The usual rule in English law is that when there is a court case, the loser pays not only their own costs, but also those of the winner.

This can cause problems when one of the parties to the litigation has few assets, or assets which cannot easily be realised. Many cases have involved people who arrange their affairs so that they have few realisable assets and in some cases this has been done specifically with the litigation risk in mind.

When people who do this want to sue someone, the court can order that they lodge a sum as security for the other side’s costs. The court can make such an order when it considers that it is just to do so and that the claimant ‘has taken steps in relation to his assets that would make it difficult to enforce a costs order against him’. In such a case the sum is then made available to pay the costs of the other side if necessary. This prevents a losing claimant from making himself into a ‘man of straw’ who is unable to pay the other side’s costs.

You would think that there would be a difference between someone who deliberately makes themselves impecunious in anticipation of litigation and someone who has habitually organised their affairs so that they do not have easily-cashed assets.

Recently, this was considered by the court. A claimant was suing a business associate for what he considered to be his share of profits. The claimant had organised his affairs for many years in such a way that his assets were administered by others on his behalf – he did not even have a bank account. The court ruled that he should pay in the sum of £152,000 as security for the defendant’s costs.

He appealed against the decision on the grounds that his affairs had been managed in this way for many years and this was not done in order to put his personal assets beyond reach for the purpose of limiting his risk in litigation.

Judge Sir Francis Ferris could not agree with this logic. Since a claimant controls when he or she starts court proceedings, the fact that his or her affairs were arranged in a certain way before the commencement of the legal action could not give them a ‘get out’. Where it was just to do so to protect a defendant, the order for security would be made.

The ability to ask for security when it is fair to do so protects defendants from facing a ‘heads I win, tails you lose’ situation when the claimant has insufficient resources to meet costs.