Posted Tuesday 16th February 2021
The Court of Appeal has ruled that, when ordering security for costs, courts should only require defendants to give cross-undertakings in damages in “rare and exceptional” cases (Rowe & Ors v Ingenious Media Holdings Plc & Ors [2021] EWCA Civ 29).
But what does that mean and why is it important?
As a general rule, in the courts of England and Wales, the loser of litigation will pay a significant portion of the winner’s legal costs.
If a defendant is concerned that the claimant may not be able to pay the defendant’s legal costs should the defendant win, the defendant can apply to the court for an order that the claimant provides security for costs. Security is usually provided in the form of a payment into court, but it can be provided by other means, such as a bond.
Claimants will sometimes risk incurring losses as a result of providing security, such as costs associated with tying up capital or bank charges.
In cases where this is a concern, the claimant may want the defendant to provide a cross-undertaking in damages. A cross-undertaking in damages is essentially a promise from the defendant to compensate the claimant for any losses the claimant may suffer as a result of being ordered to provide the security, in the event that the claimant ultimately wins the case.
The decision overrules a series of decisions in which defendants have been required to provide cross-undertakings in damages, in the context of applications for security for costs.
The Court of Appeal’s judgment makes clear that defendants should be required to provide cross-undertakings only in “rare and exceptional” cases. The court also held that cross-undertakings should be required in favour of third-party litigation funders financing claimants only in “even rarer and more exceptional” cases.
This is welcome news for defendants applying for security for costs who might have been fearful of opening themselves up to an open-ended and unquantifiable liability opposite the claimant or the claimant’s funder.
Does the decision harm access to justice, since claimants will be afraid of bringing claims for fear of suffering losses associated with providing security for costs?
In short: it shouldn’t. It is well established that courts will not order security for costs if doing so will stifle a genuine claim.
The judgment leaves this question open, perhaps intentionally. In the writer’s view, the circumstances in which cross-undertakings are required should at the least include cases in which security for costs would not otherwise be granted.
This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.
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