert member of our team today to find out more redarding security for costs and which litigation cover is the appropriate litigation funding choice for you.

Call us today 0800 612 6587, or our business development director, Mark Beaumont, can be contacted by email mark@annectolegal.co.uk.