Security For Costs In Litigation

Security for costs is a court order requiring a plaintiff to deposit money with the court as a guarantee they can pay the defendant’s legal costs if they lose the lawsuit. 

It’s a protective mechanism that prevents people from launching lawsuits without any financial risk while forcing defendants to spend money defending themselves.

Lawsuits are expensive. Defendants must hire lawyers, gather evidence, and invest significant time and money defending claims. If a plaintiff with no assets or income sues frivolously, the defendant might spend hundreds of thousands of dollars defending successfully, but only to discover the plaintiff can’t pay the cost award.

Security for costs levels the playing field. It makes plaintiffs think carefully before suing and ensures defendants can recover their costs if they win.

Ontario’s Rules of Civil Procedure set out specific grounds for ordering security for costs. 

Plaintiff Lives Outside Ontario: If the plaintiff resides outside Ontario and doesn’t own property here, courts may order security for costs. The concern is that enforcing a cost award against someone in another jurisdiction becomes difficult or impossible.

Plaintiff Is a Corporation: When a corporation is suing and appears unable to pay costs if it loses, courts can order security. This prevents shell companies or corporations with no assets from launching lawsuits without financial consequences.

Previous Cost Orders Unpaid: If the plaintiff has outstanding cost orders and hasn’t paid them, courts view this as strong evidence they won’t pay costs in the future.

Defendants must prove two things. First, one of the specific grounds for security for costs exists under the Rules. Second, it’s just and reasonable in all the circumstances to order security.

Courts balance various factors. 

Is the plaintiff’s claim legitimate or does it appear frivolous? Can the plaintiff afford to post security, or would the order effectively kill a valid claim? What are the defendant’s likely costs if they must defend through trial?

The amount varies based on the case’s complexity and expected costs. Courts typically estimate what the defendant will spend on legal fees through trial, including discoveries, motions, expert reports, and the trial itself.

Courts try to set amounts that protect defendants without being so high they prevent plaintiffs from pursuing legitimate claims.

Security doesn’t have to be cash, though that’s most common. Courts may accept letters of credit from banks, bonds from insurance companies, real property in Ontario worth more than the security amount, or other forms of guaranteed payment.

Cash is preferred because it’s immediately available if the defendant wins. Other forms require enforcement steps that add delay and expense.

Defendants should bring security for costs motions early in litigation. Waiting until you’ve already spent significant money defending reduces the court’s sympathy. Courts reason that if security was truly necessary, you would have sought it promptly.

However, you can’t bring the motion too early either. Courts want to see that the case is actually proceeding and that defending it will indeed be expensive.

Once security for costs is ordered, the plaintiff must post it within the timeframe the court sets: usually 30 to 60 days. If they don’t, the lawsuit is automatically stayed. It can’t proceed until security is posted.

If you’re a plaintiff facing a security for costs motion, you can argue your claim is strong and has good prospects of success, you have sufficient assets in Ontario to pay costs, the amount requested is excessive, or ordering security would unfairly prevent you from pursuing a legitimate claim.

Courts consider whether the lawsuit appears genuine or is being brought for improper purposes. A plaintiff with a strong case faces less risk of having security ordered, even if they technically meet one of the statutory grounds.

Corporations face particular challenges. Courts scrutinize their financial health carefully. Even profitable corporations can be ordered to post security if their financial situation is uncertain or if they’re involved in risky business ventures.

Shareholders or directors standing behind the corporation might be asked about their willingness to guarantee costs. Courts want assurance someone can pay if the corporation loses.

What if you’re an individual who genuinely can’t afford to post security? Courts recognize that ordering security against someone with limited means could deny access to justice.

In these cases, courts balance the defendant’s right to cost protection against the plaintiff’s right to pursue legitimate claims. If your case is strong and you’re genuinely unable to pay, courts may refuse security for costs or set lower amounts.

For defendants, security for costs motions serve multiple purposes beyond just protecting against unpaid costs. They pressure plaintiffs to seriously evaluate their claims, sometimes lead to early settlements when plaintiffs realize they can’t afford to continue, and demonstrate to the court that you’re confident in your defence.

For plaintiffs, facing a security for costs motion is serious. You must quickly assess whether you can afford to post security and whether your case is strong enough to justify the expense and risk.

Security for costs is a powerful tool in litigation, but it requires careful analysis and strategic judgment. Whether you’re seeking it or defending against it, experienced legal counsel makes all the difference in protecting your interests.

Contact us at 416.901.9984 or info@pintoshekib.ca.