“Costs follow the event” is a general rule often heard in the Courts which means that an unsuccessful party in legal proceedings is to pay the legal costs of the successful party. However, a successful party may find it difficult to retrieve his costs where, for instance, the unsuccessful party resides outside the jurisdiction or is impecunious. In these instances an order for Security for Costs becomes a useful and important mechanism utilised by the Court to protect the interests of the Defendant.
The order is discretionary in nature and is made upon the application of the Defendant to mitigate against the significant risk of a Defendant suffering the injustice of having to defend proceedings with no real prospect of being able to recover costs if he is ultimately successful. The order compels a Claimant to pay a sum into Court or an escrow account out of which costs will be paid to the party entitled if the Claimant is found to be unsuccessful in the proceedings.
The order can only be made against a Claimant but this includes a Defendant who raises a counterclaim. It must also be noted that where an application to register the judgment of a foreign court or tribunal in the Jamaican Court is made by a judgment creditor (person in whose favour judgment is entered), the Court may make an order for Security for Costs against the judgment creditor.
A defendant who wishes the Court to make such an order must file a Notice of Application for Court Orders for Security for Costs with an Affidavit in Support and a Draft Order. This application must be made at a case management conference or pre-trial review.
Grounds to be established
An order for Security for Costs may be made under the Civil Procedure Rules (CPR) or the Companies Act.
Under the CPR, the Court will make an order for Security for Costs only where it is satisfied, having regard to all the circumstances of the case, that it is just to do so and where the Defendant has established one or more of the seven grounds listed in the CPR which includes:
- the Claimant is ordinarily a resident outside of the jurisdiction;
2. the Claimant is an external company;
3. the Claimant-
- failed to give his/her address in the Claim Form;
- gave an incorrect address in the Claim Form; or
- has changed his/her address since the Claim Form was commenced with a view to evading the consequences of litigation; and
- the Claimant has taken steps with a view to placing the Claimant’s assets beyond the jurisdiction of the Court.
Impecuniosity is not a ground except under the Companies Act which makes special provision for an order to be made where the Defendant provides credible evidence that the Claimant company would be unable to pay the Defendant’s Costs. This provision has particular implications for actions brought by companies displaying a likely inability to pay the other party’s Costs of trial.
Other factors to be considered
It is important to note that the Court must be satisfied that it is just to make an order for Security for Costs. Therefore, once a Defendant has established one of the grounds above, the Court will also consider other factors in exercising its discretion including:
- whether the Claimant has assets within the jurisdiction to satisfy any order as to costs;
- whether the claim has a reasonably good prospect of success ;
- whether the Claimant’s lack of funds has been caused by the Defendant’s conduct;
- whether the application for security is being made oppressively and in order to stifle a genuine claim; and
- whether there has been a delay in making the application (the application should be made as early as possible).
In relation to corporate Claimants, the Court will also consider other factors such as the probability that the Claimant will be deterred from pursuing its claim by the order. However, this probability alone is not a sufficient reason to refuse the order.
Additionally, the Court must carry out a balancing exercise weighing the relative injustice of granting or refusing the application. The Court must also balance:
- the possibility of the order being used oppressively to stifle the Claimant’s claim; and
- the insolvent company using its inability to pay costs as a weapon to put unfair pressure on a more prosperous company.
Consideration should also be given to whether the Claimant company can provide security either out of its own resources or by raising funds from stakeholders.
Where an order for Security for Costs is made, the claim (or counterclaim) will be stayed until the security for costs is provided in accordance with the terms of the order. Non-compliance with the order by a specified date, will result in the claim (or counterclaim) being struck out, thus protecting the interests of the Defendant.