A Brief How-To Guide: Security For Costs

• Published date: 14 August 2023
• Subject Matter: Corporate/Commercial Law, Technology, Corporate and Company Law, Security
• Law Firm: PD Legal
• Author: Mr Peter Doraisamy, Cathryn Neo and Vincent Lee

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...