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Security for Costs

4 May

The issue of security for costs can arise in the course of civil court proceedings. Basically, security for costs is an order of the Court directing one party to provide security (either by lodging money or a bond) to cover the likely costs of the other side defending the case. The theory is that the defendant should not be forced to incur the costs of defending a case if there is a likelihood that the plaintiff will not be in a position to cover the costs of the litigation were the defendant to go on and win the case and receive an award for costs. Before he/she incurs those costs, he/she can apply to the Court to request that the Plaintiff be forced to provide security for costs. Such an order can  be made by the Court only in certain circumstances and the rules differ depending on whether the order is being sought against an individual plaintiff or a corporate plaintiff.

A Defendant may apply to the Court to require a Plaintiff to provide security for costs if he/she has a prima facie(on the face) defence on the merits of the case and that the Plaintiff is ordinarily resident outside the EU. If seeking an order for security for costs against a limited company, the rules are slightly different; in addition to showing  that he/she has a prima facie defence to the case, the Defendant must show by credible testimony that the corporate Plaintiff will be unable to pay for his/her costs.

Case law in this area has created uncertainty as to the amount of security of costs that a Court is likely to award if making the order. Irish Courts have tended to award an amount of costs equivalent to on third of the costs which would likely be incurred by the Defendant if required to defend the case. However, in a number of cases, recently Flannery & Anor v Walters & Ors [2015] IECA 147, the Courts have applied a discretion to award not just one third of the Defendants expected costs, but the full amount of the reasonably estimated costs.

Section 390 of the Companies Act 1963 provided that, in relation to a limited company Plaintiff, it should be required to pay “sufficient security” for the Defendants costs. The equivalent section in the new Companies Act 2014, section 52, has now removed the word “sufficient” from the equation.

While generally applying a one-third rule Courts have discretion to depart from that rule in certain circumstances and have on occasion ordered that corporate plaintiffs pay full security for defendants costs.