Security for Costs

Security for Costs - An Under-utilized Tool in Litigation

Security for Costs - An under-utilized tool in Litigation 

What is security for costs?  It is when a party to an action motions the court to have the opposing party pay its costs partially or fully into court pending the final disposition of the matter.

For example, in Ontario. on a motion by the defender in a proceeding the court may make such order for security for costs where it appears:

1.  the complainant is ordinarily resident outside the province;

2.  the complainant has another proceeding for the same relief pending;

3.  the defender has an order against the complainant for costs in the same or another proceeding that remain unpaid in whole or in part;

4.  the complainant is a corporation or a nominal complainant, and there is good reason to believe that the complainant has insufficient assets in the province to pay the costs of the defender; or 

5.  a statute entitles the defender to security for costs.

The court will consider all the circumstances when considering to make such an order.  The court will not stifle a legitimate claim or defence due to a party being unable to pay the costs.  The court will have to consider the poverty of the plaintiff in pressuring the defender to settle a frivolous claim.  The court will avoid getting into the merits of the claim unless it's success or failure seems obvious.

The court must exercise its discretion carefully when making such an order.  However, a condition for any order for security for costs that the defender establish a prima facie defence, not merely that the complainant lacks exigible assets.  

So when should a party to a claim consider bring a motion for security for costs.

1.  when the opposing party is not ordinarily a resident of Ontario;

2.  when the opposing party has a number of similar actions in litigation;

3.  when the opposing party has failed to pay for costs in the proceeding;

4.  when the claim is obviously frivolous and the party believes that his or her costs won't be satisfied by the complainant;

5.  when one party is a corporation and has other parties that can pay for security.

Security for costs is something that should be considered by civil litigation counsel but it should be considered in light of the risk that the motion fail and adverse cost consequences.