Security for Costs in Malaysia 2026: When Courts Order It and Practical Strategies for Businesses

Security for costs Malaysia applications have become a sharper battleground for commercial litigants as cross-border disputes multiply and courts scrutinise the financial standing of claimants more closely in 2026. For in-house counsel, SMEs, creditors and defendants, the decision to apply for, oppose or comply with a security for costs order can shape the entire economics of a dispute. This guide explains the legal test Malaysian courts apply, the procedural steps and timing, the evidence that wins or defeats an application, the forms security can take, and how the position differs in arbitration under the Arbitration Act 2005 (as amended). Throughout, the focus is practical: what to file, what to argue, and how businesses can protect themselves before and during litigation.

Executive summary: key points for business counsel

• When it is ordered. A security for costs order is discretionary. Courts commonly intervene where a claimant is impecunious, resident or incorporated abroad, or where there is a genuine risk the defendant cannot recover costs if it wins.
• Typical amounts. There is no fixed formula. The court estimates the defendant’s likely recoverable costs to the next stage or to trial and fixes a sum accordingly.
• Timing matters. A security for costs application should be made promptly as an interlocutory step; delay weakens the application and may invite a costs penalty.
• Enforcement risk. If an ordered claimant fails to provide security, the court may stay the proceedings, strike out the claim or dismiss it with costs.
• Alternatives exist. Claimants can resist by demonstrating solvency, offering undertakings, or proposing a less burdensome form of security.
• Arbitration differs. Tribunals seated in Malaysia may order security, but practical enforceability and the interplay with the Arbitration Act 2005 require separate analysis.

What is security for costs? Legal concept and purpose

Security for costs is an interlocutory remedy that requires a claimant to provide a fund or guarantee from which a successful defendant can recover its legal costs. The policy is straightforward: litigation is expensive, and a defendant who wins should not be left with an unenforceable costs order against a claimant who cannot or will not pay. The remedy protects defendants from the prospect of incurring substantial, unrecoverable expense defending a claim that may be weak, speculative or brought by an entity beyond the practical reach of enforcement.

The procedural framework for security for costs in Malaysia sits within the Rules of Court 2012, which govern interlocutory applications in the civil courts, together with the statutory basis for ordering security against corporate claimants found in the Companies Act 2016. These provide the mechanism by which a defendant applies and the court exercises its discretion. The remedy is not punitive. It does not prejudge the merits. Instead, it balances the claimant’s right of access to justice against the defendant’s legitimate interest in recovering costs if the claim fails.

When is it used in commercial litigation?

In commercial litigation, security for costs is most often sought where the claimant is a company in financial difficulty, a foreign corporation with no assets in Malaysia, or an entity whose financial opacity raises doubt about its ability to meet an adverse costs order. High-value cross-border contracts, shareholder disputes, construction claims and insolvency-adjacent litigation are common settings. For defendants facing a claimant with limited visible assets, an early security for costs application can transform the strategic balance, forcing the claimant to commit real money to the fight or reconsider the claim entirely.

When will Malaysian courts order security for costs? The legal tests

The central question, when will courts order security for costs, turns on discretion exercised against recognised grounds. A defendant does not have an automatic right to security. The applicant must first establish a qualifying ground, and the court then decides, in all the circumstances, whether it is just to order security and in what amount. Understanding the grounds is the starting point for any security for costs strategy in Malaysia, whether you are applying or opposing.

The grounds most frequently relied upon include:

• Claimant impecuniosity. Where there is credible evidence that the claimant will be unable to pay the defendant’s costs if ordered to do so, the court may require security. In the case of a corporate claimant, the Companies Act 2016 provides a specific statutory basis where there is reason to believe the company would be unable to pay the defendant’s costs if successful. Impecuniosity alone is not decisive, but it is a powerful factor.
• Foreign claimants. A claimant ordinarily resident outside the jurisdiction, with no assets within Malaysia, presents an obvious enforcement risk. The absence of Malaysian assets against which a costs order could be executed is a classic trigger.
• Companies incorporated overseas. A corporate claimant incorporated abroad, particularly in a jurisdiction where enforcement of a Malaysian costs order would be difficult, invites close scrutiny.
• Insolvency risk and pending winding-up. Where a corporate claimant is insolvent or subject to winding-up proceedings, the risk of an unrecoverable costs order is acute. Company status can be checked through the Companies Commission of Malaysia.
• Jurisdictional and enforcement risk. Even a solvent foreign claimant may face an order where the practical difficulty and cost of enforcing a Malaysian costs award abroad is significant.
• Abuse of process. Where there are indications that the claim is a device, or that the claimant has organised its affairs to defeat any costs order, the court may be more readily persuaded.

