A Brief How-to Guide: Security for Costs

One great concern for litigants, and something that is often cited as an important issue for individuals and companies seeking to defend legal proceedings, is the legal costs involved.

The legal costs for representation during the trial itself, together with the pre-trial drafting, court fees and necessary disbursements can add up and make the costs of a court action overwhelming – particularly when the claim is unmeritorious and the defending party is left with no choice but to defend it.

A big concern is when a defendant meets a claimant, which he believes might be impecunious or have poor financial standing. This may result in a situation where a defendant (who has no choice but to defend the claim) may not be compensated for his legal costs even if he succeeds in the case.

One option available to a defendant is to make an application for security for costs – essentially, a court order, which allows a party to ensure that they will be compensated for their legal costs for representation if they succeed in defending a claim.

This can be made with an interlocutory application to the court, in accordance with O9 r 12 of the Rules of Court 2021(ROC 2021) and also section 388 Companies Act (CA) if the party making the application is a company.

So when is it available?

It is typically recommended that an application for security for costs be made as early as possible in the proceedings. This is advantageous to the defendant because if security for costs is not paid by the claimant, legal proceedings by the claimant will be stayed, and the court can dismiss the proceedings if the security for costs is not paid.

If an application for security for costs is made at a later stage during legal proceedings, the court may be inclined to reject the application on the ground that the application is made to delay the progress of proceedings.

How the court determines the application

There are two steps in the legal test for determining a security for costs application. The court will first consider whether the security for costs application meets the requirements in the ROC 2021 or Companies Act, whichever the party is petitioning under. Secondly, whether it is just to order security for costs, having regard to all the relevant circumstances.

Meeting The Statutory Requirements (Rules of Court 2021 or Companies Act)

If an application for security for costs is made under Order 9 of ROC 2021, either one of the three grounds must be met in order for the court to exercise its discretion:

1. a) If the claimant resides in a different legal jurisdiction;
2. b) If the claimant is suing on behalf of someone else, or is being funded by a party that is not involved in the legal proceedings and there is reason to believe that the claimant will not be able to pay the defendant’s costs if ordered; or
3. c) if the claimant’s address is not stated in legal proceedings or has changed its address during the course of proceedings.

If an application is made under s388 CA, the defendant/respondent has to show that there is “reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence.”  The intent behind this section is to ensure that companies do not have unfettered freedom to make frivolous claims against defendants who cannot recover costs after the fact. In order to see whether it applies, the court will consider evidence that the company is impecunious and interpret that in the defendant’s favour.

Whether It Is Just To Order Security For Costs

Once the statutory requirements are met, the court considers a non-exhaustive list of factors in exercising its discretion to order a party to pay security for costs. [1]

This includes:

1. Whether the claimant has a bona fide claim (ie there are no ulterior motives for   bringing the claim, it is done entirely in good faith);
2. The claimant’s financial standing (if the claimant is impecunious, this will generally count against them);
3. The ease of enforcing judgment (are there any factors which may make it difficult  to enforce – is the claimant outside of the jurisdiction, for example?);
4. The relative strength of the cases; and
5. Whether the application was made as an attempt to stifle the claim.

These are all circumstances, which will make it more difficult for costs to be obtained after the trial. If any of these factors are relevant, the court will be more likely to err on the side of caution and order that the claimant provide security in advance.

On top of these considerations, the court further assesses the circumstances of the proceeding before exercising its discretion.

Whether An Application for Security for Costs Will Stifle a Claim

The concept of ‘stifling’ a claim refers to the practice of putting so much financial pressure on a party that they are unable to bring proceedings at all. If the court reasonably believes the claimant is not able to provide security and that in granting a costs order, the claimant would be placed under such immediate financial pressure that it would prevent them from effectively arguing their case, they may be hesitant to do so.[2]

In the plaintiff’s appeal in the case of Ong Jane Rebecca v Pricewaterhousecoopers and others [2009] 2 SLR(R) 796, the plaintiff submitted that an order for security for costs would be oppressive and stifle her claim because of her difficult financial position. She was under a debt settlement agreement and had also been unemployed since 1996. The court considered her appeal on the ground of unfairly stifling a claim and reduced the quantum of security for costs ordered.

