Security For Costs Explained
As discussed in Volume 1, Number 4, an unsuccessful party at trial is generally required to pay 60 percent of the successful party’s legal fees. Thus, if the successful party incurred costs of $100,000, the unsuccessful party is responsible to pay the successful party $60,000, in addition to paying his own legal fees.
But what happens if a plaintiff, with minimal assets, sues a defendant, loses at trial, and is unable to pay 60 percent of the defendant’s legal fees? More importantly, what happens if a defendant knows in advance of trial that even if successful, the plaintiff will not be able to pay his legal fees? Is it fair to put the defendant in that situation knowing he will not be repaid in any circumstance? This is where the concept of security for costs comes in. It requires a plaintiff to post money into court in advance of each step of the lawsuit, thereby ensuring sufficient funds are available to the defendant if the defendant succeeds at trial.
The Factors To Consider
The test a defendant must meet to compel a plaintiff to post money into court in advance of trial is complicated. A plaintiff who is ordered to post money into court, but cannot afford to do so, will not be able to continue with the lawsuit until he does. Therefore, what happens if a defendant stole $1 million from the plaintiff and, as a result, the plaintiff has no assets to pay a cost award? Should the plaintiff still be entitled to continue with the lawsuit even though the defendant will not be compensated if successful at trial? The answer comes down to fairness, i.e., which outcome is fairer given the applicable circumstances and the facts of the case. To determine this, courts must consider a number of factors, the most common of which are as follows:
- Whether the plaintiff resides outside of Ontario or has insufficient assets in Ontario (if the plaintiff resides outside of Ontario, it is difficult for the defendant to enforce its costs award if the plaintiff has no assets to seize in Ontario).
- Whether the plaintiff is a nominal company and no longer carries on business in Ontario.
- Whether the plaintiff’s lawsuit against the defendant is frivolous and vexatious.
- Whether the plaintiff company is impecunious (has very little money) and whether its shareholders have insufficient assets to satisfy a costs award.
- Whether the plaintiff’s claim has a strong, medium, or low chance of success should the matter proceed to trial.
To use the example above, if the plaintiff has insufficient assets in Ontario because of the $1 million the defendant stole, but can show a strong likelihood of success at trial, a court would likely entitle the plaintiff to proceed with the lawsuit without posting security for costs. In circumstances like these, it is fairer for a plaintiff to have his chance at justice than protect a defendant’s ability to be repaid. On the other hand, if the plaintiff has a low chance of success at trial (meaning, the evidence the plaintiff intends to rely upon at trial doesn’t appear to show that the defendant stole the $1 million), a court would likely require the plaintiff to post security for costs, since it would be unfair to the defendant to force him to defend knowing he will likely succeed at trial and not be compensated for his costs.
If you are a defendant in a lawsuit, always be cognizant of the concept of security for costs. It may be your best line of defence to halt a plaintiff’s action at the outset and avoid spending unnecessary legal fees which will not be repaid.
ABOUT THE AUTHOR
Mordy Mednick is a Member in Dickinson Wright’s Toronto office. He can be reached at 416-777-4021 or MMednick@dickinsonwright.com.