Civil Trials Bench Book — Procedure generally

The purpose of an order for security for costs is to ensure justice between the parties, and in particular to ensure that unsuccessful proceedings do not disadvantage defendants if a plaintiff lacks financial resources to meet a costs order. However, as the NSW Law Reform Commission, Security for costs and associated costs orders, Report 137, 2012 notes at [1.5] and [2.4]–[2.6], the court has a wide discretion both at common law and pursuant to the Civil Procedure Act 2005 and UCPR. That discretion means that an order need not be made merely because grounds can be established: Hoxton Park Residents Action Group Inc v Liverpool City Council [2012] NSWSC 1026 at [85]–[86]. “The basic rule that a natural person who sues will not be ordered to give security for costs, however poor, is ancient and well established”: Pearson v Naydler [1977] 1 WLR 899 at 902. The general principle that poverty “is no bar to a litigant”: Cowell v Taylor (1885) 31 Ch D 34 at 38; Oshlack v Richmond River Council (1998) 193 CLR 72 is now set out in r 42.21(1B).

This general rule is not, however, absolute: Melville v Craig Nowlan & Associates Pty Ltd (2001) 54 NSWLR 82 at 108; Morris v Hanley [2000] NSWSC 957 at [11]–[21]. The exercise of the power to order security for costs is a balancing process, requiring the doing of justice between the parties. The court must have a concern to achieve a balance between ensuring that adequate and fair protection is provided to the defendant, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings: Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [47].

Rule 42.21 provides direction in achieving that balance by adding a non-exhaustive list of matters to which the court may have regard: r 42.21(1A). Further, provisions enable a court to order security where there are grounds for believing that a plaintiff has divested assets with the intention of avoiding the consequences of the proceedings (r 42.21(1)(e)) or changed their place of residence without reasonable notification of the change: r 7.3A. In addition, r 42.21(1B) provides that if the plaintiff is a natural person, an order for security for costs cannot be made “merely” on account of impecuniosity. See further at [2-5930] and [2-5940].

Note that in probate proceedings, applications for security for costs are rare. In Re Estate Condon; Battenberg v Phillips [2017] NSWSC 1813 an order was made for a plaintiff ordinarily resident outside Australia to provide security for the costs of probate proceedings. Lindsay J outlined factors peculiar to probate proceedings to be taken into account in such an application at [87]–[103]. See also Estate of Guamani; Guamani v De Cruzado [2023] NSWSC 502 where the applicant in probate proceedings unsuccessfully sought an order for security for costs against the respondents.

The sources of the court’s power to order a party to provide security or pay money into court are “many and varied”: JKB Holdings Pty Ltd v de la Vega [2013] NSWSC 501 at [11] per Lindsay J, listing (at [11]–[13]) not only the Supreme Court’s inherent and statutory powers, but examples where money may be paid into court where no order for security for costs has been made: see also Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664 at [34]; Ward v Westpac Banking Corporation Ltd [2023] NSWCA 11.

The Supreme Court has inherent jurisdiction to make orders for security for costs (Bhagat v Murphy [2000] NSWSC 892), but the District Court and Local Court do not: Philips Electronics Australia Pty Ltd v Matthews (2002) 54 NSWLR 598 at [50]–[53]. While it has been held that the District Court has an implied power under District Court Act 1973 s 156 to order security for costs (Phillips Electronics Australia Pty Ltd v Matthews, above, at [45]), the provisions of the Civil Procedure Act 2005 and UCPR render this unnecessary. Additionally, where an order for security for costs is sought against a corporate plaintiff, Corporations Act 2001 (Cth) s 1335 gives power.

The power to order security for costs is discretionary and the order will not be automatic: Idoport Pty Ltd v National Australia Bank Ltd, above, at [20], [56]–[57] and [60]–[62]. The discretion is to be exercised judicially, and not “arbitrarily, capriciously or so as to frustrate the legislative intent”: Oshlack v Richmond River Council, above, at [22]. Exercise of the power requires consideration of the particular facts of the case: Merribee Pastoral Industries v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502. Although r 42.21(1A) now provides a list of factors, these are not exhaustive; the factors that may be taken into account are unrestricted, provided they are relevant: Morris v Hanley, above; Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: Acohs Pty Ltd v Ucorp Pty Ltd [2006] FCA 1279 at [12].

The relevant factors are set out by Beazley ACJ in Treloar Constructions Pty Ltd v McMillan [2016] NSWCA 302 at [9]–[15] (see also Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [26]–[35]). The NSW Law Reform Commission, Security for costs and associated costs orders, Report 137, 2012 led to amendment to the rules: Uniform Civil Procedure Rules (Amendment No 61) 2013 (NSW).

These factors are set out below, in headings which mirror the provisions of rr 42.21(1A) and (1B):

UCPR r 42.21(1B) provides that if the plaintiff is a natural person, an order for security for costs cannot be made “merely” on account of his or her impecuniosity. Prior to this rule coming into force, security against a person was ordered where a plaintiff brings repeated applications Mohareb v Jankulovski [2013] NSWSC 850 (security of $5,000 ordered), and where the claim was hopelessly framed: Nanitsos v Pantzouris [2013] NSWSC 862 (security of $5,000 ordered). In both cases the plaintiffs were litigants in person.

The court will also take into account, in balancing the interests of a defendant, that the plaintiff is suing for the benefit of other persons who are immune from the burden of an adverse costs order: Idoport Pty Ltd v National Australia Bank Ltd, above, at [31] ff. This factor has received increased attention in modern litigation with the advent of commercial litigation funding and insurance. The relevant principles are discussed more fully below in “Nominal plaintiffs” at [2-5950]. Representative plaintiffs are to be distinguished from nominal plaintiffs who have no personal interest and merely act in a representative capacity (such as executors, and trustees).

