Security for Costs

As we’ve discussed before, costs are an amount of money meant to compensate a party for the time and expense of having to participate in a Supreme Court case. Costs are generally paid to the successful litigant by the unsuccessful one.

While costs are not typically payable until the end of a lawsuit, in some cases a defendant, typically one who perceives the plaintiff’s claim to be particularly weak, may be concerned about being able to ever recover costs from the plaintiff should they be unsuccessful in proving their claim. In such cases, the defendant can make an interim application for an order that the plaintiff post security for costs. Essentially, the defendant is asking the court to require the plaintiff to pay a certain amount of money into court (or their lawyer’s trust account) as security for any costs award that is ultimately made against them. If such an order is made, the plaintiff typically cannot proceed forward with the lawsuit until such money has been posted. To put it more bluntly, an order for security for costs requires the plaintiff to “put up or shut up.”

The purpose of an order for security for costs is to protect a defendant from being unable to recover costs from the plaintiff should their claim fail. The legal test on an application for security for costs is as follows:

1. the defendant must make out a prima facie case that the plaintiff would be unable to pay the defendant’s costs if the plaintiff’s claim fails;
2. the plaintiff may resist an order for security by showing that it has sufficient assets to satisfy an award for costs, or that the defendant has no arguable defence to its claim;
3. if a security is warranted, the amount is discretionary; and
4. the court can consider whether an order for security would visit undue hardship on a plaintiff such that it would prevent the plaintiff’s case from being heard. This has also been described as the security order “stifling” the plaintiff’s claim.

Where the plaintiff is a corporation as opposed to an individual, the defendant is held to a lower standard of proof. In that case, additional principles apply:

1. The court has a complete discretion whether to order security, and will act in light of all the relevant circumstances;
2. The possibility or probability that the plaintiff corporation will be deterred from pursuing its claim is not, without more, sufficient reason for not ordering security;
3. The court must attempt to balance injustices arising from use of security as an instrument of oppression to stifle a legitimate claim on the one hand, and use of impecuniosity as a means of putting unfair pressure on a defendant on the other;
4. The court may have regard to the merits of the action, but should avoid going into detail on the merits unless success or failure appears obvious;
5. The court can order any amount of security up to the full amount claimed, as long as the amount is more than nominal;
6. Before the court refuses to order security on the ground that it would unfairly stifle a valid claim, the court must be satisfied that, in all the circumstances, it is probable that the claim would be stifled; and
7. The lateness of the application for security is a circumstance which can properly be taken into account.