Application for security of costs success

Keoghs acted on behalf of the second defendant ‘Insurer A’ in the case of Nicholls v (1) Plested & (2) Insurer A, which involved an alleged road traffic accident in Warwickshire. It was alleged that the first defendant, Mr Plested, lost control of his vehicle and turned into the path of the claimant, Mr Nicholls, causing a collision. Insurer A suspected that the accident had been staged, having obtained engineering evidence which suggested inconsistency of damage. The defence raised concerns over the circumstances of the incident and the reliability of the first defendant, and specifically alleged that the first defendant had connived and conspired with the claimant to present a falsified claim.

A claim of over £133,000 was made including vehicle loss, hire charges, recovery & storage and loss of earnings. However, following non-compliance with a number of directions, specifically relating to disclosure of the claimant’s financial documentation, the loss of earnings claim was withdrawn and the credit hire claim was subsequently struck out. Combined, the pleaded figure for these heads of loss totalled over £104,000.

Even though the largest aspects of the claim had been struck out, the claim for the remaining items of damages (general damages, vehicle damage and recovery & storage) was still to be progressed. Concerns were mounting about the claimant’s intention to proceed with the claim and Insurer A’s financial position (if successful at trial), especially after the claimant’s counsel advised the court that the claimant had relocated to Canada.

At this point, the claimant had either not complied at all, or had complied late, with previous court orders and had failed to pay the costs of an application he was ordered to. Additionally, Keoghs received Part 35 replies from the claimant’s medico-legal expert which confirmed that the expert did not find the claimant to have been an honest historian at the time of the medical examination and that he was not a credible witness.

In light of this information, we questioned whether the claimant’s ATE insurance policy would indemnify the claimant in the event that he was unsuccessful. When the claimant solicitors failed to respond to this question, our concerns about the financial position of the claimant and whether he would pay the judgment that may be granted against him increased. We recognised that it would be a difficult and potentially expensive process to enforce the judgment in Canada, and so decided to request an order for security of costs against the claimant.

What is an order for security of costs?

An order for security of costs offers protection to a party from the risks of their opponent not being able to pay the party's litigation costs if ordered to do so. The order will usually require the opponent to pay money into court or provide a bond against which the winning party can subsequently enforce an order for costs. Such applications are governed by CPR r. 25.12 and r. 25.13.

The outcome

Whilst an order for security of costs is not unusual, it is more commonly used against companies and not individuals. However, Keoghs were able to justify the application on the grounds that:

a. Enforcing any judgment in Canada would result in substantial extra costs and delay

b. The claimant had changed his address with a view to evading the consequences of litigation

c. The claimant had provided an incorrect address for service, and:

d. The claimant had dealt with his assets in such a way so as to put them out of reach of the second defendant (the claimant was evasive regarding disclosure of his financial documentation, but asset checks revealed that he was the owner of another property in the UK and that he was subject to a bankruptcy order).

Reference was also made to matters stated in the claimant’s witness statement (i.e. his parents had helped him out financially in the past) to support our argument that the claimant could afford the proposed nominal sum of £5,000 either himself or via third party support.

An application was made for £5,000 to be paid into the courts funds office within 28 days. Failure to do so would have resulted in the claim being struck out, and if this happened Keoghs were able to recover all costs.

The application was successful. The judge commented that he was impressed with the thorough preparation of the application including the case law used and the exhibition of asset checks proving that the claimant could afford to pay the order. It was acknowledged that additional costs may be incurred if more time was wasted and that it would be difficult to enforce any costs awarded from the claimant residing in Canada.

The order was served on the claimant by email and airmail. The claimant responded that he would not pay the order and would not be attending trial; resulting in the case being struck out, a saving in excess of £178,000 and Insurer A being eligible to recover costs for the whole action.

A useful tool

An order for security of costs is discretionary and will only be made by the court if it is ‘just’ to do so having regard to the circumstances of the case and where one or more of the conditions set out in CPR 25.13 are satisfied. In fraud cases such an application should only be considered where economic to do so and where there is a clear risk that the claimant will not pay any judgment awarded against him/her at trial.

Clear evidence undermining the claimant’s credibility (such as those discussed above), the claimant’s conduct in the litigation (such as non-compliance with court orders/evasive nature of disclosure), the claimant’s financial status and the financial exposure to the defendant will need to be provided in order to convince a court that such an order is just in the right cases.

It is, however, a useful and effective tool in the appropriate cases and something to bear in mind, not only when dealing with claimants that have permanently moved out of the country or have extended leave with no hope of return, but also in cases where the claimant changes his address/provides an incorrect address for service.

It is vital, in this post-Jackson world, to consider the impact of QOCS on each case and that recovery of costs may be limited. QOCS protection will be lost if the claim is found to be fundamentally dishonest, the claimant fails to beat a defendant’s part 36 offer, or the case has been struck out on the basis of no reasonable cause of action or abuse of the court process. Therefore, in cases where we are making a positive allegation regarding the veracity of the claim, and where there is a positive prospect of overturning QOCS protection, seeking an order for security for costs becomes a further valid tool in the box.