Is "Prejudice" in Security for Costs Only One Factor to Consider?
The Alberta Court of Appeal's decision, denying leave to appeal in Autoweld Systems Ltd. v. CRC-Evans Pipeline International Inc., provides authority for maintaining a security for costs order against a company with few assets. This decision will prove a useful authority to clients wishing to stop litigation where the plaintiff is a party unable to pay a costs award.
The Applicant, Autoweld Systems Limited, sought leave to appeal a security for costs order made by the case management judge in favour of the respondents CRC-Evans Pipeline International Inc., CRC-Evans Automatic Welding Inc., Malcom Timothy Carey and Richard Lee Jones.
Autoweld argued that the security for costs order would unduly prejudice its ability to prosecute its claim. Autoweld has a registered office in England, no assets or business in Alberta, and modest net assets of £23,827. Autoweld brought their suit against the Respondents for approximately $11,000,000 related to a settlement in a previous lawsuit. After the respondents unsuccessfully sought to stay the action, they were granted security for costs.
The Court is able to grant security for costs where it appears that a plaintiff will be unable to pay the costs of the successful defendant. In particular, the Rules of Court provide that the Court should consider (among any other relevant material):
- whether it is likely the applicant for an order will be able to enforce an order or judgment against assets in Alberta;
- whether the respondent is likely to be able to pay a costs award;
- the merits of the action; and
- whether the security for costs order would unduly prejudice the respondent’s ability to continue the action.
Autoweld’s counsel argued that the prejudice of a security for costs order could be inferred from an abbreviated financial statement showing that the net assets of Autoweld were £23,827, and a Dun & Bradstreet Report assessing the risk of the plaintiff’s business failing as greater than average, and recommending that no more than £47,000 of credit be extended.
The Court of Appeal determined that the financial statement and the Dun & Bradstreet report were not sufficient evidence of prejudice, writing: “…conspicuous by its absence was any evidence that the applicant could not raise the funds required to satisfy the security for costs order.” Further, the Court wrote “[n]or am I prepared to infer undue prejudice from the evidence which the respondents adduced in order to show that there was some question about the applicant’s ability to pay a costs award […] More evidence would be required to demonstrate undue prejudice.”
Even more interesting, in dismissing the application for leave to appeal, Justice O’Ferrall wrote that:
[w]ith respect to the argument that the appeal raises a serious question of general importance, namely whether security for costs which unduly prejudices a plaintiff may be ordered, this could be an important question in a case where undue prejudice was established. Having said that, prejudice to a plaintiff’s ability to prosecute its claim is only one of a number of factors which must be considered; and given the direction of the Legislature contained in […] the Business Corporations Act, it may be that security for costs can be ordered in an amount which has the effect of preventing a claim from being prosecuted. [Emphasis mine.]
In short, this authority is a powerful weapon for companies looking to short-circuit claims where a plaintiff is unable to furnish security for costs. If prejudice is only one factor to consider in granting security for costs, it seems that security for costs in a “prejudicial” amount may be granted where the other factors are in favour of such an award.
Date of Decision: August 8, 2011
Alberta Court of Appeal appeal assets Costs costs award financial statement prejudice security for costs