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Motion for Security for Costs: a strategic tool to reduce frivolous lawsuits

Posted on 21 Aug'14 Tags: , , , in Civil Litigation, Corporate and Business Law, General, Litigation and Dispute Resolution, Mann Law Updates

A defendant or respondent to an action or application may bring a motion for security for costs against the plaintiff or applicant after a defence or notice of appearance is delivered. This motion is to request that the plaintiff or applicant pay an amount of money into court to be held as security for the defendant’s potential costs, before the plaintiff or applicant can continue with the proceeding.

The availability of this motion acts as a deterrent to frivolous lawsuits due to the financial demands it places on the bringer of the lawsuit. However, the courts also want to ensure that meritorious lawsuits are not forestalled due to the fact that the plaintiff or applicant may have insufficient financial resources to pay the security. Thus, the court conducts a two-part analysis in determining whether a motion for security for costs should be granted.

First, the defendant or respondent bringing the motion is required to show that the action or application falls into one of the following situations[*]:

1)     the plaintiff or applicant ordinarily resides outside of Ontario;

2)     the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere;

3)     the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding , and that cost order is unpaid in whole or in part;

4)     the plaintiff or applicant is a corporation or a nominal[†] plaintiff or applicant, and that there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay costs;

5)     there is good reason to believe that the action 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

6)     there is a statute entitling the defendant or respondent to security for costs.

Second, if the action or application falls into one of the categories above, then the plaintiff or applicant has the option to prove that it would be unjust to order security against the plaintiff or applicant. Based on the words “as is just” in Rule 56.01(1), the courts have created the “impecuniosity” exemption. This allows the courts to avoid awarding an order of security for costs when the plaintiff is unable to bring a meritorious claim for the fact that they cannot afford to pay the security.

If the motion is successful and a court order for security for costs against the plaintiff is awarded, then the plaintiff or applicant will not be able to proceed further in the action or application until the full amount of security has been paid into court.[‡] If the plaintiff or applicant defaults on this order, the court may dismiss the action or application altogether.[§]

Thus, the mere possibility of a defendant bringing forward this motion will encourage the plaintiff to reconsider whether the claim is worth pursuing. It may also urge the plaintiff to explore other avenues of resolution, such as mediation or negotiation.

 

[*] See Rules of Civil Procedure, Rule 56.01(1).

[†] A nominal plaintiff or applicant means a person who is merely named as the plaintiff or applicant, but has no interest in the action or application, as the cause or right of action has been assigned to another party.

[‡] See Rules of Civil Procedure, Rule 56.05.

[§] See Rules of Civil Procedure, Rule 56.06.

Disclaimer: The above article is not a legal opinion as every case is different and is only for general awareness. Please contact us for specific questions and legal advise.