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Security for costs is a powerful procedural tool in litigation, designed to protect a party from the financial risk of an unrecoverable legal expense. However, courts exercise their discretion with caution, ensuring that such applications are not misused to oppress or unfairly obstruct genuine claims or appeals. Several factors, including timeliness, notice, merits, and procedural fairness, guide the courts’ approach to such applications. Here is how these principles are applied:

1. Timeliness and Delay

Courts emphasize the need for promptness when applying for security for costs. Delays in filing such applications can significantly undermine their credibility. In Wan Muhamad Ibrisam bin Wan Ibrahim v Opal Pyramid Sdn Bhd [2009] 1 CLJ 201, the Court held that procedural discretion must be exercised reasonably and without undue delay. A delayed application raises doubts about its urgency and purpose.

For instance, when a party files for security long after critical events, it might appear to be a strategic maneuver rather than a genuine concern about financial risks. This principle ensures that justice is not disrupted by last-minute applications filed with ulterior motives.

2. Lack of Prior Notice

Courts generally disfavor security for costs applications that take the opposing party by surprise. Reasonable notice before filing allows the other party to prepare an adequate response. Abrupt applications without prior notice may be seen as procedurally improper.

In Menon v Abdullah Kutty [1974] the importance of procedural propriety was underscored, particularly the need for timely filing and proper notice. Courts recognize that fairness is compromised when the opposing party is left scrambling to address unexpected applications.

3. Merits of the Case

The courts also consider the merits of the underlying claim or appeal. In cases involving serious allegations, such as fraud or newly discovered evidence, security for costs is less likely to be imposed as it might unjustly hinder access to justice.

In Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd [2015] 5 MLJ 1 the Court reaffirmed that allegations of fraud must be addressed based on the balance of probabilities, ensuring that genuine claims are not dismissed prematurely. Similarly, in Ling Khee Ming v Ling Shew Kue [2018] 5 MLRA 529, the court stressed that security for costs should not suppress bona fide claims, protecting litigants with legitimate grievances.

4. Procedural Propriety and Abuse of Process

Security for costs should never be used as a tool of oppression. Courts are vigilant against abuse of process, ensuring that applications are not made tactically to pressure or oppress the other party. In Jasa Keramat Sdn Bhd v Monatech (M) Sdn Bhd [1999] 4 MLJ 637, the Court of Appeal strongly condemned such abuse, emphasizing that procedural tools must be used to seek justice, not as instruments of intimidation.

For example, if a party files for security immediately after their position in litigation is challenged particularly through allegations of fraud, courts may view it as a retaliatory act rather than a legitimate application.

5. Evaluating Risk and Financial Concerns

Finally, courts require credible evidence of financial risk before ordering security for costs. As emphasized in Wan Muhamad Ibrisam, impecuniosity alone is not enough. The applicant must demonstrate a real risk of irrecoverability, supported by strong evidence. Similarly, in Skrine & Co v MBf Capital Bhd [1998] 3 MLJ 649, the Federal Court stressed that security for costs cannot be based on assumptions or generalized financial concerns.

Where allegations of fraud or procedural flaws form the basis of the appeal, courts are more inclined to allow the matter to proceed without imposing security for costs, recognizing the importance of substantive justice.

Conclusion

Courts exercise their discretion on security for costs applications with great care, balancing the protection of financial interests against the right to access justice. Timeliness, notice, and genuine concerns about irrecoverability are critical factors that guide this process. At the same time, courts remain steadfast in rejecting applications made with oppressive or strategic intent.

For litigants facing a security for costs application, understanding these principles can provide critical insights into how to prepare and present their case effectively. Security for costs is not just a matter of financial security, in fact it’s a question of procedural fairness and access to justice at the core of any legal system.