At the end of a civil proceeding in Ontario, one party will often be ordered to pay costs to the other party. Section 131 of theCourts of Justice Act grants the Court the discretion to determine by whom and to what extent costs shall be paid. Rule 57.01 of theRules of Civil Procedure outlines general principles applicable in determining costs.
One factor that is often given significant weight is the principle of indemnity for the successful party. This means that, generally speaking, the unsuccessful party will be required to pay a portion of the successful party’s costs.
An issue can arise however as to how to enforce a costs award when the plaintiff is impecunious or does not have any assets in Ontario. In cases where a defendant has reason to be concerned about a plaintiff’s ability to pay a future costs award, they may wish to bring a motion for security for costs pursuant to Rule 56 of theRules of Civil Procedure.If successful, the plaintiff would have to pay into Court an amount of money (typically reflective of an anticipated costs award if they are unsuccessful in the action) against which the defendant could enforce any future costs award.
Rule 56 – Security for Costs
Rule 56.01(1) provides that a defendant (or respondent) in a proceeding may bring a motion for security for costs in any of the following circumstances:
(a) the plaintiff or applicant is ordinarily resident outside Ontario;
(b) the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere;
(c) 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;
(d) 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;
(e) 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
(f) a statute entitles the defendant or respondent to security for costs.
On a motion for security for costs the Court may make many any order as is just.
Legal Test and Burden of Proof
On a motion for security for costs, the moving party (i.e., the defendant or respondent) must first demonstrate good reason to believe that one of the circumstances in Rule 56.01(1) applies.
The onus then shifts to the plaintiff to prove that they have sufficient assets in Ontario to satisfy a costs award and, therefore, that security for costs is not required. This will typically involve substantial financial disclosure.
If the plaintiff cannot demonstrate that they have sufficient assets in Ontario, they may still avoid an order for security for costs if they can establish that they are impecunious and justice demands that they be permitted to continue with the action, i.e., the claim is not "plainly devoid of merit".
There is a high evidentiary threshold that must be met before the Court can find that a plaintiff is impecunious. It requires complete and accurate disclosure of the plaintiff’s income, assets, expenses, liabilities, and borrowing ability, with supporting documentation for each. Where the plaintiff is unable to produce supporting documentation, he must provide an explanation for the lack of documentation. To succeed on the basis of impecuniosity, the plaintiff must demonstrate that if security is required, the action will not proceed, not only because they do not possess the amount of the security, but that the security is not available to the plaintiff either.
InEndean et al, Lind et al v St. Joseph’s General Hospital, the Court found that notwithstanding the fact that one of the plaintiffs was in receipt of ODSP and had an outstanding debt of approximately $7,800 to the CRA, she was not impecunious as she failed to make full financial disclosure. This demonstrates the high evidentiary burden on the plaintiff to establish impecuniosity.
If the plaintiff is found to be impecunious, they must demonstrate that justice demands that they be permitted to proceed with the action as it is not “plainly devoid of merit.” This is a low bar. Provided the outcome is not a foregone conclusion, the plaintiff is likely to be permitted to proceed in the action without an order for security for costs. Moreover, if the result of the action is likely to turn on credibility, security for costs will not to be ordered.
The other possibility on a motion for security for costs, is that the plaintiff is not able to demonstrate impecuniosity but takes the position that they do not have sufficient assets to meet a costs order. To avoid an order of security for costs, the plaintiff would then have to meet a higher threshold to satisfy the court of their chances of success in the action. The onus is on the plaintiff to adduce evidence as to the merits of the claim, and to demonstrate that they have a good chance of success.
Timing of a Motion for Security for Costs
A motion for security for costs should be brought at the earliest possible opportunity to prevent both parties from proceeding along the path to trial only to be prevented from continuing in the litigation by a security for costs order. In considering delay in bringing a motion for security for costs, the Court will consider when the defendant had good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant, not when the defendant was able to prove that that plaintiff had insufficient assets. In cases where the motion is delayed, the moving party will be required to explain the delay, failing which it will not be granted the order.
It is therefore important that defendants consider a motion for security for costs early in litigation.
Terms of the Order of Security for Costs
The amount, form, and time for paying the security for costs is determined by the Court. While the Court has discretion to order any amount of costs, absent exceptional circumstances, this will generally be the amount of actual anticipated costs of the action. However, in cases where examination for discovery has yet to take place, a pay as you go order is usually most appropriate.
Not only is a motion for security for costs beneficial in terms of enforcing a future costs award, but it may expedite settlement negotiations, or cause a plaintiff to discontinue or abandon frivolous or vexatious actions.
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