Security for legal costs by foreign parties
Legal proceedings often end with a verdict and an order for costs. The default rule is that the "loser" of the legal proceedings shall pay such legal costs. In legal proceedings involving two Dutch parties, enforcement of a verdict – and with that also the payment of the order to pay the costs – seldom poses a problem (unless the losing party has no recourse). That would be different if the losing party is domiciled abroad. If a foreign party loses legal proceedings in the Netherlands, this may cause enforcement issues, especially when no enforcement treaty applies between the Netherlands and the losing party’s country. In that case, the enforcing party would have to address the courts in the losing party's country to request enforcement of the verdict. That may not prove to be successful. Therefore, a foreign party may opt to disregard a Dutch verdict – and therewith the cost order.
In order to prevent such a scenario, under Dutch law foreign claimants may be required to guarantee security for payment of legal costs (article 224 Dutch Code of Civil Procedure (DCCP)). This prevents a situation in which the winning party – entitled to receive a cost compensation – has to incur costs for new legal proceedings in the country of the losing party.
What are legal costs?
Legal costs include the following:
- salary of the lawyer and bailiff;
- bailiff costs (to summon the defendant);
- expenses for witnesses and experts;
- travel and accommodation expenses;
- court fees (costs for starting a procedure); and
What if the foreign claimant cannot provide security?
If a party cannot provide security, the case will be dismissed.
Whether the security provided is sufficient, shall be determined by the court.
There are a number of situations in which no security needs to be provided:
- when a European treaty is in force, which indicates that this is not required;
- where another convention or treaty is in force, which provides that the order for costs – and verdict – may be enforced in the losing party’s country;
- when it is likely that the legal costs can be recovered in the Netherlands; or
- when the party that is supposed to provide security will as a result thereof lack effective access to the court system.
How can the foreign claimant establish security?
The law does not provide detailed rules on how security must be established, but does specify that both personal as well as collateral securities can be provided.
Examples of personal securities are:
- Joint and several liability: joint and several means that several persons individually owe a creditor the same performance, whereby payment by one person discharges the other.
- Surety: in surety, a third party will provide surety for the amount of money – the actual contents of the arrangements regarding the surety is up to the parties.
- Guarantee: a guarantee is similar to surety, as a third party (the "guarantor") will guarantee the amount of money – the "guarantor" can be requested to pay the amount of money, without the creditor first having to seek payment from the debtor.
Examples of collateral securities are:
- Right of pledge: the pledgee is authorised to sell the encumbered object, e.g. a car, if the debtor defaults – the claim shall be paid from the revenue generated by the sale.
- Right of mortgage: a mortgage is similar to a pledge, be it that it involves registered property, such as real estate.
In some cases, it is compulsory for foreign claimants to provide security to ensure that the defendant has recourse for a possible claim for legal costs. This security can be established in multiple ways, provided that the court deems this sufficient.