Issue 39 October 2021 - Journal - Page 132
The Rise in Security for
Costs Applications in a Fragile
by Neil Rudd, Senior Forensic Accounting Manager at Azets.
To persuade the Court to grant the security for costs
order, Luxurious Polyester Ltd must provide written
evidence setting out:
I’m sure you don’t need a finance expert to tell you
that the last eighteen months have not been the best
for the UK economy. However, all being well, UK
businesses in the main have hopefully managed to
weather the storm and can succeed again without the
need for government financial support.
(a) why the Claimant may be unable to satisfy any
potential cost order; and
(b) an estimate of the likely costs that will be incurred
defending the Claim.
Azets’ recent SME Barometer Report1 found that
more than two thirds of businesses surveyed are
expecting the economy to improve in the next twelve
months. Positively, 89% were confident that they will
be trading in twelve months’ time, however, only 54%
thought that their profits would increase in that timeframe, with the remainder believing that their profits
will either stay the same or reduce.
This is where your forensic accountant can help you.
Having accounting expertise complimented by a
familiarity with submitting written evidence to courts,
arms them with the key skills for assisting your legal
team in the preparation of the application.
Often the hardest part of demonstrating that the
Claimant may be unable to satisfy a costs order, is
obtaining sufficient financial information to analyse
their financial position and recent / prospective
trading performance. A forensic accountant with
advanced open source data and asset tracing capabilities, complimented with access to a global network,
can add significant value.
In the context of this uncertain economic climate, I
wanted to pick up the fictional story of ‘you’ as the
CEO of the polyester manufacturer, Luxurious
Polyester Ltd. For those of you who missed my
article on contract disputes in the March 2021 issue of
Expert Witness2, you are defending a contract dispute
claim for failure to fulfil minimum volumes required
under a supply contract to PPE Pandemic Ltd (a
wholesaler of personal protective equipment).
It is also worth noting that the claim submitted may
also be a valuable source of information. Luckily this
is the case for Luxurious Polyester Ltd, as PPE
Pandemic Ltd has provided significant financial
information about itself as part of its quantification of
the profit it alleges it has lost as a result of a breach of
If, as you hope, you defeat the claim, the vast
majority of the time you would expect the Court to
award you at least some proportion of the costs
incurred defending it. These would be paid to Luxurious Polyester Ltd by PPE Pandemic Ltd (or their
third party litigation funder) in recognition that you
did not have a choice in incurring the costs to defend
a claim which ultimately proved to be unfounded.
The information obtained can be used by forensic
accountants, to address whether the Claimant would
be able to satisfy a costs order, presenting complex
financial information in a simple and understandable
way, suitable for use in the security for costs application. Alternatively, if the Claimant’s financial outlook
is not as bad as suspected, a forensic account will
advise on the merits of pursuing a security for costs
application, preventing wasted costs.
Like many businesses in the current economic climate,
PPE Pandemic Ltd’s finances are suspected to be
precarious, with its future prospects unclear. Should
Luxurious Polyester Ltd successfully defeat the claim,
you are concerned that the Claimant would not be
able to pay an award for costs ordered by the Court.
Such analysis would include for example, an
assessment of the Claimant’s:
You probably feel aggrieved that your business might
get lumbered with significant costs defending an
ultimately unfounded claim. However, there is a legal
mechanism that could come to your aid. As Defendant, you can apply to the Court for a ‘security for
costs’ order under Civil Procedure Rule 25.123. This
should be applied for as early in the proceedings as
possible and if you are successful, the Court will order
PPE Pandemic Ltd to pay an amount which will be
held by the Court, until such time it may be required
to fulfil an award for costs.
EXPERT WITNESS JOURNAL
(a) recent and likely future financial performance,
considering risks specific to the business, the industry
it operates in and the wider economy;
(b) solvency position and whether this will likely
improve or deteriorate; and
(c) ability to turn sufficient assets into cash at the time
required to satisfy an award for costs.
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