86 What is security for costs? An order for security for costs requires a claimant to provide security for the defendant’s actual and/or reasonably anticipated costs of the litigation or arbitration. This can prevent a positive court or arbitration result from turning into a pyrrhic victory. The value of a costs order made in your favour can quickly become worthless if it turns out that the claimant has no means to pay it. The grounds to obtain an order for security for costs Applications for security for costs in English civil proceedings are governed by the Civil Procedure Rules. Arbitration proceedings are subject to the rules of arbitration institutions or tribunals, which often give arbitrators significant flexibility to manage procedural matters such as security for costs. There are, however,some grounds common to both arbitration and litigation proceedings which can give a court or tribunal the power to make an order for security for costs. Often, the pertinent grounds for a security of costs order are either that: 1. The claimant is an impecunious or insolvent company which will be unable to pay the defendant’s costs of the proceedings if ordered to do so; or 2. The claimant has taken steps that would make enforcing an adverse costs order difficult, either by transferring or dissipating assets. Timing is everything It’s important to stress that timing is of the essence when it comes to a security for costs application. While it is advisable for an application to be made promptly and early on in proceedings, it should be made when information is known about the parties’ respective positions on the issues in dispute. This is because the court or tribunal is likely to assess whether the claim and defence are being advanced in good faith and have reasonable prima facie prospects of success. Lateness in making an application can be a reason for an order for security to be refused. Even if security is ordered to be paid, the court or tribunal may reduce the amount ordered due to the delay. To maximise the prospects and impact of a successful application, it is imperative for it to be considered as soon as possible after the claim is served or if the claimant’s financial circumstances deteriorate during the proceedings.
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