If you are sued in a lawsuit, you may be entitled to an order for security for costs. This means that the court may order the plaintiff to set aside money and pay it into the Court bank account to cover your legal costs if you win the case at trial. If these funds are not paid, then the Plaintiff will be barred from proceeding with his or her case. This protection is especially important when the plaintiff is from outside Ontario and has no assets in the province. Without this security, you might worry that any future cost award in your favour could be difficult to enforce by an Ontario court. This is due to the fact that when you win your case, a judge may order that you receive additional funds to compensate you for your legal costs. The court does not actively participate in the process of ensuring that you will receive this payment. Therefore, you may be left with the option of having your commercial litigation lawyer garnish one’s salary or force your home to be sold to pay legal fees. That will be difficult to do if there aren’t any assets in the province of Ontario and no bank accounts in our province exist.
You are not automatically entitled to security for costs merely because i.e. the plaintiff is from out of province. The courts now take a more comprehensive approach, considering various factors beyond the relevant statute, contained in Rule 56 of the Rules of Civil Procedure (“The Rules”).
The seminal decision on this topic is the 2017 Court of Appeal for Ontario (“ONCA”) case Yaiguaje v Chevron. In this decision, the ONCA established the legal test and provided guidance for how lower courts should decide a motion for security for costs. Judges must now take a comprehensive look at all contextual factors as well as the law itself. Central to this holistic analysis is the “justness” or fairness of the order sought.
Chevron Facts
Chevron’s procedural and jurisdictional history has correctly been described as an epic saga. The plaintiffs, representing approximately 30,000 indigenous villagers from Ecuador, have battled the defendants, Chevron Corp (formerly Texaco), in three different countries over three decades. The plaintiffs sought to hold Chevron accountable to the environmental contamination they caused in their region. After their 1993 lawsuit in New York was dismissed, they won a US $9.5 billion judgment in Ecuador in 2003. Since then, however, Chevron for a myriad of reasons, Chevron has refused to pay any of the $9.5 billion.
The plaintiffs sued in Ontario against Chevron and Chevron Canada seeking recognition and enforcement of the Ecuadorian judgement. (There was a whole different battle over Ontario’s jurisdiction which, if you are interested, you can read here.) In response, Chevron exercised their right under Rule 56 of the Rules and requested for security for costs. The motion judge awarded Chevron security for costs, holding that because the plaintiffs had not proven they were not “impecunious” (an elaborate word for “poor”) and that their case did not have a strong chance of success.
In his ruling, the motion judge followed the black letter law of Rule 56. Rule 56.01(1) lists six situations where a motion judge may make an order for security for costs, and only one of those situations has to be present for the judge to make the order. Just because one of the situations is met, it does not mean that the judge automatically makes an order for security for costs. Instead, as the ONCA ruled in Chevron, the key principle to consider is the fairness of the order being sought.
Justness of the Order and the Holistic Analysis
When conducting the holistic analysis required to determine the fairness of a possible order for security for costs, several factors must be considered. This list is not exhaustive, and each case must be evaluated based on its unique facts. Judges cannot rigidly apply the rules and factors to reach their decision. Nevertheless, these factors include:
- The merits of the lawsuit
- The moving party’s delay in bringing the motion
- The impact of the defendants’ actions on the plaintiffs’ available assets
- Access to justice concerns
- The importance of the litigation
- Ensuring the motion is not simply a litigation tactic
In Chevron, the ONCA practically and holistically applied these factors and concluded that the motion judge erred in ordering the Ecuadorian plaintiffs to pay Chevron security for costs. In addition to stating that the plaintiff’s claim was not without merit, the court based their ruling on three main reasons. These reasons are particularly noteworthy because they are not based on anything explicitly or implicitly stated in Rule 56. Instead, the ONCA considered these factors in the pursuit of fairness. The reasons were:
- It was a public interest litigation. The plaintiffs were not seeking the judgement for their own economic interests, rather they intended to hold the funds in trust to support the rehabilitation of the environmental zones that Chevron had destroyed decades prior.
- Chevron’s extreme wealth. Chevron had annual gross revenues in the billions of dollars and the plaintiffs, while not impecunious, were not even remotely as wealthy. The court found it “difficult to believe that . . . Chevron would require protection for cost awards that would amount to a miniscule fraction of their annual revenues.” Which led them to their final, most scathing point…
- The motion was a measure indented to bring an end to the litigation. After almost 25 years of litigation it is clear that Chevron had, and was likely to continue to, employ any means within their rights to resist enforcement of the Ecuadorian judgement. The court said that this reality made it difficult to consider the security for costs motion as anything more than a litigation tactic.
The important takeaway from this decision is its impact on the evolution of common law, which is judge made law that elaborates on the rules codified in statutes such as the Rules of Civil Procedure. Despite the strength of Chevron’s case under the rule’s criteria, the ONCA applied a holistic analysis to ensure that the fundamental principles of justice prevailed. This decision has been binding on all lower courts in Ontario since it was released in 2017. Therefore, prudent civil suit lawyers must consider their matters holistically in any litigation setting before requesting an order for security for costs.
The Chevron case underscores the importance of a comprehensive approach in legal proceedings and the always evolving nature of the common law. It also serves as a reminder that justice should always be a guiding principle, even when procedural rules seem to favor one side. If you have any questions about security for costs, please feel free to contact one of our commercial dispute lawyers.