Leading authorities and judicial factors

Malaysian appellate authority, decisions of the Federal Court and the Court of Appeal reported through the Judiciary of Malaysia judgments portal, confirms that the jurisdiction to order security is discretionary and must be exercised judicially, weighing competing interests. The courts have consistently emphasised that security must not be used as an instrument to stifle a genuine claim. A claimant’s impecuniosity does not, by itself, compel an order; the court looks at the whole picture, including whether the impecuniosity was caused by the conduct complained of in the action.

Judicial factors that recur across the authorities include the strength or weakness of the claim on the available material, the bona fides of the claim, whether ordering security would effectively stifle a legitimate action, the claimant’s conduct, the stage of the proceedings and the amount of costs already incurred. Where the claim appears strong, courts are slower to order security; where it appears speculative or where the claimant has behaved evasively, courts are more willing.

Checklist for the discretionary test

When assessing a prospective security for costs application in Malaysia, counsel should work through the following:

1. Is there a qualifying ground, impecuniosity, foreign residence, overseas incorporation, insolvency or enforcement risk?
2. Is there credible, documented evidence to support that ground, not mere assertion?
3. Would an order stifle a genuine claim, or merely require the claimant to fund litigation it has chosen to bring?
4. Has the claim’s apparent strength been fairly assessed on the available material?
5. Is the application being made promptly, before significant costs have accrued?
6. What amount is proportionate to the realistic recoverable costs to the relevant stage?

How to make a security for costs application in Malaysia: a practical checklist

A security for costs application in Malaysia proceeds as an interlocutory application within the existing suit. It is not freestanding litigation; it is a procedural step taken by the defendant against the claimant. The application must be supported by affidavit evidence establishing the ground relied upon and the quantum sought. Timing is critical, a prompt application carries more weight and avoids the criticism that the defendant delayed while costs mounted.

The core components of a well-prepared application are:

• The interlocutory application itself. Filed in the existing action, specifying the order sought, including the sum, the mode of security and a proposed timetable for provision.
• A supporting affidavit. Setting out the factual basis for the qualifying ground and exhibiting the documentary evidence relied upon.
• A costs estimate. A reasoned breakdown of the defendant’s anticipated recoverable costs to the relevant stage, supporting the sum requested.
• Proposed order wording. Clear drafting of the sum, the acceptable forms of security, the deadline for provision and the consequences of non-compliance.

Evidence: what to attach

Strong evidence is what distinguishes a successful security for costs application in Malaysia from a speculative one. Depending on the ground, the applicant should assemble:

• Company searches. Official searches from the Companies Commission of Malaysia establishing the claimant’s registered status, any winding-up indicators, filed accounts and registered charges.
• Financial evidence. Where available, the claimant’s accounts, bank statements or published financial information demonstrating impecuniosity or financial fragility.
• Proof of foreign residence or incorporation. Corporate registry extracts, incorporation certificates or address evidence showing the claimant is based outside Malaysia with no local assets.
• Enforcement analysis. Material addressing the difficulty and cost of enforcing a Malaysian costs order in the claimant’s home jurisdiction.
• Third-party funding indicators. Where the claim appears to be funded by an external backer, evidence and submissions may be relevant to the court’s assessment.

