4.22: Considerations for security for costs order

Case Summary

In an Action for breach of contract, the Plaintiff and Defendant by Counterclaim, Parkland Industries Ltd. (“PIL”), brought an Application for Security for Costs against the Defendants, who were also Plaintiffs by Counterclaim, 897728 Alberta Ltd. (“897”) and Michael O’Brien. Master Hanebury noted that Rule 4.22 provides that Security for Costs can be sought from both Plaintiffs and Defendants. Master Hanebury further stated that Security for Costs is designed to protect a party from another who wants to “gamble and collect” if it wins, but not pay if it loses. However, this interest must be balanced against Costs that may unfairly impede access to justice for the other party. The test involves two stages: first, the Court reviews each of the factors set out in Rule 4.22; if those factors indicate that Security for Costs should be granted, the Court will then determine whether it is just and reasonable to grant the Order. The overall burden of proof is on the Applicant, and remains on the Applicant even if the Respondents fail to demonstrate that they have assets in Alberta.

Turning to the specific factors under Rule 4.22, Master Hanebury found that the evidence established that PIL would be unable to enforce a Costs Order against 897 or Mr. O’Brien. Reviewing the merits of the main Action, Master Hanebury concluded that the Action as a whole must be evaluated, including both the Claim and the Counterclaim. Master Hanebury found some merits to both the main Claim and Counterclaim. The Court considered whether an Order to post Security for Costs would unduly prejudice 897 or Mr. O’Brien’s ability to continue the Action, and whether it was just and reasonable to order Security for Costs in the circumstances. Master Hanebury considered the principles pertaining to Security for Costs in relation to a Counterclaim, concluding that Security for Costs would not be ordered where the Counterclaim is essentially defensive to the Claim. Master Hanebury stated that it would defy the principles of fairness and justice to require a Defendant to post Security for Costs in order to defend itself. Master Hanebury held that the parties had provided insufficient evidence for the Court to undertake a detailed assessment of the merits of the Counterclaim, and PIL had not satisfied the overall burden of proof required to establish that Security for Costs were required. The Application was dismissed.

View CanLII Details