Legal Definitions - security for costs

Security for Costs refers to a protective measure where a court requires a party initiating a lawsuit or an appeal to deposit money, property, or a bond. This deposit acts as a guarantee to ensure that if this party is unsuccessful in their legal action, there will be funds available to cover the legal expenses (court costs) incurred by the opposing side. It's essentially a safeguard to prevent a party from pursuing a potentially weak case without the means to pay the other side's basic legal costs if they lose.

Here are a few examples to illustrate this concept:

• Example 1: Foreign Plaintiff

  Imagine a company called Global Imports Ltd., based in another country, decides to sue a local business, Local Distributors Inc., in a domestic court for an alleged breach of contract. The court might be concerned that if Global Imports Ltd. loses the case, it would be difficult to enforce an order for them to pay Local Distributors Inc.'s court costs, as Global Imports Ltd. is outside the court's immediate jurisdiction.

  In this scenario, the court could order Global Imports Ltd. to provide security for costs. This means Global Imports Ltd. would have to deposit a sum of money or a bond with the court. If Local Distributors Inc. wins the lawsuit, its court costs can then be paid directly from this deposited security, ensuring they are not left with unrecoverable expenses.

• Example 2: Financially Unstable Plaintiff

  Consider a small startup company, InnovateTech Solutions, which has recently faced significant financial difficulties and is on the verge of bankruptcy. Despite its financial state, InnovateTech Solutions decides to file a large lawsuit against a well-established competitor, MegaCorp Inc., alleging patent infringement.

  MegaCorp Inc., aware of InnovateTech Solutions' precarious financial situation, might ask the court to order InnovateTech Solutions to provide security for costs. The court, recognizing the risk that InnovateTech Solutions might not be able to pay MegaCorp Inc.'s court costs if the lawsuit fails, could require InnovateTech Solutions to deposit a specific amount. This ensures that if InnovateTech Solutions loses the case, MegaCorp Inc.'s legal expenses are protected.

• Example 3: Appealing a Judgment

  Suppose Ms. Chen loses a civil lawsuit and is ordered to pay damages. Believing the trial court made a legal error, she decides to appeal the decision to a higher court. The opposing party, who won the initial judgment, might argue that Ms. Chen's appeal has little chance of success and is primarily intended to delay payment.

  The appeals court might then require Ms. Chen to provide security for costs for the appeal. This means Ms. Chen would need to deposit funds or a bond to cover the opposing party's legal costs associated with defending the appeal. If Ms. Chen's appeal is ultimately unsuccessful, the security ensures that the winning party's expenses for participating in the appeal are covered, rather than them having to chase Ms. Chen for payment.