Security for Costs Escrow

Security for Costs Escrow is an arrangement used to hold funds provided as security for costs during legal proceedings.

Instead of paying money into court or to the other party, an agreed sum is paid into an independent escrow account. The funds are held there and released only when the agreed conditions are met.

This provides security to the receiving party while keeping the funds neutral and protected during the proceedings.

Security for Costs Escrow is suitable for claimants, respondents and defendants involved in civil litigation, tribunal proceedings or arbitration where security for costs is required.

It is commonly used where security is ordered by a court, tribunal or arbitral tribunal, or where the parties agree to provide security without formal payment into court.

Escrow is particularly relevant where one party is based overseas, where enforcement risk is a concern, or where neither party wishes to transfer control of funds directly to the other.

Security for Costs Escrow is typically put in place after an order for security has been made, or where security is agreed between the parties.

It may also be used at an early stage of proceedings to avoid interim applications, or later where circumstances change, such as concerns about solvency or recoverability of costs.

Escrow can be used in domestic proceedings and in international arbitration, where payment into court may be impractical or undesirable.

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Security for costs is intended to protect a party against the risk of unrecoverable costs. In practice, the mechanics of providing that security can create problems of their own.

Paying money into court can be slow and administratively heavy. Paying money directly to the other party can raise concerns about neutrality, control and what happens if circumstances change.

Where one party is based overseas, enforcement risk and timing can become more complex. Where insolvency risk is in play, parties may be concerned about whether funds will still be available at the end of proceedings.

Security for Costs Escrow addresses these challenges by providing a neutral place for funds to be held, without altering the underlying procedural position.

The primary benefit of Security for Costs Escrow is neutrality. Funds are held by an independent third party and are not under the control of either litigant.

This protects the receiving party by ensuring that security is genuinely in place. At the same time, it protects the paying party by avoiding an irreversible transfer of funds.

Escrow also provides clarity. Everyone knows where the money is, what it is for and when it can be released.

Benefits for the party receiving security

For the party receiving security, escrow provides confidence that funds are ring-fenced and available if a costs order is made in their favour.

Funds held in escrow are not dependent on the future solvency or cooperation of the paying party. This is particularly important where there are concerns about recoverability at the end of proceedings.

Escrow can also reduce the need for further applications or enforcement steps, as the mechanism for release is already agreed.

Benefits for the party providing security

For the party providing security, escrow avoids paying funds directly to an opponent or into court.

Funds remain protected and can be returned if the proceedings are discontinued, dismissed or resolved in their favour. This can be important where the sums involved are significant or where proceedings may take time to conclude.

Escrow can also reduce friction. Providing security through escrow may be quicker and less contentious than other methods, allowing proceedings to move forward without repeated procedural disputes.

Benefits in arbitration and cross-border proceedings

In arbitration and international disputes, paying security into court may not be possible or appropriate.

Security for Costs Escrow provides a practical alternative that works across jurisdictions. Funds can be held independently and released in line with arbitral awards or tribunal directions.

This supports enforceability and avoids the need to navigate unfamiliar court processes in multiple jurisdictions.

Benefits for advisors and tribunals

For lawyers, arbitrators and tribunals, escrow provides a clean and predictable mechanism for implementing security orders.

It reduces administrative burden and avoids disputes about where funds are held or who controls them.

Escrow can also support procedural efficiency by allowing security issues to be dealt with once, rather than revisited through repeated applications.

Security for Costs Escrow can be structured in different ways, depending on how security is required. There is no single standard model.

Most commonly, escrow is used to hold a fixed sum ordered by a court, tribunal or arbitral tribunal as security for costs. The funds are paid into escrow and held until the proceedings conclude or until the order is varied.

Escrow may also be used where the parties agree to provide security without a formal order, for example to avoid interim applications or to satisfy concerns about recoverability.

Yes. Security for Costs Escrow arrangements are often tailored to reflect the scope and duration of the proceedings.

For example, security may be provided in tranches, increased or reduced over time, or linked to procedural milestones. Escrow can also be combined with other forms of security, such as guarantees or insurance, where a layered approach is appropriate.

Advisors often recommend tailored escrow structures where proceedings are complex, long-running or involve changing risk profiles.

All escrow arrangements are administered through the dospay digital escrow portal.

The portal provides a single place where authorised parties can view account balances, payment history and escrow status. It also supports the submission and tracking of information required for payments or releases, in line with the escrow agreement.

