June 26, 2014
Motions for security for costs, brought under Rule 56 of the Rules of Civil Procedure, are a valuable tool available to defendants (and other responding parties) in civil proceedings. On such a motion, a defendant seeks an order requiring the plaintiff pay an amount into court that would cover the defendant’s legal costs, should the defendant succeed in the action and be awarded costs. These orders are granted in cases where the court is persuaded there is a real risk that a defendant will not be able to collect on a costs award due to the location or financial status of a plaintiff.
While an order for security costs is itself a valuable result, the motion can serve many other useful purposes. One benefit is that a motion for security for costs allows a defendant to respond aggressively to a frivolous claim. By requiring a plaintiff “pay to play”, and to make a substantial payment into court in order to maintain their claim, the plaintiff is forced to strongly consider their wherewithal to continue. Another benefit which arises when an order for security for costs is obtained, is that a plaintiff is precluded from taking any new steps in the proceeding until the security is paid. Failure to pay the security ordered will delay the proceeding and a defendant can subsequently move to have the proceeding dismissed for failing to comply with the security for costs order, or for delay.
Generally, a defendant who brings the motion has to establish the plaintiff fits into one of the categories set out in subsection (1) of rule 56.01. The most common two categories are that the plaintiff is ordinarily resident outside of Ontario, or the plaintiff is a corporation or “nominal plaintiff” (i.e. a shell corporation) and there is good reason to believe they have insufficient assets in Ontario to pay costs that might be awarded to the defendant. To respond, a plaintiff can simply show they in fact have sufficient assets in Ontario to satisfy a costs award (and therefore there is no need to make an order against them). Alternatively, a plaintiff can establish they are impecunious, and that it would be unjust to prevent them from having their claim proceed on the merits simply because they cannot afford to post security. In this second situation, a plaintiff has to provide thorough evidence establishing impecuniosity, including the inability to borrow the required money, and must also establish the claim has merits (though the burden is low when a plaintiff proves they are impecunious). This evidence can provide a defendant with invaluable insights into the financial and legal position of the plaintiffs early in a proceeding.
Though they can be lengthy and complex motions, when done correctly, they can bring about a quick and favourable resolution.