The court has to conduct a balancing act between considering if the other party is in enough financial trouble that they would be unlikely to be able to pay costs at the end of the trial while not stifling the party from bringing its claim.

Whether the Claimant was Non-compliant With Earlier Orders of Court

The court also takes into account the past behaviour of the claimant.[3] If, up to the current stage of proceedings, either side has failed to meet deadlines, not submitted necessary documents or in any other way been non-compliant with court procedure or orders, it will likely be considered in the decision and weighed against that party.[4]

For example, a smaller costs order has already been awarded but was not paid, or the party delayed in paying it, that conduct will be relevant evidence that the court will consider in the receiving party’s favour, on the basis that they will be unlikely to follow the rules if a costs order is made post-trial.

Whether There is a Counterclaim

As stated earlier, security for costs applications are typically filed by the defendant in a dispute. In a counterclaim, the party applying reverses as the claimant is defending a counterclaim against a defendant. The question arises, where the defence and counterclaim are very similar in content, should a claimant be made to pay the costs where they are essentially assisting the defence in pursuing their own claim?

The decision here is heavily dependent on the content of the counterclaim itself. If it is broadly the same as the defence and does not raise any new points, then the court has discretion not to allow security for costs on the basis of the overlap; this was initially considered in Creative Elegance (M) Sdn Bhd v Puay Kim Seng and another [1999] 1 SLR(R) 112. [5]

However, if the counterclaim introduces new points not raised in the defence and has a degree of separation from the defence, then the court will not consider it as a contributory factor when awarding security for costs for the defendant. Essentially, it’s up to the applicant to show that their counterclaim is substantially different from the defence.

That said, even if there is an overlap, the court continues to have the discretion to award security.[6]

Put simply, if you are applying for security and you have a counterclaim, come prepared to show that there is a perceptible difference between your counterclaim and your defence in order to make sure that this cannot be argued against you!

So, How Can A Court Order Requiring Security For Costs Be Enforced?

The court typically orders for security to be given in various ways including for interlocutory applications and hearings, but potentially it could even stretch to all costs prior to trial. Security for costs can be paid by payment of money into court, a banker’s guarantee or a solicitor’s undertaking that the money has been paid to the law firm.

The enforceability of an order of court requiring a party to make payment is one of the considerations of the court in terms of granting the order.[7] This means that potentially, there may be difficulties in making the paying party comply.

The security for costs order can be secured with an ‘unless’ order – a tool the courts have available to them to ensure compliance. This means that ‘unless’ the party subject to the order does whatever it is supposed to do within a certain time frame, there will be consequences at the application of the other party. This can go as far as striking out the entire case and will vary based on a number of factors in each case.

Conclusion

An application for security for costs is something a defendant or claimant responding to a counterclaim ought to consider at the outset of any legal proceedings. It is a helpful tool to protect the party and reduce the financial risk in defending a court action.

On a related note, PDLegal recently argued a successful claim for security for costs in an ongoing case in the High Court. You can read the full judgment here.

The writers are grateful for the contribution of the firm’s interns, Theo Southgate and Lou Choong Ngan.

[1] Creative Elegance (M) Sdn Bhd v Puay Kim Seng and another [1999] 1 SLR(R) 112.

[2] Ong Jane Rebecca v Pricewaterhousecoopers and others [2009] 2 SLR(R) 796 at [33]

[3] SK Lateral Rubber & Plastic Technologies (Suzhou) Co Ltd v Lateral Solutions Pte Ltd [2020] SGHC(I) 09 at [15]; Frantonios Marine Services Pte Ltd and Another v Kay Swee Tuan [2008] SGHC 91 at [63].

[4] B2C2 Ltd v Quoine Pte Ltd [2018] SGHC(I) 08 at [34(b)(ii)]

[5] Creative Elegance (M) Sdn Bhd v Puay Kim Seng and another [1999] 1 SLR(R) 112 at [31]

[6] Cova Group Holdings Ltd v Advanced Submarine Networks Pte Ltd and Tiong Woon Offshore Pte Ltd [2023] SGHC 178at [48]

[7] B2C2 Ltd v Quoine Pte Ltd [2018] SGHC(I) 08 at [32]