Security For Costs: An Advantage For Owners And Contractors Defending Against Litigation

Owners and contractors defending against litigation from impecunious corporate plaintiff contractors or subcontractors should be aware of their ability to obtain security for costs, which guards against the real risk that they may be unable to recover costs from a plaintiff if they are successful in defeating an action.

In a recent decision, The Wallin Company Inc. v Knappett Projects Inc., 2026 BCSC 729 (“Wallin Company”), the BC Supreme Court applied the established test for security for costs and highlighted several evidentiary considerations relevant to obtaining an order for security for costs in the context of a builders lien action.

Background and Legal Test

The underlying issue in Wallin Company arose from an agreement between the plaintiff subcontractor The Wallin Company Inc. dba Zoom Painting (“Wallin”) and the defendant head contractor, Knappett Projects Inc. (“Knappett”) whereby Wallin was to provide painting materials and labour to Knappett for the construction of an apartment building owned by the defendant Fiera (Gorge) Holdings Corp. (“Fiera”). Wallin sought judgment for $192,716, claiming that Knappett was in breach of the contract and relying on provisions of the Builders Lien Act, S.B.C. 1997, c. 45. Knappett and Fiera (collectively the “Defendants”) had concerns that Wallin would be unable to pay the Defendants’ costs of successfully defending against the action. Due to these concerns, the Defendants brought an application that Wallin post security for costs.

Pursuant to s. 236 of the Business Corporations Act, S.B.C. 2002, c. 57, a corporate plaintiff may be required to post security for the defendant’s costs of successfully defending an action if it appears that the plaintiff will be unable to pay those costs. An order for security for costs is discretionary, and the court may order any amount of security it deems appropriate, up to the amount claimed (by way of security) as long as the amount is more than nominal. If the security is ordered, a court may also stay the legal proceedings until security is posted.

The defendant seeking security for costs must show a prima facie (on its face) case that the corporate plaintiff has insufficient assets in the jurisdiction to pay the defendant’s costs if the action fails. Once established, the burden shifts to the plaintiff to demonstrate that: (1) it has enough assets to pay for costs, (2) the defendant has no arguable defence to the action, or (3) security for costs would cause undue hardship for the plaintiff and would effectively bar the plaintiff’s cause of action.¹

Decision

The Court found that a prima facie case for security for costs was made out and that Wallin failed to establish that security for costs should not be ordered.

In support of their position, the Defendants argued that Wallin’s assets were subject to personal property charges registered in Alberta, that Wallin lacked liquid assets, was involved in numerous lawsuits in British Columbia, and had a judgment in Alberta against it. In response, Wallin argued that it had sufficient assets to satisfy a judgment, highlighting the value of future contracts it secured and its construction equipment. Wallin also argued that the Defendants did not have an arguable defence to the action, and that an order for security for costs would stifle its ability to advance its claim.

The Court found that the Defendants had established a prima facie case for security for costs and that Wallin failed to establish that security for costs should not be granted under the three-part test to resist such an order (above). In particular, the Court found that Wallin likely had insufficient assets to pay an award for costs because its assets consisted primarily of vehicles and equipment that were easily transportable and frequently moved between Alberta and British Columbia and were subject to registered security interests. Wallin had also failed to disclose the amounts owing to its secured creditors or provide evidence that it held any liquid assets. The value of its future contracts was speculative, as it was too early to know whether those contracts would be profitable. Having reached this conclusion based on Wallin’s assets, the Court did not need to consider the other factors raised by the Defendants regarding Wallin’s financial position.

Further, Wallin failed to establish that the Defendants had no arguable defence to the action. The Defendants pled numerous arguments in their response to civil claim, such as delays and deficient work caused by Wallin, which could defeat Wallin’s claim and needed to be resolved at trial. Finally, Wallin failed to demonstrate undue hardship from an order for security for costs as it did not address whether the corporation’s shareholders or directors could assist in raising funds needed to advance the litigation.

In determining the amount of security, the Court considered the Defendants’ draft bill of costs seeking $44,737.50. The Court found that the existence of the Defendants’ counterclaim did not defeat the application although it was a proper factor to consider in determining the amount of security. Since the counterclaim and the defence were substantially interwoven, as is typical in construction litigation, the Court found that only a minimal reduction was warranted to account for the counterclaim. The Court also accepted that it was reasonable to include anticipated expert costs. However, it reduced the amount sought because certain tariff items had been claimed at the complex or high level even though the litigation was still in its infancy.

The Court ordered Wallin to post $40,000 in security and stayed the action until the security was posted, which prevented Wallin from taking further steps in the action until it posted the security. Significantly, the Court ordered that the Defendants were at liberty to apply to dismiss Wallin’s action if Wallin did not post the security within 45 days.

Takeaways

The Wallin Company decision is a helpful guide to applications for security for costs in the context of construction litigation. When considering security for costs, a court must balance the risk of potentially barring a valid legal claim with the chance that a plaintiff may be unfairly relying on their dire financial situation to disadvantage a defendant’s ability to later obtain costs for successfully defending the action.

Defendant owners and contractors can use security for costs as an effective tool to ensure they are not unnecessarily burdened by actions brought by impecunious parties. An order for security for costs may deter plaintiffs from pursuing weaker claims due to the financial burdens of posting security for costs.

For plaintiff subcontractors or general contractors responding to an application for security for costs, evidentiary preparation is critical. A plaintiff corporation should be prepared to provide current evidence regarding its liquid assets, the location and net value of its assets, the amounts owing under any security interests, and the expected profitability, rather than merely the gross value, of future contracts. Contractors who hold assets outside of B.C. and are engaged in litigation within B.C. should ensure, where possible, that any corporate assets or personal property are unencumbered by significant security interests. Moreover, a plaintiff corporation should be prepared to meet the burden of the three-step test should a defendant make out the lower prima facie standard for security for costs. This means ensuring that alternative methods to raise funds to cover awards for costs are explored beyond sources such as future contractual earnings or corporate assets. For example, if the plaintiff argues that an order would stifle its claim, it should also address whether the required funds can be raised from its directors, shareholders, backers or other interested persons.

Our team has extensive experience with construction litigation, including defending and prosecuting contractual disputes, negligence claims, and builders lien matters, and are ready to assist with any questions you may have regarding security for costs, or any other construction-related matters. You may contact our Partner, Dan W. Melnick or another member of our Construction group for assistance.

Footnote

1 Protea Consultax Inc. v. Air Canada, 2018 BCSC 995 at para 5.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.