Alberta Court Confirms Security for Costs Test for Corporations

In a recent decision, Embedia Technologies v. Blumell, the Alberta Court of King’s Bench clarified the test for security for costs against a corporation, concluding that the test under s. 254 of the Alberta Business Corporations Act (ABCA) does not represent a higher hurdle than the test that otherwise exists under Rule 4.22 of the Alberta Rules of Court.

Background

Historically, security for costs has been a useful tool for defendants to seek against a plaintiff who appears to be unlikely to pay costs if unsuccessful at trial. Such an application prevents a plaintiff from commencing an action, putting the defendant through significant defence costs, and being unable to pay those costs if the plaintiff is unsuccessful at trial.

A benefit of an application for security for costs is, if successful, it typically stays an action pending the posting of security and results in an action being struck if the security is not posted.

The test under s. 254 of the ABCA provides that the Court may order a plaintiff body corporate to post security for costs where the plaintiff “will be unable” to pay costs, while Rule 4.22 provides security should be posted where it “is unlikely” that the plaintiff can pay costs. Some cases have suggested the test under Rule 4.22 was less onerous than set out in s. 254 of the ABCA.

The Decision

In granting security for costs, the Court noted that while some Alberta case law indicates that an application for security for costs against a corporate plaintiff can only be sought under s. 254, other case law indicates that such an application may be brought against a corporate plaintiff under both s. 254 and Rule 4.22. The Court rejected those cases that suggested that the s. 254 requirements were somehow more stringent than under Rule 4.22.

The Court analyzed the onus with respect to both the requirements set out in s. 254 and Rule 4.22 and suggested that there was no material difference between:

1. Establishing on the balance of probabilities that the plaintiff will be unable to pay a costs award (s. 254)
2. Establishing that the defendant is not likely to be able to enforce a costs award (Rule 4.22)

The Court confirmed that whether an application is brought pursuant to s. 254 or pursuant to Rule 4.22, the onus of proof does not change. In either case, the applicant seeking security for costs bears the initial onus to establish, on a balance of probabilities, that the respondent will be unable to pay its costs if the defence is successful.

If the applicant satisfies that onus, the evidentiary burden shifts to the respondent to show why the Court should not exercise its discretion to make such an Order against it.

The Court reasoned that while Rule 4.22 lists a threshold test (i.e., the justness and reasonableness of awarding security for costs) and a number of other considerations (e.g., the ability of the respondent to pay a costs award, the merits of the action, and whether an order to give security for payment of a cost award would unduly prejudice the respondent’s ability to continue the action), those specific factors, although not explicitly set forth under s. 254, are matters that one would expect the Court to also consider in exercising its discretion under s. 254.

Result

The Court held that there was no material difference between the provisions of Rule 4.22 of the Alberta Rules of Court and section 254 of the ABCA in deciding whether to award security for costs.

Ultimately, the Court ordered security for costs in this case, having been satisfied that the applicant met the required test.

The authors of this bulletin represented the successful applicant. For more information, please contact the authors of this bulletin.