Security for Costs Applications Against a Singapore Company: Section 388 and Order 9 Rule 12

A company on the receiving end of a lawsuit brought by a financially shaky claimant faces an uncomfortable prospect: win the case, and still be left paying its own legal fees because the claimant has no money to satisfy a costs order. Singapore law gives defendants a tool to guard against exactly this outcome. It is called a security for costs application, and it is one of the more practical, and underused, applications a Singapore company can bring early in a dispute.

What a Security for Costs Application Is

A security for costs application is an interlocutory application made to the Singapore courts asking the claimant (or, in a counterclaim, the party bringing the counterclaim) to pay a sum of money into court, provide a banker’s guarantee, or give a solicitor’s undertaking, before the proceedings continue. The purpose is not to punish the claimant. It is to protect the defendant’s ability to actually recover its legal costs if it succeeds in defending the claim.

The application is particularly relevant where the claimant is a corporation that appears impecunious, is based outside Singapore, or otherwise presents a real risk that a costs order made in the defendant’s favour after trial would be worthless because there is nothing to enforce it against.

If the court is satisfied that security should be ordered and it is not provided within the time given, the claimant’s action is stayed, meaning it cannot proceed. In more serious cases of non-compliance, the court can go further and strike out the claim entirely.

Legal Basis: Section 388 Companies Act and Order 9 Rule 12

Two overlapping bases exist in Singapore law, and which one is used depends on who the claimant is.

Where the claimant is itself a corporation, section 388 of the Companies Act 1967 applies. It provides that where a corporation is the claimant in any action, the court may, if it appears by credible testimony that there is reason to believe the corporation will be unable to pay the defendant’s costs if the defendant succeeds, require sufficient security to be given and stay all proceedings until it is provided.

More generally, Order 9 Rule 12 of the Rules of Court 2021 sets out three grounds on which a court may exercise its discretion to order security for costs, satisfaction of any one of which is enough to engage the court’s discretion:

the claimant is ordinarily resident outside Singapore;
the claimant is suing on behalf of someone else, or is being funded by a person who is not a party to the proceedings, and there is reason to believe the claimant will be unable to pay the defendant’s costs if ordered to do so; or
the claimant’s address is not stated, or is incorrectly stated, in the originating process, or the claimant has changed address during the proceedings with a view to evading the consequences of the litigation.

Meeting one of these statutory gateways does not automatically result in an order. The court then asks a second question: whether it is just, in all the circumstances, to order security. This is where the case law becomes important. Singapore courts weigh factors including whether the claim is brought in good faith, the claimant’s actual financial standing, how easily a costs order could later be enforced against the claimant, the relative strength of each side’s case, and whether the application for security is itself a tactic to stifle a genuine claim rather than a legitimate attempt to protect the defendant. The courts are cautious about ordering security in an amount, or in circumstances, that would effectively shut a claimant out of court altogether, and a claimant who can show the order would be genuinely stifling may persuade the court to reduce the quantum ordered.

Past conduct in the proceedings also matters. A claimant who has been slow to comply with earlier directions, has not paid a previous costs order, or has otherwise shown disregard for the court’s process is more likely to face an adverse finding on a security for costs application.

Who Can Apply

The application is almost always made by a defendant against a claimant. It can equally be made by a party defending a counterclaim, treating the counterclaiming party as the “claimant” for this purpose. Where the counterclaim substantially overlaps with the original defence and raises no genuinely new issues, the court has discretion to decline security on the basis that the counterclaiming party is, in substance, only defending itself. Where the counterclaim goes beyond the defence and introduces distinct claims, the overlap argument carries less weight and security may still be ordered.

A defendant Singapore company facing a claim from a foreign entity, a shell company, or an entity that appears to have been stripped of assets is a typical candidate to bring this application. So is a defendant facing a claim funded by a third-party litigation funder who has no direct stake in paying an adverse costs order.

Step-by-Step Process

1. Assess the grounds early. Before filing suit papers or shortly after being served, the defendant’s lawyers should assess whether the claimant fits within section 388 (if a corporation) or one of the three Order 9 Rule 12 grounds. Evidence of impecuniosity, foreign residence, or third-party funding should be gathered as early as possible.

2. File the interlocutory application. The application is filed as an interlocutory application in the existing proceedings, supported by an affidavit setting out the grounds relied on and the evidence for them, such as credit reports, corporate search results, or correspondence suggesting the claimant is funded by an outside party.

3. Serve the application on the claimant. The claimant is given an opportunity to respond, typically by way of a reply affidavit addressing its financial position or the funding arrangement alleged.

