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  • Writer's pictureLee McMillan

Defending Against Security for Costs Applications

Security for Costs Applications (“SCAs”) are a common tool employed by defense counsel to derail a plaintiff’s lawsuit. SCAs can force a plaintiff to post a sum of money into court to be held as security for the payment of a future adverse costs award pending the ultimate resolution of an action. Plaintiffs with otherwise strong cases can find themselves in a short term liquidity bind unless they take action to protect themselves.


Alberta is a relatively unforgiving jurisdiction toward plaintiffs when it comes to ruling on SCAs. Rule 4.22 of the Alberta Rules of Court outlines five broad considerations when determining whether to award a SCA:


a) The likelihood that a defendant will be able to enforce its judgment against Albertan assets;

b) The current ability of the plaintiff to pay the costs award;

c) The merits of the defendant’s defence;

d) Whether the granting of a SCA would result in undue prejudice to the plaintiff; and

e) All other matters the Court considers appropriate.


While there is no hard and fast hierarchy to weighing these considerations, in practice Alberta Courts put a high premium on the existence or non-existence of a plaintiff’s assets. A plaintiff with little to no Albertan assets will have a more difficult time defending against SCAs.


Something to note about Rule 4.22 is the conflicting nature between s. 4.22(a) and s. 4.22(d) above. The plaintiff is compelled to choose between two opposing strategies: Do I highlight the wealth I do have, or do I admit impecuniosity and hope to win on the basis of undue prejudice?


More often than not a plaintiff would be wise to choose the former. In Alberta, a plaintiff with access to any additional funds whatsoever, including loans at high interest rates, will be expected to exhaust those options before they can benefit from the ‘undue prejudice’ argument.


DID YOU KNOW?

Are you a stakeholder in a corporation and are feeling unfairly treated? Did you know that Section 243(3) of the Alberta Business Corporation Act protects plaintiffs with oppression claims from having to pay security for costs awards?


There are many secondary considerations that can help a plaintiff beat a SCA or at least minimize the dollar amount the Court orders it to post. A plaintiff served with a counterclaim is put in a better position if the counterclaim is related and/or intertwined with their initial statement of claim. A trial of the issues with respect to one claim typically leads to a trial of the issues in the other. It therefore makes little sense to derail a claim on the basis of costs if the issues are likely to be tried anyhow.


Another consideration involves whether the plaintiff is an individual or a corporation. Typically individuals are more successful than corporations at defending SCAs as they have a diminished capacity to escape liability for adverse costs awards (i.e. by hiding behind the corporate veil).


Plaintiffs who are rendered impecunious by the very transaction, behaviour or events that they are suing for also have stronger defences to SCAs. The Courts have found that it would clearly be against equitable principles to allow a defendant to benefit from its own wrongdoing in this fashion.


Finally, section 4.22(c) deals with the merits, or lack thereof, of the defendant’s case. While the threshold the defendant must meet is quite low, it provides the plaintiff a unique opportunity to advance compelling arguments for why the defence will fail. Psychologically speaking, a defendant who wins on a SCA may still leave the courtroom feeling vulnerable having witnessed the opposing counsel’s familiarity with the case law and evidence.


Lee McMillan is the founder and managing lawyer of Calgary Litigation, He specializes in civil litigation, employment law and class action law. Contact Lee today for an affordable one hour phone consultation.


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