Security for Costs

Overview

Security for costs may be ordered in certain cases, in order to prevent the abuse of legal process by persons (most commonly companies) and other entities without the means to meet an award of costs against them if they lose.  However, the principle comes in conflict with the right of a person to take ligation to assert his rights, which is a fundamental right protected by the Constitution.

Security for cost will not usually be ordered against an individual person who is a national of the State or another European Union state. Formerly orders were more readily made against persons resident outside the jurisdiction.

However, European Union law requires equality of treatment. Moreover, there now exists efficient mechanisms for the enforcement of judgements throughout the European Union.

Non-Resident

Security for costs will not be required  against an Irish-resident individual regardless of his limited means or absence of means.

The various  rules of court provide for an application for an order requiring security for costs against  claimant who resides outside the jurisdiction.  In order for a security for cost to be awarded, the claimant must be ordinarily resident outside the jurisdiction and the defendant must have a prima facie defence on the merits.

Even if this test is met, the court retains a discretion to refuse the application. Where, for example,  the defendant has caused loss or by their assets within the jurisdiction, the application is likely to be refused.

The provision in relation to residence outside the jurisdiction, never applied to Northern Ireland.  It is less applicable in practice to persons resident in England, Scotland or Wales.   European Union law has changed the position fundamentally. Unless particular difficulties arise in executing a potential judgment can be demonstrated, security for costs are unlikely be awarded against an EU resident individual.

A defendant who establishes a prima facie defence to claim it by a claimant resident outside the EU, is likely to obtain an order for security for cost.  However, the courts retains a discretion not to so order, if the defendant has sufficient assets within the state or the EU, this should be sufficient basis for the court not to require security. The courts will still be keen, even in the case of a non-resident, to ensure the right of access to justice.

Generally, security for costs is available only against the claimant.  In limited circumstances,  security may be ordered, in respect of the costs of an appeal by a defendant. Similarly, a counterclaim may justify security in respect of the defendant.

Application for Security

The security is generally fixed about one-third of the estimated costs.  The courts have a discretion as to the amount. They will have regard to the facts of the case and to the balance of  justice.

The application to fix security for cost is made by way of a motion to court. One or more of the above bases will need to be shown to be available..  Security for  costs should be sought  voluntarily in advance. The claimant may file affidavits to resist the application.

Where an order for security is made, the matter of the time, amount and manner of security is referred for determination by the Master.  Expert legal cost accountants evidence may be submitted.  The Master will determine the amount of security that ought to fixed.  The payment of moneys or the provision of a bond by a financial institution may be required.

Companies

The distinction between corporates and individual security for costs is justified by the supposed fear of bankruptcy sanctions. The Companies Act requires sufficient security and this has been interpreted to mean that it must be adequate or enough. Therefore, it should cover a reasonable estimate or assessment of the anticipated costs.

The Companies Act provides that where a limited company is claimant in any action or proceedings, the  judge may if it appears by any credible testimony that there is a reason to believe the company will be unable to pay the costs of the defendant, if successful in his defence, require the company to give security for costs.  It may stay/suspend the proceedings until this has done. The defendant must show that he has good defence and the  claimant company will not be able to pay the defendant’s costs, if successful.

There was no general requirement for security for costs, simply because the claimant is a company, even with a company may be unable to pay costs.  There is still a discretion on the part of the court.As in the case of the individuals, where the company’s financial position is caused or contributed to by the defendant or where other special factors exist, an order may be refused.

A prima facie defence is required where it is sought to obtain security for costs against a corporate claimant.  This is a defence that has a good chance of success.  The defendant  must be able to point to evidence and the legal basis of a defence, evidence of the claimant’s inability to meet the judgment is required.

It may be apparent that a company is a special purpose vehicle.  Filed accounts may be  available from the Companies Registrations Office.

Companies Issues

As with individuals, security for cost may not be awarded at the court’s discretion, even where the above criteria would otherwise, where there’ are special circumstances.  Where the  inability to provide security is due to the claimant itself, the court may exercise its discretion not to  require security for cost.

Where the defendant has delayed in seeking security for costs, and the claimant has acted to his detriment in proceeding with the litigation on the assumption that he would not be required to provide security.  A further example of  special circumstance might be where a point of law was  raised of exceptional public importance, where it transcends the interests of the immediate parties to the action.

As the case of individuals, there is no general provision for security for costs from defendant.  However, if there is a  counter-claim, it may be appropriate.

In the cases of companies, the amount of security required will be the full security for the defendant’s cost.  The abovementioned one-third rule of thumb, well, does not apply in respect of corporate security for costs.

Corporate Procedure

The application for security for costs in a corporate case is broadly similar to that in an individual’s case.  An application should be made by motion with evidence that the claimant would not be able to meet the costs and that there is an arguable/prima facie defence.  The security for costs should first be sought voluntarily in advance.

There is provision in the court rules for security in conection with the costs of discovery.  Discovery may be extremely time-consuming and costly. The court has discretion to impose terms as to security for costs of discovery.  The party who seeks the costs order must show a strong presumptive case of the probable inability of the party to pay the costs of discovery, if they are levied with it  The courts will have  regard to

• the relative strength of the case on the pleadings and affidavits,
• the burden of compliance;
• the detriment suffered  if security cannot be provided;
• the strength of the case for discovery;
• whether the case raises matters of public importance; and
• the location of the party.

In the case where costs for discovery are required, security is usually required for no more than about one-third of costs. The court has a discretion and will take account of the totally of circumstances. It may be that higher proportion would be required in respect to corporate claimant by analogy with the general provisions as to security for costs.

Appeal & Security

The rules of court provide for provision for security for costs occasion by an appeal to the Supreme Court.  The Supreme Court will consider whether there are sufficient circumstances or whether the justice of the case requires that the court exercises discretion by awarding security

The requirements may be made, notwithstanding that parties are resident within Ireland or the EU.  The practice in relation to High Court applications in respect of  individuals and corporate claimants does not apply.  The courts have regarded to a range of factors including those above.

• the financial strength of the appellant;
• the importance of the point of law;
• the residence of the claimant;
• the existence of prima facie grounds for the appeal;
• the complexity of the matter; and
• possible delays.

In the case of corporate appellate, it appears a broadly similar principles apply as those above.  There is a greater degree of flexibility.

Where security for costs is required, the proceedings will be stayed until security is given.  If this security is not given, the proceedings will be indefinitely suspended.  Ultimately, the proceedings may be struck out for failure to provide security.