Litigation Funding and Security for Costs
Security for costs is frequently asked for in international arbitration cases, but almost never granted. In fact, the common thinking is that security for costs should only be granted in certain rare and specific instances. Notably, one of the main things spurring requests for security for costs is litigation funding. Many defendants are more likely to ask for this when plaintiffs utilize third-party-funding. Burford Capital explains that granting security for costs carries specific risks that are best avoided. These include the possibility of reducing access to justice and the risk of making determinations on a case’s merit before adjudication can begin. Reimbursement rights depend on who wins the case, and who will be asked to cover legal costs. Those things cannot be known with certainty until the case is over. Further, mandating upfront security may disallow plaintiffs from filing their case at all. Ideally, there should be no financial barriers to the pursuit of justice. At least, courts can ensure that they aren’t a party to putting up financial barriers. In the case of Eugene Kazmin v Republic of Latvia, security for costs was granted upon request by the state. This happened because the claimant was under criminal investigation and their assets had been seized. Accusations of tax evasion and money-laundering factored in as well. The court determined that the claimant’s behavior reasonably predicted the potential for non-compliance. A key point here is that the claimant did demonstrate that he had the means to cover costs—but past deeds suggested a propensity to leave financial obligations unfulfilled. Courts seem to have decided that the use of third-party litigation funding is not reason enough to grant an order of security for costs. But there may always be exceptions. If you have concerns about such requests, discussing them with an experienced funder is a good place to start.
