Litigation Litigator's View

James Wilders on protection for plaintiffs over costs orders. James Wilders is a partner at Dickinson Dees

A defendant may make an application for security of costs to ensure that if he defeats a claim brought against him he will have a fund available in England and Wales against which he can enforce any order for costs made in his favour.

Such an application may be made under RSC Order 23 Rule 1 where the plaintiff is resident abroad, is a nominal plaintiff who is impecunious, or who has deliberately given a false address in the writ, or subsequently changed his address to evade the consequences of the litigation.

Under the Companies Act 1985 s.726, security for costs may also be available against a plaintiff which is a company registered in England, if there is reason to believe that the company would not be able to pay the defendant's costs if ordered to do so.

An order for security may be enough to prevent a small limited company from continuing an action. This has recently be recognised by Mr Justice Colman in a speech he gave to the Commercial Bar Association on 23 April.

He says that where a plaintiff has relatively small assets and has to put up a substantial amount of security, the impact on its ability to trade could be serious. This could substantially deprive the plaintiff of trading capital and the effect could be even more damaging than that inflicted by a Mareva injunction.

A successful plaintiff who is not ordered to pay the defendant's costs has no means of recovering such loss or expense under English law as it now stands. The successful plaintiff cannot even recover the expenses of security as legal costs. Mr Justice Colman says that this is unfair where no order for costs is made against the defendant.

The Commercial Court has responded by ensuring a defendant undertakes to pay all losses and expenses incurred by the plaintiff by having to put up security for costs should no order for costs ultimately be made in the defendant's favour. An order for security is discretionary so that failure to give the undertaking may result in refusal of the application.

The Commercial Court's practice represents a protection for plaintiffs which are small limited companies with low value assets. Whether the Commercial Court's new practice will be taken up by other courts remains to be seen.