Posting security as a form of insurance before litigation

Litigation can be extremely expensive. Naturally, successful parties can recoup some of their legal fees from the other side at the end of the proceedings. But what if the unsuccessful party is unlikely to pay those costs? The law has recognized that it would not be fair to allow certain parties to litigate without providing security for the other litigant’s costs in advance of the litigation. This way, the party seeking the security can be sure that they are going to receive reimbursement for some of their costs in the event they are successful. Sub-rule 24(13) of the Family Law Rules clarifies the circumstances that can warrant security for costs:

24. (13) A judge may, on motion, make an order for security for costs that is just, based on one or more of the following factors:

1. A party habitually resides outside Ontario.

2. A party has an order against the other party for costs that remains unpaid, in the same case or another case.

3. A party is a corporation and there is good reason to believe it does not have enough assets in Ontario to pay costs.

4. There is good reason to believe that the case is a waste of time or a nuisance and that the party does not have enough assets in Ontario to pay costs.

5. A statute entitles the party to security for costs.

Therefore, one of these provisions must be triggered for security to be granted, but it is not automatic. The court in Izyuk v Bilousov, 2015 ONSC 3684 noted a four-part test in this analysis:

40 The court must apply the following analysis:

a. The initial onus is on the party seeking security for costs to show that the other party falls within one of the enumerated grounds.

b. If the onus is met, the court has discretion to grant or refuse an order for security.

c. If the court orders security, it has wide discretion as to the quantum and means of payment of the order. Clark v. Clark, 2014 ONCA 175 (Ont. C.A.)

d. The order must be "just" and be based on one or more of the factors listed in subrule 24(13). Hodgins v. Buddhu, [2013] O.J. No. 1261 (Ont. C.J.).

The rules state that if there is an order for security, it generally must be paid before the party can proceed further. If the party does not pay the security, the court can dismiss their case or strike out any of their documents. The implications surrounding this rule can therefore be quite substantial. As such, the qualification in subrule 24(13) is that the security must be “just”. Majeed v Chaudhry, 2015 ONSC 6014 clarifies that this is a matter of court discretion:

27 Rule 24(13) grants the court the discretion in awarding security for costs. The question of whether it is just in a particular case is determined based on the record before the court considering the claims being made.

And further, Gauthier v Gauthier, 2019 ONCA 722, the Court of Appeal notes these awards are not to be commonplace:

8 Orders for security for costs are a blunt instrument. They are not intended to act as a roadblock to genuine claims: Izyuk v. Bilousov, 2015 ONSC 3684, 62 R.F.L. (7th) 131 (Ont. S.C.J.), at para. 37. They should be used sparingly and carefully because they may well have the effect of barring a party from access to the court process for a proper review of existing orders….

While the analysis is generally straightforward, one issue arises in parenting cases, as demonstrated in Kaiser v Wein, 2014 ONSC 752. The law dictates that parenting orders are to be made according to the children’s best interests. What happens if a party seeking parenting time is ordered to provide security for costs but cannot afford it, and the case goes on without their position? Kaiser states:

10 There is no question the court has jurisdiction in this case to order security for costs. Father has failed to pay numerous costs orders against him in this case. Father is also in default of his child support obligations. The issue is whether I should exercise my discretion and require father to post security as a condition to proceeding to trial.

…

19 Rule 24(13) does not limit security for costs only to cases that do not involve custody and access. I must therefore conclude that in the appropriate case, even where the only issue is custody and access, security for costs may be ordered.

...

22 Bragg, a decision of the Ontario Court of Justice, did address the issue of security for costs in the context of a custody case. There, the court said at paragraph 5: "Courts are justifiably cautious in ordering security for costs in family litigation where the best interests of children are paramount. The court does not wish to see the merits of the case determined by a party's inability to post security for costs. However, in appropriate circumstances, the court may make such an order."

23 In Bragg, the mother's conduct included failing to pay child support, failing to pay costs orders, failing to file an answer, late filings and inordinate delays despite indulgences and extensions. Mother points out that father's conduct in this case is very similar to the conduct in Bragg. She says the court should therefore exercise its discretion in the same fashion, and order security for costs.

24 In Bragg, the court ordered the mother to satisfy all the unpaid costs orders within 7 days, and post security for costs within 10 days in the sum of $2,750. The court ordered that if the mother failed to do so, her answer and claim would be struck. The court made its order "mindful of the respondent's modest means and the caution used by courts in ordering security for costs in matters involving children."

25 I recognize security for costs in custody/access cases should only be ordered in exceptional cases. The issue is whether this is one of those cases. In my view, it is.

26 Father's blameworthy conduct, and particularly his failure to pay costs as well as child support has been persistent and unrepentant since 2009. He has been given many indulgences, including time to pay the costs orders. He has still failed to pay. When I couple this conduct with the way he proposes to try this case, asserting a claim for joint custody which would appear to have little likelihood of success, and calling 23 witnesses to support his claim, I can only conclude this is an appropriate case for security for costs. It is an exceptional case. It is an unusual case. It cries out for a sanction that balances the primary goal of determining the children's best interests with the other primary objective set out in rule 2(2) of the Family Law Rules, namely to enable the court to deal with cases justly.

Security for costs in parenting cases are even less common than other cases. As demonstrated, courts seem to try and give the offending parent many opportunities to rectify their previous non-compliance of court orders before any security is ordered. As the court states, security for costs in parenting cases only occurs in exceptional circumstances.

Obvious takeaways? While litigation is expensive, the Family Law Rules provide a mechanism for litigants, in certain significant circumstances, such as when there are unpaid and outstanding costs awards, to obtain security from the opposing party before litigation commences. The party seeking the security bears the onus of establishing the other party falls under the enumerated grounds in sub-rule 24(13) of the rules.