Often in litigation a party will find themselves opposite another about whom they have serious concerns as to their financial standing or the merits of the action itself. That could for example result in a concern that an individual or company who has raised an action will not ultimately be able to pay an award of costs that is made against them and therefore even to defend an action could have significant financial consequences for the ultimately successful party.
This risk can to a certain extent be mitigated by seeking an order for security for costs (or caution in Scotland) at an early stage in a court action. Practically speaking this is done either by lodging a certain amount of money with the court, or alternatively by lodging a bond of caution with court. A bond of caution is a bond issued by an authorised insurance company certifying that they will be able to make payment of the set sum in the event that an award of expenses is made against the party who has obtained the bond. It is also worth noting that a motion for caution can be made at any point in an action which will prove useful if a party's financial position or prospects change as the action progresses.
There are a wide variety of circumstances in which the court will grant an application. Generally speaking the courts will be much slower to order a defender to find caution than a pursuer on the basis that the defender has been forced to defend the action. Quite a common misconception is that the court will order caution simply where it can be demonstrated that an individual has very little or no money. This alone is unlikely to provide a ground for a court making an order for caution as the court will give precedence to the principle that an individual with a stateable case should not be precluded from presenting that case unless, for example, arguing that party's case also has poor chances of success.
That position is however different if the pursuer in an action is a limited company. Section 726 of the Companies Act 1985 provides that if it appears that there is a reason to believe that the company will be unable to pay the defender's legal costs, caution may be ordered against the company. Therefore in contrast to individuals, this alone will suffice in ordering a company to find caution.
There is no prescriptive list of the circumstances in which a court may order caution. Other examples can include where a party refuses to disclose their address to the court, or the court considers that another is the true claimant in the action.
Whether or not to seek an order for caution will always be highly dependent on the circumstances of each case and it is a difficult application to make, but, particularly when defending a claim brought by a company, it is definitely one worth considering.
