4.22: Considerations for security for costs order

Case Summary

The Plaintiffs appealed the Decision of Master Breitkreuz ordering payment of Security for Costs. The dispute arose over a lease agreement whereby the Plaintiff and a related corporation (the "Customer") leased a trailer from the Defendant. The Customer went into arrears after having made 37 payments and the Defendant seized the trailer. The trailer was sold for $15,000; however, the Plaintiffs alleged that the trailer was worth more and brought a claim alleging that the Defendant sold the trailer for a price significantly under fair market value and that it did not act in good faith or in a commercially reasonable manner. The Defendant applied for Security for Costs on the basis of a good defence on the merits and the impecuniosity of the Plaintiffs. The Plaintiffs acknowledged that they were without money sufficient for posting Security for Costs, but argued that they intended to use the proceeds of the sale of the trailer to pay off their debts, as they estimated the value of the trailer at $200,000

The Court considered Rule 4.22, stating that there was no substantive difference between the current Rule and the former Rule, with the exception that the current Rule invited the Court to consider the merits of the Action. In this case, there was evidence that the Plaintiffs were individually and collectively unable to pay Security for Costs, but Graesser J. noted that Rule 4.22 gave the Court discretion to set the amount and terms of any Security Order, including determining whether any Order should be granted. Additionally, the Court highlighted that there was nothing to prevent the Defendant from obtaining Security for Costs simply because it filed a Counterclaim. The Court acknowledged that the basis for an Order for Security for Costs was to protect a Defendant, who has an arguable defence, from facing a situation where a Plaintiff is unable to pay Costs.

After canvassing case law, Graesser J. set out factors to consider when determining whether or not to order Security for Costs: the existence of a Counterclaim; the merits of the Action; the likelihood of success for the Plaintiff (the greater the likelihood of success for the Plaintiff, the more the Court should consider the injustice of preventing the claim from proceeding); and any connection between the Plaintiff's financial situation and the Defendant's conduct.

Graesser J. considered the merits of the Parties’ arguments and could not determine which Party was more likely to succeed. Based on this, the Master’s Order was upheld and it was also ordered that if the Plaintiffs were unable to post Security for Costs in accordance with Rule 4.23, the Claim and Counterclaim would be dismissed.

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