4. Attend the hearing. The court hears both sides on whether a statutory ground is made out and, if so, whether it is just to order security, having regard to the case law factors described above.

5. Comply with, or challenge, the order. If security is ordered, the claimant must provide it, usually by a stated deadline, failing which the proceedings are stayed and can ultimately be struck out on the defendant’s further application. An ‘unless’ order is commonly attached, meaning specific consequences follow automatically if the deadline passes without compliance.

6. Proceed once security is furnished. Once security is paid into court, guaranteed by a bank, or undertaken by the claimant’s solicitors, the litigation continues on its normal timetable.

Documents Required

Document	Purpose
Supporting affidavit	Sets out the factual basis for the application: the claimant’s residence, funding arrangement, or corporate financial position
Corporate search / BizFile extract of the claimant (if a company)	Establishes the claimant’s registered status, paid-up capital and filing history
Evidence of impecuniosity	Credit reports, statutory demand history, judgments against the claimant, or public financial statements showing weak solvency
Evidence of third-party funding (if applicable)	Correspondence, funding agreements or public statements suggesting a non-party is funding the claim
Draft order	Sets out the form and quantum of security sought and the consequence of non-compliance
Claimant’s reply affidavit	The claimant’s response addressing its financial standing or disputing the grounds relied on

Timeline and Costs

Stage	Typical Timeframe	Typical Cost Driver
Preparing and filing the application	1 to 2 weeks	Legal fees for drafting the affidavit and gathering evidence
Claimant’s response	2 to 4 weeks (court-directed)	Reply affidavit and any cross-examination sought
Hearing	Typically heard within 4 to 8 weeks of filing, earlier if urgent	Hearing fees and counsel’s appearance fees
Compliance period (if ordered)	Usually 14 to 28 days from the order	Cost of the security itself (money into court, bank guarantee fee, or solicitor’s undertaking)
Consequence of non-compliance	Immediate on expiry of the compliance period	Further application to strike out if security remains unpaid

The application itself is typically brought as an interlocutory step rather than a standalone suit, so the incremental legal cost is usually modest relative to the potential exposure it protects against. Courts frequently order that the costs of a successful security for costs application be paid by the claimant in any event.

What Happens After the Order

Once the court orders security, the claimant must provide it in the form and within the time directed, commonly by paying a sum into court, arranging a banker’s guarantee, or having its solicitors undertake to hold funds for the purpose. If the security is provided, the litigation resumes its ordinary course toward case management, discovery, and eventually trial or settlement.

If the security is not provided, the proceedings are stayed. A stay means the claimant cannot take any further steps to advance its claim. If the claimant remains in default, the defendant can apply to have the claim struck out altogether, which, if granted, ends the proceedings in the defendant’s favour without the need for a trial on the merits. This is precisely why the application is worth pursuing early: it can end an unmeritorious or hollow claim well before the cost of a full trial is incurred, and where the claim does proceed, it ensures the defendant is not left holding the entire cost of its own defence regardless of the outcome.

Frequently Asked Questions

Can a Singapore company defending a claim get security for costs against a foreign claimant automatically?

No. Being ordinarily resident outside Singapore is one of the three Order 9 Rule 12 gateways, but meeting a gateway only opens the door to the court’s discretion. The court still has to be satisfied that it is just to order security, considering the merits of the claim and the risk of stifling a legitimate case.

Does section 388 of the Companies Act apply if the claimant is an individual rather than a company?

No, section 388 is specific to corporate claimants. Where the claimant is an individual, the defendant must rely on the general grounds in Order 9 Rule 12 of the Rules of Court 2021, such as the claimant’s residence outside Singapore or third-party funding.

What happens if the claimant simply ignores the order to provide security?

The claimant’s action is stayed. If it remains unpaid, the defendant can apply for the claim to be struck out, which brings the proceedings to an end in the defendant’s favour.

Can a security for costs order be varied or reduced later?

Yes. If the claimant’s circumstances change, or if it can show the amount ordered would genuinely stifle its ability to pursue the claim, it can apply to vary the quantum or form of security.

Does bringing a counterclaim expose a defendant to a security for costs application too?

Potentially. Where a defendant’s counterclaim goes beyond simply defending the original claim and raises genuinely separate issues, the claimant (now defending the counterclaim) may itself apply for security against the defendant on the counterclaim.

Is a security for costs application only relevant once litigation has already started?

It is made within existing proceedings, so a claim must already be on foot, but it should be considered as early as possible after being served, since delay can weaken the application and give the impression it is being used to obstruct rather than protect.