Typical drafting of affidavit paragraphs

The following are illustrative templates only and are not legal advice; specific wording must be tailored to the facts and settled by qualified counsel. A ground-establishing paragraph might read: “The Plaintiff is a company incorporated in [jurisdiction] and, upon the company search exhibited at [exhibit], holds no assets within Malaysia against which any order for costs in favour of the Defendant could be enforced.” A quantum paragraph might read: “The Defendant’s estimated recoverable costs to the conclusion of trial are RM[sum], computed as set out in the schedule exhibited at [exhibit], and the Defendant respectfully seeks security in that sum.” Counsel should always calibrate such wording to the governing Rules of Court 2012 and the evidence actually available.

Opposing a security for costs application: practical defences

A claimant served with a security for costs application in Malaysia is not without answers. The discretionary nature of the remedy means a well-constructed opposition can defeat or substantially reduce an order. The most effective security for costs defence is usually evidential, demonstrating that the premise of the application is wrong, or that an order would be unjust.

Common grounds of opposition include:

• Demonstrating solvency. Clear financial evidence that the claimant can meet an adverse costs order removes the central justification for the application.
• Offering undertakings. A credible undertaking, or an arrangement providing comfort to the defendant, may persuade the court that a formal order is unnecessary.
• Arguing stifling of a genuine claim. Where an order would effectively prevent the claimant from pursuing a legitimate case, the court will be reluctant to grant security. This is especially powerful where the claimant’s financial difficulty is caused by the defendant’s conduct complained of in the action.
• Challenging the jurisdictional basis. Disputing that any qualifying ground is made out, for example, showing substantial local assets despite foreign incorporation.
• Relying on the merits. A strong case on the available material is a recognised discretionary factor weighing against an order.
• Proposing alternative security. Offering a less burdensome form, a bank guarantee instead of cash, or a staged provision, can neutralise the application while preserving liquidity.
• Procedural abuse or delay. Where the defendant has delayed, allowing costs to accrue before applying, the court may decline or limit the order.

Evidence to file in opposition and timing of cross-applications

The opposing affidavit should directly rebut each limb of the applicant’s case. If impecuniosity is alleged, file up-to-date accounts and bank evidence. If foreign residence is the ground, exhibit evidence of Malaysian assets or a local presence. A claimant resisting on the basis that the application is tactical should document the defendant’s delay and the costs already incurred. Where the opposition succeeds, the claimant should seek costs against the applicant. Timing is important: opposition evidence must be filed within the directions set, and any cross-application, for instance, to strike out an abusive application, should be considered early so that both matters can be heard together efficiently.

Quantum, forms and enforcement of a security for costs order

Once the court is satisfied that a security for costs order is appropriate, two practical questions follow: how much, and in what form. On quantum, there is no rigid tariff. The court estimates the defendant’s reasonable recoverable costs and typically fixes a sum covering the stage up to which security is ordered, commonly to the close of pleadings, to a particular interlocutory milestone, or through to trial. The figure reflects proportionality; courts guard against orders so large they operate to shut out the claimant.

On form, the court will assess the sufficiency and enforceability of what is offered. A cash deposit paid into court provides the most immediate protection. A bank guarantee is frequently accepted but requires a workable drawdown mechanism. Other forms, bonds, charges or third-party undertakings, may be acceptable where their enforceability is demonstrated.

Consequences of non-compliance

The teeth of a security for costs order lie in the consequences of default. Where a claimant fails to provide ordered security within the time fixed, the court may stay the proceedings until compliance, strike out the claim, or dismiss it with costs. For defendants, this is the strategic payoff: a claimant unable or unwilling to fund security may see its claim halted or ended. For claimants, it is a stark reminder that an order must be taken seriously and complied with promptly, or the action itself is at risk.

Security for costs in arbitration versus Malaysian courts under the Arbitration Act 2005

The analysis for security for costs in Malaysia changes materially when the dispute is arbitral rather than curial. In arbitration, the source of the power to order security is the arbitration agreement, the applicable arbitral rules and the governing legislation. Under the Arbitration Act 2005 (as amended), a tribunal seated in Malaysia may order a party to provide security for the costs of the arbitration, and counsel should consider the allocation of powers between the tribunal and the court, and the practical enforceability of any security ordered by a tribunal seated in Malaysia. The statute text and amendments are available through the Attorney General’s Chambers, and international comparative principles are set out in UNCITRAL materials.

