Security For Costs

Security for costs

An application for security for court costs may occur in case one party here in BC  has a strong case  and may win, while  the other party typically is out of the jurisdiction, or lacks assets to pay costs if he/she/it loses the case.

 

Sunshine Holdings V Vancouver Pacific Devopments Corp. 2015 BCSC 261 summarized the law on security for costs :

The legal principles concerning an application for security for costs are conveniently summarized by Madam Justice Gerow in Culp Investments LLC v. KPMG Inc. (sub nom IC Creative Homes Inc. (Trustee of) v. KPMG Inc.), 2007 BCSC 451at paras. 3-7:

[3] The court has authority to make an order for security for costs against a foreign corporation either under s. 236 of the Business Corporation[s] Act, S.B.C. 2002, c. 75, or under its inherent jurisdiction: International Container Terminal Services Inc. v. British Columbia Railway Co., 2003 BCSC 863; Shiell v. Coach House Hotel Ltd. (1982), 37 B.C.L.R. 254 (C.A.).
[4] Section 236 of the Business Corporations Act provides:
If a corporation is the plaintiff in a legal proceeding brought before the court, and if it appears that the corporation will be unable to pay the costs of the defendant if the defendant is successful in the defence, the court may require security to be given by the corporation for those costs, and may stay all legal proceedings until the security is given.
[5] The making of an order for security for costs either under the court’s inherent jurisdiction or s. 236 is discretionary: Shiell, supra; Kropp (c.o.b. Canadian Resort Development Corp.) v. Swaneset Bay Golf Course Ltd., 4 W.W.R. 306 (B.C.C.A.).
[6] The principles considered by the courts in determining whether an award for security for costs are summarized in Kropp, supra, at [para.] 17:
1 The court has a complete discretion whether to order security, and will act in light of all the relevant circumstances;
2 The possibility or probability that the plaintiff company will be deterred from pursuing its claim is not without more sufficient reason for not ordering security;
3 The court must attempt to balance injustices arising from use of security as an instrument of oppression to stifle a legitimate claim on the one hand, and use of impecuniosity as a means of putting unfair pressure on a defendant on the other;
4 The court may have regard to the merits of the action, but should avoid going into detail on the merits unless success or failure appears obvious;
5 The court can order any amount of security up to the full amount claimed, as long as the amount is more than nominal;
6 Before the court refuses to order security on the ground that it would unfairly stifle a valid claim, the court must be satisfied that, in all the circumstances, it is probable that the claim would be stifled; and
7 The lateness of the application for security is a circumstance which can properly be taken into account.
[7] The courts have always drawn a distinction between corporate and individual plaintiffs for the purposes of determining whether an order for security for costs should be made. The courts do not treat corporate defendants with the same flexibility and generosity as individual plaintiffs: Fat Mel’s Restaurant Ltd. v. Canadian Northern Shield Insurance Co. (1993), 76 B.C.L.R. (2d) 231 at [para.] 27 (C.A.).
22      A profitable business with a positive cash position whose funds are available to the plaintiff is sufficient to establish that it will have the funds to satisfy an order of costs: WestCorp Solutions Ltd. v. Collins, 2014 BCSC 1606.
B: The Parties’ Positions
23      Darwin’s position includes:
• while the granting of such an order is discretionary once the applicant who seeks security has shown that the plaintiff will not be able to pay costs should the claim fail, security is generally ordered unless the court is satisfied that there is no arguable defence: Fat Mel’s Restaurant Ltd. v. Canadian Northern Shield Insurance Co. (1993), 76 B.C.L.R. (2d) 231 at 235 (C.A.);
• the plaintiffs concede that Darwin has an arguable defence;
• if there is no duty on a trustee to commence an action, but only the power to litigate, the normal rules of costs apply, including an order for security for costs if appropriate: Culp Investments at para. 17;
• the plaintiffs lack sufficient assets to pay a costs award since neither Sunstone Marine nor SRAI own any real property in British Columbia. In fact, the Trust is not a legal entity that can own property. Rather, it is a relationship in which the trustee holds property for the benefit of the beneficiaries;
• if an award of costs was made against SRAI, it has the discretion not to seek indemnification from the Trust. Darwin is thus at risk in having an unsatisfied costs judgment;
• SRAI is a defendant by counterclaim in unrelated proceedings where a judgment for rent due and owing in the amount of $146,764.37 is sought, along with damages for other heads of damage;
• in so far as the quantum of security is concerned, projections of anticipated costs and disbursements are often uncertain and the court is in no better position to make projections than the parties as to the potential costs and quantum of security to be awarded: Culp Investments at para. 26; and
• in this case, estimating a trial length of 30 days, Darwin estimates its total taxable costs to be $116,974.20. As a result, it seeks security for costs in the amount of $115,000 as a reasonable estimate of its anticipated costs and disbursements.
24      Sunstone Marine and SRAI concede that the defendants have an arguable case. Sunstone Marine also concedes that it has no assets with which to pay a costs award were one to be made against it.
25      SRAI’s position includes:
• the Trust has assets of approximately $22 million;
• SRAI has the ability, pursuant to the trust declaration, to seek indemnification for any costs award which could be made against it. The trust declaration specifically governs such a situation;
