Security for costs is the payment of money or other security into court by a plaintiff or plaintiff by counterclaim to cover future costs orders made in favour of a successful defendant. Forcing a plaintiff to post security to cover your client’s costs is important for ensuring that your client is not left with an unenforceable costs order after successfully defeating a claim. It is also a useful tool in defending your client against frivolous claims. However, far more than just an effective costs-protection device, a successful security for costs motion can demoralize a plaintiff and even make the plaintiff think twice about continuing to pursue its claim. But when should such a motion be brought?
First, let’s look at the test for obtaining an order for security for costs. Under Rule 56.01(1) of the Rules of Civil Procedure, the court may, on a motion by the defendant or respondent, make such 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. R.R.O. 1990, Reg. 194, r. 56.01 (1).
The legal principles and considerations applicable to bringing security for costs motions under the above subrules, and the defences available, are beyond the scope of this article.
This article is written to examine the question of when you should bring your motion.
Older case law makes it clear that you cannot wait too long.1 To quote from Master Barlow in the 1938 case of Charron v. MacDonald:
“Where a defendant believes that he is entitled to an order for security for costs, he should move at the earliest possible moment in order that the plaintiff may know whether or not he will be required to give security and to prevent him from proceeding at very considerable expense down to trial and then find himself faced with an order for security with which he is unable to comply.”2
This paragraph was quoted as recently as 2014 by Master Pope in the case of Charose Holdings v. Edible Arrangements International.3 In some cases, delay alone has been held to be sufficient to defeat the motion; while in others, the courts seem to require that the plaintiff show some prejudice flowing from delay before considering dismissing the motion on that basis alone.4 In some instances, the court will inquire into the reasons for the delay, with unexplained delay being a potentially decisive factor.5 153 A.C.W.S. (3d) 815.] In any event, it is not advisable to wait too long.
But moving as early as possible can also be unwise.6 In any motion for security for costs, the court is likely to give some consideration to the merits of the case. This is because, as explained in Chachula v. Baillie, Rule 56.01(1) refers to the court making such order for security “as is just.”7 Thus, depending on the nature of your case, you might want to wait until after discoveries before bringing a motion for security for costs.
This would certainly be the case if you intend to move for security on the basis that the claim is frivolous or vexatious. In such circumstances it is likely only after discoveries that you will be in a position to convince the court that the plaintiff’s case lacks merit. In fact, there has now emerged a body of case law that supports moving for security for costs after examinations for discovery are complete.8 O.J. No. 3435 (S.C.J.).] In the case of Park Street Plaza Ltd. v. Standard Optical Inc., the court granted security for costs at a point where the examinations were complete, but the undertakings were still outstanding.9
So although there is often good reason to strike while the iron is hot (when the case has first been brought and the plaintiff is anxious to proceed), in some cases a defendant may be better advised to hold off until the merits of the case have been exposed (often through the discovery process). Moving either too soon or too late in the litigation could make it more difficult to obtain an order for security for costs.
This blog is not intended to serve as a comprehensive treatment of the topic. If you are being sued by a foreign plaintiff, a company that lacks assets in the jurisdiction, or a plaintiff with a frivolous case, nothing replaces hiring a competent lawyer familiar with drafting a proper defence and knowing the strategic value of a well-timed security for costs motion.
- See, e.g., 423322 Ontario Ltd. v. Bank of Montreal, 1988 CanLII 4678 (Ont. S.C.), citing, inter alia, Smith v. Smith, (1939) O.W.N. 412, Charland v. Rounds, (1943) O.W.N. 761, Cohen v. Power, 1970 CanLII 228 (Ont. S.C.). ↵
- Charron v. MacDonald, (1938) O.W.N. 410 (Ontario Master). ↵
- Charose Holdings v. Edible Arrangements International, 2014 ONSC 4185 (Ontario Master) at para. 61. ↵
- 423322 Ontario Ltd. v. Bank of Montreal, 1988 CanLII 4678 (Ont. S.C.); Livent. Inc. (Special Receiver) v. Deloitte & Touche, 2011 ONSC 648. ↵
- DGR Sales Limited v. Ontario, 2007 CanLII 48651 (Ont. S.C.), citing Pelz v. Anderson [2006 ↵
- C. Wirth, Interlocutory Proceedings (Thomson Reuters, looseleaf) at §9:10.20, says that, practically speaking, it is common practice to bring a motion for security for costs immediately after the statement of defence. ↵
- Chachula v. Baillie, 2004 CanLII 27934 (Ont. S.C.) at paras. 14-15 and 18, citing Hawaiian Airlines Inc. v. Chartermasters Inc., 1985 CanLII 2155 (Ont. S.C.) and Horvat v. Feldman (1986), 15 C.P.C. (2d) 220 (Ont. H.C.J.). ↵
- See, e.g., Park Street Plaza Ltd. v. Standard Optical Inc., 2003 CanLII 11692 (Ont. S.C.); Shuter v. Toronto Dominion Bank, [2007 ↵
- Park Street Plaza at para. 4. ↵