When a company sues another party, the defendant faces a real risk: if the defendant wins and is awarded costs, will the claimant company actually be able to pay them? Companies have limited liability, and an impecunious company with few assets may be a hollow opponent. Singapore law addresses this through an application for security for costs, an order requiring the claimant to put up money or a guarantee to cover the defendant’s costs before the case proceeds.
This guide explains what security for costs is, when it can be ordered against a company, and how the process works under the Rules of Court 2021. It is written for company directors and business owners, but security for costs is an interlocutory court application, so you should engage a Singapore Advocate and Solicitor to run it.
What is security for costs?
Security for costs is a court order requiring a claimant to provide security, typically by paying a sum into court or providing a banker’s guarantee, to cover the legal costs the defendant would be entitled to if the defendant succeeds. It protects a defendant from being dragged through litigation by a claimant who could not pay a costs order at the end. If the claimant does not provide the security ordered, the claim is usually stayed and can eventually be dismissed.
The legal basis
Two main sources of power apply where the claimant is a company. The first is Order 9 Rule 12 of the Rules of Court 2021, the general procedural power to order security for costs. The second is section 388 of the Companies Act 1967, which specifically allows the court to order a company claimant to give security where there is credible reason to believe the company will be unable to pay the defendant’s costs if the defence succeeds. In current practice, an application for security for costs is dealt with as part of the Single Application Pending Trial. The statutory provisions can be read on Singapore Statutes Online, and the courts’ procedures are explained on the Singapore Courts website.
Who can apply, and on what grounds
A defendant to a claim (including a defendant to a counterclaim) applies for security against the party bringing the claim. Common grounds include that the claimant is a company that appears unable to pay the defendant’s costs, that the claimant is ordinarily resident outside the jurisdiction, or that the claimant is a nominal claimant suing for someone else’s benefit. The mere fact that a company is in financial difficulty is not automatically decisive, but it is the classic trigger under section 388.
The two-stage test
The court applies a two-stage framework. First, it asks whether its discretion to order security has been enlivened, for example because the statutory or procedural threshold, such as credible evidence that a company claimant cannot pay costs, is met. Second, if the discretion is engaged, the court asks whether it is just in all the circumstances to order security, weighing factors such as the strength of the claim, whether an order would stifle a genuine claim, the claimant’s conduct, and any delay in applying. The result is a balancing exercise, not an automatic order.
Process, documents and costs
| Item | Detail |
|---|---|
| Application | Made by the defendant, generally within the Single Application Pending Trial |
| Supporting evidence | Affidavit showing grounds, e.g. the claimant company’s financial position |
| Form of security | Payment into court or a banker’s or insurer’s guarantee |
| If not provided | The claim is usually stayed and may ultimately be dismissed |
The quantum ordered is a portion of the estimated recoverable costs to the relevant stage, not the full amount claimed. If your company is on the receiving end of unpaid-debt litigation, it is worth understanding related tools, such as recovering debts through disciplined credit control and, where a company is insolvent, the creditor’s winding-up process.
What happens after an order
If security is ordered, the claimant must provide it within the time fixed by the court. Once provided, the litigation proceeds as normal, with the security held until the costs position is resolved. If the claimant ultimately loses, the defendant can look to the security to satisfy its costs award. If the claimant wins, the security is released. If the claimant fails to provide the security, the defendant can apply to stay or dismiss the claim.
Frequently asked questions
Can security for costs be ordered against an individual?
The section 388 power is specific to companies, but the Rules of Court also allow security in other situations, such as a claimant ordinarily resident abroad. The company-specific ground is the most common in commercial disputes.
Does applying for security stop the case?
Not by itself. But if the court orders security and the claimant does not provide it, the claim is typically stayed and can be dismissed, which effectively ends the case unless the claimant complies.
How much security will the court order?
The court orders a reasonable proportion of the defendant’s estimated recoverable costs, not the whole sum in dispute. The exact figure depends on the stage of proceedings and the circumstances.
Need Help With This Matter?
If your company is facing this situation, Raffles Corporate Services can assist with the groundwork – ACRA filings, compliance documentation, and coordinating with experienced Singapore law firms. For matters requiring court proceedings, we work with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice.
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This article is for general information only and does not constitute legal advice. For advice specific to your situation, please consult a qualified Singapore Advocate and Solicitor.
– The Editorial Team, Raffles Corporate Services