Security for costs

A buyer meets security for costs when the business is in a lawsuit, or when a claim could be brought against it. A defendant or respondent may move for the order (rule 56.01), and a plaintiff or applicant ordered to give security may not take steps in the proceeding until it is given (rule 56.05). This entry covers Ontario’s Rules of Civil Procedure and one federal Act; check the rules where you are. See what if there is a lawsuit against the business.

When Ontario’s rule 56.01 applies

Among the cases rule 56.01(1) lists are where it appears that:

• the plaintiff or applicant is ordinarily resident outside Ontario
• the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere
• the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe it has insufficient assets in Ontario to pay the costs of the defendant or respondent
• a statute entitles the defendant or respondent to security for costs

Once an order is made, the plaintiff may not take any step in the proceeding except an appeal from the order until security is given, unless the court orders otherwise (rule 56.05). On default, the court on motion may dismiss the proceeding against the defendant or respondent who obtained the order (rule 56.06). Despite rules 56.01 and 56.02, rule 56.09 lets the court order any party to give security where it has a discretion to impose terms as a condition of granting relief.

A federal exception

Under s. 242(3) of the Canada Business Corporations Act, a complainant is not required to give security for costs in an application made or action brought or intervened in under Part XX. Section 238 defines who is a complainant. Ask a lawyer which rule governs the court your matter is in.