Using a digital portal reduces reliance on email chains and manual reconciliation. It improves transparency and creates a clear audit trail for payments and releases. Advisors often find this helpful when reviewing payment history or responding to queries during the life of the project.

In practice, Security for Costs Escrow works by holding the security funds independently while the proceedings continue.

The party providing security pays the agreed amount into escrow. The funds remain held and cannot be accessed by either party without agreement or an appropriate order.

At the end of the proceedings, or when the relevant stage is reached, funds are released from escrow in line with the outcome and the escrow agreement.

Security for Costs Escrow does not replace the authority of the court or tribunal. Any order for security continues to apply.

The escrow agreement implements the order by setting out how the security funds are held and when they may be released. Release conditions usually reflect the outcome of the proceedings, such as a final costs order, settlement or withdrawal of the claim.

The escrow agent does not assess entitlement or costs. It holds and releases funds strictly in line with the escrow agreement and the relevant court or tribunal directions.

Only parties authorised under the escrow agreement can give instructions to the escrow agent. This is agreed at the outset and documented clearly.

Instructions are usually tied to specific events, such as the issue of a certificate, confirmation of a milestone or the occurrence of a payment default. The escrow agent checks that the instruction matches the agreed conditions before acting.

This approach ensures that payments are controlled, predictable and not dependent on informal requests or unilateral decisions by one party.

Only parties authorised under the escrow agreement can give instructions to the escrow agent. This is agreed and documented at the outset.

Instructions are typically linked to clear events, such as the issue of a final costs order, an arbitral award, or confirmation that proceedings have concluded.

The escrow agent checks that the instruction matches the agreed conditions before acting. Informal or unilateral requests are not accepted.

Below is a practical view of the steps that parties typically follow when using Security for Costs Escrow.

1. ‍Provide security into escrow
   The party ordered or agreeing to provide security pays the required amount into the escrow account.‍
2. Funds held while proceedings continue
   The funds remain held independently while the litigation, tribunal proceedings or arbitration runs its course.‍
3. Proceedings conclude or relevant order is made
   At the appropriate stage, the court, tribunal or arbitral tribunal determines costs, or the proceedings are settled or discontinued.‍
4. Release funds in line with the outcome
   Funds are released from escrow in accordance with the final costs order, award or settlement terms.‍
5. Return any balance where appropriate
   Any remaining funds are returned to the paying party in line with the escrow agreement.

Setting up a Security for Costs Escrow account starts with confirming the amount of security required and the basis on which it is being provided. This may be pursuant to a court, tribunal or arbitral order, or by agreement between the parties.

An escrow agreement is then prepared. This document sets out how the security funds will be held, who can give instructions and how funds may be released once the proceedings conclude.

At the same time, we begin the account opening and onboarding process so the account is ready to receive funds as soon as security is due to be provided.

The time needed to open a Security for Costs Escrow account depends on the parties involved and whether the security is being provided under an order or by agreement.

For straightforward cases, account opening can usually be completed within a short period once the required information has been provided and the escrow agreement is agreed. Matters involving overseas parties, multiple claimants or respondents, or complex structures may take longer.

Most delays arise from incomplete onboarding information rather than from the escrow process itself.

To open a Security for Costs Escrow account, standard onboarding checks are required. These are similar to the checks required when opening a bank account or instructing a law firm.

This usually includes confirming the identity of the parties, the ownership and control of any corporate entities involved, and the source of the security funds.

We may also need basic information about the proceedings, such as the nature of the claim and the relevant order or agreement, to ensure the escrow is set up correctly.

The following information is typically required to open a Security for Costs Escrow account:

• Details of the parties to the proceedings
• Identification information for authorised individuals
• Corporate documents showing ownership and control, where applicable
• Source of funds information for the security amount
• Copy or summary of the security for costs order or agreement
• Amount of security to be held and any staged arrangements
• Expected duration of the proceedings

Providing this information clearly and early helps ensure the account can be opened without unnecessary delay.

A Security for Costs Escrow account is funded by the party required to provide security.

The amount is usually set by a court, tribunal or arbitral tribunal, or agreed between the parties. The paying party transfers the security sum into the escrow account by the required deadline.

Once paid in, the funds are ring-fenced and held only for the purpose of providing security for costs.

Payments from a Security for Costs Escrow account are made only when the agreed release conditions are met.

These conditions are set out in the escrow agreement and usually reflect procedural outcomes, such as a final costs order, an arbitral award, settlement of the proceedings or withdrawal of the claim.