• while a trust can only commence and maintain proceedings in the name of the trustee, the estate or trust assets are a relevant consideration which can be taken into account by the court in the exercise of its discretion; and
• if the court is disposed to ordering security, an amount of approximately $50,000 is more appropriate in the circumstances of this case taking into account the value of the Trust’s assets and the cash that SRAI regularly has at its disposal.
C: Discussion
26      The threshold issue on an application for security for costs is whether the applicant/defendant(s) have established that the plaintiff corporation(s) will be unable to pay the defendants’ costs if it is successful in its defence.
27      I have concluded that Darwin has failed to meet this initial threshold and that its claim for security for costs against SRAI should be dismissed.
28      In the particular circumstances of this case, notwithstanding the fact it has no assets, I have also concluded that the application with respect to Sunstone Marine should be dismissed.
29      It is evident from Ms. Adams’ affidavit that SRAI, in its capacity as trustee, will have the funds to pay any award of costs that could be made against it. The Trust has more than sufficient assets to pay the costs sought by Darwin. These assets are available to SRAI for that purpose in that the Declaration of Trust explicitly provides that SRAI is to be indemnified from the Trust for all costs, including legal expenses and judgments against it.
30      I agree with SRAI’s argument as set out in its response that the authorities relating to an order regarding security for costs governing trustees in bankruptcy are of assistance on this application.
31      In particular, security may be ordered against trustees in bankruptcy where that trustee has no duty to sue and where the trust has no assets. That is not the case in this proceeding.
32      In a bankruptcy proceeding, the bankrupt estate’s assets are properly considered in determining whether the trustee will be able to satisfy a cost order: Vancouver Trade Mart Inc. (Trustee of) v. Creative Prosperity Capital Corp., [1999] 7 C.B.R. (4th) 3 (B.C.S.C.); Mancini Estate (Trustee of) v. Falconi (sub nom Clarkson, Gordon Inc. v. Falconi), [1990] 70 O.R. (2d) 171 (H.C.).
33      A trust’s assets can also be considered on an application for security for costs against a trustee who sues for the benefit of the trust. That is because, at law, a trustee is entitled to indemnification from the trust funds which it holds for all costs, including legal costs, which the trustee reasonably incurs for the trust’s benefit. See Geffen v. Goodman Estate, [1991] 2 S.C.R. 353 at 390; Royal Trust Corp. of Canada v. Clarke (1989), 35 B.C.L.R. (2d) 82 at 86 (C.A.); Blueberry Interim Trust (Re), 2012 BCSC 254 at para. 26.
34      In any event, as I have noted, the Declaration of Trust in this case contains a specific provision to this effect.
35      In addition, were Darwin to become SRAI’s creditor to an award of costs in its favour then it would be subrogated to SRAI’s right to charge and lien Trust assets. See DeLorenzo v. Beresh, 2010 ONSC 5655; McLennan v. McLennan (2000), [2000] O.J. No. 3286, 36 E.T.R. (2d) 145 (S.C.J.); G. Solway & Sons Ltd. v. Pearlman and Ezrin, [1964] 1 O.R. 1 (H.C.J.); Re Johnson (1880), 15 Ch. D. 548.
36      While it is the case that Sunstone Marine has no assets, that does not necessarily result in an order for security being made against it.
37      As I have noted, while security for costs will “generally” be ordered against a plaintiff that has no exigible assets, the court retains the discretion not to make such an order in appropriate circumstances.
38      Taking into account the principles to which I have referred, I am of the view that an order for security for costs as against Sunstone Marine is not required in this case.
39      That is because the claims of both plaintiffs against Darwin are based on identical allegations. The plaintiffs also seek the same relief against Darwin.
40      Darwin, for its part, has not yet filed a response to the Amended NOCC. In its response filed July 22, 2011, it denies owing a duty of care to SRAI. It also raises as a defence that Sunstone Marine waived and released Darwin from any claims arising from the project.
41      However, Darwin has not established on this application that there is any real likelihood that Sunstone Marine’s claims against it could be dismissed, but not those of SRAI. In light of the relationship between Sunstone Marine and SRAI, even if that were to be the result following a trial, the court would have a broad discretion to take this into account in making an appropriate award of costs based on which of the parties were successful or not.
42      Quite apart from my conclusion that Darwin has failed to establish that SRAI does not have the ability to pay an award of costs made against it, I am of the view, based on Ms. Adams’ affidavit, that SRAI, in fact, does have the financial means to do so.
43      That being the case, Darwin should have the ability to collect the entirety of its costs from SRAI in the event the action brought against it is dismissed. That would include those costs arising from a successful defence to Sunstone Marine’s claims.

Trevor Todd

Trevor Todd is one of the province’s most esteemed estate litigation lawyers. He has spent more than 40 years helping the disinherited contest wills and transfers – and win. From his Kerrisdale office, which looks more like an eclectic art gallery than a lawyer’s office, Trevor empowers claimants and restores dignity to families across BC. He is a mentor to young entrepreneurs and an art buff who supports starving artists the world over. He has an eye for talent and a heart for giving back.

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