Several practical distinctions matter. A tribunal’s order for security operates between the parties under the arbitration framework, whereas a court order draws on the court’s established enforcement machinery. Enforceability, the interplay with any supportive court jurisdiction, and the seat of the arbitration all affect how reliable security will be in practice. For international seats, the position depends on the institutional rules and the law of the seat, which may differ significantly from the Malaysian position.

Checklist for counsel on forum and drafting

• Identify whether disputes will be resolved by litigation or arbitration, and the seat, before drafting the dispute resolution clause.
• Confirm the chosen arbitral rules expressly empower the tribunal to order security for costs.
• Assess the practical enforceability of tribunal-ordered security at the chosen seat.
• Consider supportive court powers available at the seat in aid of arbitration.
• Document the counterparty’s financial standing and jurisdiction at contracting, so that evidence exists if security is later sought.

Practical strategies for businesses: pre-litigation and in-interim

The best security for costs strategy in Malaysia begins long before any dispute is filed. Businesses that build protection into their contracts and operations reduce both their exposure to adverse orders and their reliance on them as defendants. Thoughtful structuring at the contracting stage pays dividends if litigation later arises.

Preventive measures include:

• Contract clauses. Clear jurisdiction, governing law and dispute resolution clauses reduce enforcement uncertainty and shape the forum in which security questions arise.
• Payment security. Escrow arrangements, retention mechanisms and security clauses can provide a fund independent of litigation outcomes.
• Corporate due diligence. Checking a counterparty’s financial standing and corporate status at the outset, including searches through the Companies Commission of Malaysia, informs risk and future evidence.
• Funding strategy. Claimants should plan how litigation will be funded, anticipating that a defendant may seek security and that a credible funding position strengthens opposition.
• Early evidence preservation. Retaining documents that demonstrate solvency or local assets assists any future security for costs defence.

Options when security is ordered

A claimant faced with an order is not without recourse. In limited circumstances an appeal may be available, subject to any leave requirements, timing and costs risk. Alternatively, the claimant can apply to vary the order, to reduce the sum, extend the timetable or substitute a less burdensome form of security, such as replacing a cash deposit with a bank guarantee. Each option carries its own tactical and cost consequences, and the choice depends on the claimant’s liquidity, the strength of its case and the commercial importance of the claim.

Comparison table: types of security, enforcement and trade-offs

Model checklist and short template

The following condensed checklist supports both applicants and opponents preparing a security for costs application in Malaysia.

• Identify and document the qualifying ground with primary evidence.
• Obtain official company searches and financial material.
• Prepare a reasoned costs estimate to the relevant stage.
• Draft the application, supporting affidavit and proposed order.
• Apply promptly to avoid delay criticism.
• Anticipate the opposition and prepare reply evidence.
• Consider the acceptable forms of security and their enforceability.

Illustrative order wording might provide that the claimant furnish security in a specified sum by a fixed date, in a stated form, failing which the proceedings stand stayed pending compliance. All template language is suggested drafting only and must be settled by qualified counsel for the specific matter; it is not legal advice.

Conclusion

Security for costs in Malaysia remains one of the most practically decisive interlocutory tools in commercial litigation. For defendants, a well-evidenced and timely application can force a financially fragile or offshore claimant to commit real resources or abandon a weak claim. For claimants, a disciplined security for costs defence, grounded in solvency evidence, credible undertakings and the strength of the underlying case, can defeat or minimise an order. The discretionary nature of the jurisdiction means outcomes turn on evidence and timing far more than on assertion.

With cross-border disputes rising, businesses that plan ahead, through careful contracting, due diligence and forum selection, will be best placed whether they find themselves applying for, opposing or complying with a security for costs order in 2026.

This article is general information on security for costs in Malaysia and is not legal advice. Specific matters require tailored advice from qualified counsel.

Sources

1. Attorney General’s Chambers of Malaysia, Laws and Federal Gazette
2. Judiciary of Malaysia
3. Malaysian Bar (Bar Council)
4. Companies Commission of Malaysia (SSM)
5. Parliament of Malaysia
6. UNCITRAL, United Nations Commission on International Trade Law