When a release request is made, we check that the agreed conditions have been satisfied before releasing funds in line with the escrow agreement.

If instructions are disputed or unclear, we will not release the funds.

Instead, the funds remain held safely in the escrow account while the parties follow the process set out in the escrow agreement. This may involve clarification, confirmation from an agreed third party, or the use of the dispute resolution process under the underlying contract.

This approach protects both parties. It ensures that money is not released prematurely and that funds remain available once the position is resolved.

If a party to the underyling contract becomes insolvent, we continue to operate under the escrow agreement.

Because the funds are held in escrow and not in the control of either party, they are protected from being used for other purposes. We will follow the agreed instructions and any applicable insolvency process, as set out in the escrow agreement.

In practice, this can provide greater certainty than relying on funds held directly by one of the parties, particularly where payment timing or entitlement is being considered as part of an insolvency situation.

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What happens if DOS & Co. becomes insolvent?

All escrow funds are segregated (kept separate from our own funds), safeguarded (protected by law from our own creditors) and kept liquid and unencumbered at the Bank of England. In the event of our insolvency, we have set aside regulatory capital that will be used by our administrators to 'unwind' our affairs - this will usually involve working with the parties to agree the identity of a new escrow agent who will 'step in' to carry out our obligations under the escrow agreement.

Funds paid into an escrow account are held separately from the money of the parties and separately from our own funds. They are not mixed with operational accounts.

All of our escrow funds are held liquid and unencumbered at the Bank of England. This means that there is no counterparty risk (the bank does not lend out funds, so a 'run on the bank' is not possible).

The escrow account is set up specifically for the purposes agreed in the escrow agreement. Funds can only be used in line with that agreement and cannot be applied for any other purpose.

This separation helps protect the funds if something goes wrong elsewhere. For example, the funds are not available to the creditors of the Employer, the Contractor, us, or the underlying bank. They remain ring-fenced for the project until they are released in accordance with the agreed conditions.

We are regulated by the Financial Conduct Authority for the provision of payment services. This means we are required to meet regulatory standards around governance, systems, controls and the handling of client funds.

Where escrow arrangements involve regulated payment activity, those activities are carried out within that regulatory framework. Other aspects of escrow are contractual in nature and governed by the escrow agreement between us and the parties.

In practical terms, this combination of regulation and contract provides structure and oversight, while still allowing escrow arrangements to be tailored to the needs of a specific matter or project.

Escrow is designed to hold, protect and release funds in line with agreed conditions. It does not decide who is right or wrong in a dispute.

We do not interpret the underlying contract, assess the quality of anything done or delivered under that underlying contract, or replace the role of a contract administrator, adjudicator or court. If there is a dispute, the funds remain held while the parties follow the agreed dispute resolution process.

The escrow arrangement also does not remove the need for a properly drafted underlying contract. It supports that contract by providing a clear and neutral payment mechanism, but it does not change the parties’ underlying rights or obligations.

Escrow pricing depends on the structure, value and duration of the escrow arrangement. There is no single fixed fee, as projects and payment flows vary.

Pricing usually reflects three main elements. First, the work involved in setting up the escrow arrangement, including compliance, onboarding and preparation of the escrow agreement. Second, the ongoing administration of the escrow account while funds are held. Third, the handling of payments or releases during the life of the project.

What pricing covers is the independent holding of funds, administration of agreed payment mechanics, record-keeping, reporting, all bank fees and support throughout the project. It does not cover legal advice, contract administration or dispute resolution, which remain the responsibility of the parties and their advisors.

If something goes wrong, the escrow arrangement provides a clear framework for dealing with it.

If there is a mistake, delay or disagreement about instructions, funds remain safely held in escrow while the issue is addressed. We follow the process set out in the escrow agreement and do not release funds unless and until the agreed conditions are met.

If a party has a concern about how the escrow account is being operated, we have a formal complaints process. This allows issues to be raised, reviewed and resolved in a structured way, with escalation routes available if needed.

We are a specialist provider focused on escrow and managed payment arrangements. Escrow is not an add-on to another service. It is a core part of what we do.

Escrow funds are held securely and separately, with infrastructure designed specifically for escrow rather than adapted from other uses. Account opening is handled efficiently, and escrow arrangements are administered through a dedicated digital escrow portal, giving authorised parties visibility and a clear audit trail.

Advisors often recommend dospay because we sit independently of the transaction, operate within a regulated framework, have a proven track record and focus on doing one thing well: Holding and administering escrow funds in a clear, neutral and predictable way.