There is something used in the courts called “security for costs.” Others call it a motion for security. Please note that this is different than cost orders.

When legal proceedings are initiated, the financial resources of the parties involved can play a crucial role in determining the outcome of the case. The issue of cost can be particularly relevant for the initiating party, who may not have the resources to cover the expenses of litigation if they lose the case.

In such situations, the opposing party may seek to obtain security for costs, a court order that requires the initiating party to provide a sum of money to the court or the opposing party as security for the costs of the litigation in the event of an unsuccessful outcome.

Financial risk in legal proceedings

The need for security for costs is most often found in cases where the initiating party is a non-resident or has limited financial resources, such as a newly established company. However, it can also be requested in cases where there is a risk that the initiating party will not be able to pay the costs of the litigation, even if they are ultimately successful.

Sought at any stage of litigation, the granting of security for costs is dependent upon the financial circumstances of the initiating party and whether there is a risk they will be unable to cover the costs of the litigation if they are unsuccessful.

The court will consider the strength of the initiating party’s case, as an order for security for costs is more likely to be granted if the case is weak or without merit.

What is security for costs?

The amount of security for costs that can be sought varies, and depends on several factors, including the estimated costs of the litigation, the initiating party’s financial resources, and the strength of their case.

In situations where the initiating party is unable to provide the requested security for costs, the court may dismiss their claim or strike out their defence, leading to significant setbacks in the litigation process.

The consequences of failing to provide security for costs can be dire, as the opposing party may be entitled to recover their costs from the security that has been provided. This can result in a scenario where the initiating party is funding the opposing party’s expenses, even if they are ultimately successful in the litigation.

Reasons to seek security

There are alternative options available for parties who are unable to provide security for costs. For example, litigation funders can provide third-party funding for the costs of the litigation in exchange for a share of any damages that are awarded.

Conditional fee agreements with solicitors can be entered into, wherein the solicitor will represent the initiating party on a no-win, no-fee basis.

Despite the potential need for security for costs, the use of this court order in practice is relatively uncommon. In fact, according to a survey conducted by litigation funders, Augusta Ventures, between 2015 and 2020, security for costs was sought in just 1.2% of cases in the High Court of England and Wales.

The survey also found that the success rate for applications for security for costs was low, with just 31% of applications being granted.

Requirements for granting security

Security for costs is an important consideration in legal proceedings, particularly for parties with limited financial resources. The granting of security for costs is determined by several factors, including the financial circumstances and the strength of the case of the initiating party.

While alternative options are available for funding litigation, the consequences of failing to provide security for costs can be severe, making it a crucial aspect to consider in any legal case.

Security for costs is often used by someone being sued. It means that they file a motion or application with the courts.

Security for costs in court

The defendant, or the defendant by counterclaim, asks for a deposit from the plaintiff. The deposit is held by the courts in case the plaintiff loses their case. That money could then be used to compensate the defendant for the legal costs spent to defend the litigation.

Please note that during COVID-19, Chambers is destroying application records after the hearings, so you won’t get them back. Also during COVID, you need to add your email to your application record.

The call-in information for the hearing will be sent to you by email the day before the hearing. If it’s before a master, then it will be a video call.

Getting A Deposit For Legal Fees

Also, during the coronavirus, if you file something with BC Online, you will want to request urgency. Let’s say you filed an application or motion for security for costs on October 1st.

You have set the hearing for October 15. There is the possibility that the courts will not review your filing before the hearing date.

As such, you and the other side might show up for the hearing, and it’s not on the list. If possible, it’s best to set court dates as far as possible. It would have been better to set the Application for November 1.

Defendant Granted Security With Security For Costs

The reason why the courts might allow this is to encourage people not to file lawsuits that have no legal basis. It can also encourage some to not file a lawsuit, and try settlement instead. If the plaintiff is ordered to pay the “cost deposit” and they do not, the claim might be dismissed.

It is used by the defendant to reduce their risk in the lawsuit. If the defendant was sued for no good reason and had to pay $10,000 to defend the lawsuit, they should be able to get that money back.

The main factors in if a court should allow the security for costs application are:

• How strong the plaintiff’s claim is
• How much the legal fees of the defendant might be
• Does the plaintiff have the capital or assets to pay for the defendant’s legal fees (if the defendant wins)

Circumstances Of The Case

The security of costs offers peace of mind for the defendant. It requires the plaintiff to pay into court an amount of money. It is done in a way that the judge orders. Security can often be a bank guarantee or a deposit.

To get the order, the plaintiff often must be a corporation. This can be used if a corporation is suing an individual. It will have to be shown the corporation is having financially hard times. Also, it could be shown that the corporation doesn’t have a fixed address or assets.

This kind of order can also be used if the corporation is not set up in Canada. If a Chinese company was suing someone in Canada, and the Canadians won, it would be hard for them to get their costs paid.

If the company is located in a country where the Court Order Enforcement Act applies, then there is likely no problem.

The courts will also look into if the defendant was the reason why the plaintiff was having hard times. If it was the defendant’s fault, it doesn’t make sense for the plaintiff to have to post-security.

Security For Costs Against Defendant

If you are the plaintiff you will want to show to the courts that you would have no problem paying a cost order. If you can show that, the motion for security will likely be denied.

An order for security for costs is discretionary and, as will be discussed, the law has developed different applications when dealing with corporate plaintiffs as opposed to individual plaintiffs.

If you are being counterclaimed against, do not call yourself the defendant by counterclaim. You are a plaintiff that was counterclaimed against. Or you can simply refer to yourself as the applicant.

Make sure to have everything you talk about in the sworn affidavit. The judge will get mad if you talk about things that are not in the affidavit.

You must conduct title searches, requests, and other ways to find out if the company has assets. And this must be proven to the judge. You will also need to prove that you have costs, for example, that you have retained a lawyer.

The defendant might be able to show that the plaintiff cannot pay for cost orders by showing:

-That the business is not in operation (or has little business)

-The corporation doesn’t have assets

-There is a history of bankruptcy

Author: Alistair Vigier is the CEO of ClearWay Law