As discussed in our recent Walker Law blog post, initiating costly litigation based on meritless claims can attract significant cost consequences. In general, in the Superior Court, the losing side is usually ordered to pay approximately 60-80% of the legal fees or “costs” of the winning side. In addition to the compensatory nature of cost awards, they also serve to encourage settlement and deter frivolous claims or unnecessary steps in litigation.
However, what happens when someone has brought a frivolous claim against you which you must now bear the cost to defend, but you do not believe the plaintiff will have the funds to pay a costs award should they ultimately lose? This illustrates one of the scenarios where the legal mechanism of “Security for Costs” can be an incredibly valuable tool for defendants. Under Rule 56 of the Rules of Civil Procedure, a plaintiff can be ordered to pay money into court pending the outcome of the matter. This ensures that funds will be available and easily recovered against the plaintiff should they lose, and prevents defendants from being unjustly burdened with legal expenses in cases where there are concerns with the ability to enforce a costs award against a plaintiff.
Security for costs is a pre-emptive measure that mitigates the risk of litigation on defendants in particular circumstances. Rule 56 sets out where it is available for the court to order for security for costs “as is just where it appears that”:
- the plaintiff or applicant is ordinarily resident outside Ontario;
- the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere;
- the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid in whole or in part;
- the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent;
- there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; or
- a statute entitles the defendant or respondent to security for costs.
On a motion for security for costs in Ontario, the onus is on the defendant seeking security to prove that (at least) one of the enumerated circumstances listed above “appears” to be present. This is a relatively low bar to meet, and where this first step is satisfied, there is a presumption of entitlement to security for costs. The onus then shifts to the plaintiff who has the ability to rebut this presumption and satisfy the court why an order for security would be “unjust.” Reflecting the fact that the underlying goal of security for costs includes promoting access to justice and discouraging abuse of the legal system, in determining if an order would be “just”, the court must balance affording a reasonable measure of protection for defendants and the potential impact on the plaintiff. The plaintiff may rebut this presumption by establishing things such as the fact that they do have appropriate or sufficient assets within Ontario (or a reciprocating jurisdiction) to pay a costs order, or if they do not, that they are impecunious and the claim is not completely devoid of merit. Ultimately the courts utilize discretion to make an order “as is just” based on the circumstances of each individual case, and courts have noted that this second stage is permissive and requires the exercise of discretion considering a multitude of factors.
Ultimately, when applicable, security for costs can be incredibly useful for defendants in deterring meritless claims from being brought, while also ensuring fairness, equity, and the integrity of the legal process. Whether there has been a claim brought against you and you do not believe the plaintiff has assets to satisfy a cost award, or a defendant is seeking security for costs in your matter, a Walker Law Litigation Specialist can help you navigate this important procedural mechanism.
Tags: Civil Litigation Law, Commercial Litigation Law, Trials, Appeals