Security for Costs – Cash is King

8 November 2018

In a further blow to Claimants responding to demands for security for costs, the High Court has ruled that where security for costs is to be provided by way of a Deed of Indemnity rather than a payment into court, the Court can in its discretion require that the indemnity should cover all the Defendant’s costs.

We reported recently on the difficulties encountered by the Claimant in Lewis Thermal Ltd v Cleveland Cable Co Ltd when trying to rely on an After the Event (“ATE”) insurance policy to provide security for the Defendant’s costs[1].

Where the terms of an ATE policy are inadequate to provide security for costs, as was held to be the case in Lewis Thermal, the Claimant may be ordered to make a payment into court or provide an alternative form of security instead. In Lewis Thermal, the Claimant was ordered to give security by making two staged payments into court. The amount of security ordered was approximately one third of the Defendant’s budgeted costs.

The Claimant was unable to make these payments, however, and applied for the order for security for costs to be varied. It proposed that security be provided by way of a Deed of Indemnity from its ATE insurer in substitution for the previously ordered payments into court.

The High Court agreed to vary the order and, in keeping with established principle, that a Deed of Indemnity could provide suitable security for costs and could be substituted for payment into court as it was, in short, “an unconditional and irrevocable promise to pay such costs as the court might order the claimant to pay the defendant at the case’s conclusion”. However, when deciding whether to exercise its discretion to allow the substitution of the type of security to be provided, the court had to consider whether, in circumstances where the original order was for a payment into court, the security now offered by way of Deed of Indemnity was less valuable. In so doing, the Court considered that although the Deed of Indemnity being offered provided adequate security, the security it provided was less than that which would be provided by way of a payment into court (albeit not in monetary terms). In order to reflect that ‘lesser’ security, the Court ordered that the amount of security be increased approximately three-fold to cover the Defendant’s entire budgeted costs.

This decision highlights the possible difficulties when seeking to rely upon ATE insurance and Deeds of Indemnity to provide security for costs. Parties may have assumed that “cast iron” indemnities would be treated as equivalent to cash. This decision shows that will not necessarily be the case.

[1] Lewis Thermal Ltd v Cleveland Cable Co Ltd QBD (TCC) (O’Farrell J) 15/08/2018 (Unrep.); ‘The (In)adequacy of ATE policies as security for costs’