Additional factors are set out in r 42.21(1):

A nominal plaintiff is “nothing but a puppet for some third party, a mere shadow, in the sense that he has parted with any right he may have had in the subject matter”: Andrews v Caltex Oil (Aust) Pty Ltd (1982) 40 ALR 305 at 309.

The poverty rule must be qualified in circumstances where the claim is put forward on behalf of others: Grizonic v Suttor [2006] NSWSC 1359 at [20]. See also Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664 at [79].

The real plaintiff is not allowed to seek to enforce a right through a nominal plaintiff who is a person of straw: Sykes v Sykes (1869) LR 4 CP 645 at 648; Riot Nominees Pty Ltd v Suzuki Australian Pty Ltd, above.

The involvement of third-party funders with no pre-existing interest in the proceedings, who are in some instances resident out of Australia but who stand to benefit substantially from any recovery from the proceedings is a material consideration: Idoport Pty Ltd v National Australia Bank Ltd at [107]; Chartspike Pty Ltd v Chahoud [2001] NSWSC 585. It is fair for the courts to proceed on a basis which reflects the proposition that those who seek to benefit from litigation should bear the risks and burdens that the process entails: Fiduciary Ltd v Morningstar Research Pty Ltd at [83]; Chartspike Pty Ltd v Chahoud, above, at [5]. This topic is discussed in the Law Reform Commission report, above, 3.3–3.40.

The power to order security for costs against corporations is derived from UCPR r 42.21(1)(d) (and r 51.50 in the case of appeals) and from s 1335 of the Corporations Act 2001 (Cth). The Supreme Court also has inherent jurisdiction in order to regulate the court’s procedures and processes and to prevent abuse of process: Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148 at [33]–[35].

Corporations are in a different category from natural person plaintiffs: Pacific Acceptance Corp Ltd v Forsyth (No 2) [1967] 2 NSWR 402 at 407; Fiduciary Ltd v Morningstar Research Pty Ltd at [53]; Idoport Pty Ltd v National Australia Bank Ltd at [53]–[59]; KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; Whyked Pty Ltd v Yahoo Australia and New Zealand Ltd [2006] NSWSC 1236 at [25].

A corporation which seeks to rely on the stultification factor must also demonstrate that those standing behind it, likely to benefit from the litigation (such as shareholders and creditors) are also without means to satisfy an adverse costs order: Re Staway Pty Ltd (in liq)(rec and mgrs appted) [2013] NSWSC 819 at [57]–[60] (application for security deferred due to merits of corporation’s claim). It is not for the party seeking security to raise such issues: Thalanga Copper Mines Pty Ltd v Brandrill Ltd, above, at [12]–[18]; Acohs Pty Ltd v Ucorp Pty Ltd at [42] ff. The same is the case where there is a third party funder: Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd, above, at [51].

Undertakings or offers to pay the surety by directors or other persons may be accepted: Harpur v Ariadne Australia Ltd (No 2) [1984] 2 Qd R 523 at 532 (company principal agreeing to meet costs); Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd) v Barr [2005] NSWCA 240 (shareholders agreeing to meet costs liability); Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276 (security ordered as shareholders were not prepared to provide formal undertaking to meet costs).

Where a liquidator conducts the litigation on behalf of the company in liquidation, the court should not treat an application for security at large, but should have regard to guidelines as set out in Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd at [45].

The differences in principle between security for costs at trial level and on appeal have been noted and explained in Tait v Bindal People [2002] FCA 332 at [3]; Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [18]; Ballard v Brookfield Australia Investments Ltd [2012] NSWCA 434 at [13]–[28]; and Swift v McLeary [2013] NSWCA 173 at [27]–[30]. Under UCPR r 51.50(1), the court may, in special circumstances, order that such security as the court thinks fit be given for the costs of an appeal. Rule 51.50 (3) provides that r 51.50(1) does not affect the powers of the court under UCPR r 42.21. There are no fixed rules for determining what will amount to special circumstances: Zong v Wang [2021] NSWCA 214 at [45], and the question of what constitutes special circumstances should not be fettered by any general rule of practice. Impecuniosity, without more, is normally insufficient to satisfy the requirement for special circumstances: Zong v Wang at [17].

While security for costs is more likely to be awarded because the issues have been the subject of findings by a primary judge, security for costs was refused where an impecunious appellant had reasonable prospects of success on appeal: Neale v Archer Mortlock & Woolley Pty Ltd [2013] NSWCA 209. See also Murray John Carter v Ian Mehmet t/as ATF Ian G Mehmet Testamentary Trust [2021] NSWCA 32, where special circumstances justified the order for security for costs (security of $40,000). These included that the appellants had resolved to pursue an appeal which was more likely to fail than not (at [41]). Because of the appellants’ impecuniosity, in the absence of any provision of security, the respondents faced the reality of incurring substantial further legal costs with no realistic prospect of recovering them if the appeal was unsuccessful. Similarly, in Zong v Wang, special circumstances justified the order for security for costs (security of $50,000) including that the respondent had obtained judgment against the appellant that was unlikely to be recovered and had incurred substantial costs in excess of $100,000 in obtaining that judgment, also unlikely to be recovered from the appellant. It was also relevant that the respondent would be put to the further cost of responding to the appellant’s appeal, with no prospect of recovering his costs if the appeal is dismissed. See also Cassaniti v Katavic [2022] NSWCA 230 where special circumstances justified the order for security of $75,000 for future costs where there was reason to doubt the appellants’ ability to satisfy an adverse costs order.

The security for costs procedure is intended to ensure that the beneficiary of a security for costs order is not left out of pocket in the event of success on appeal: Evans v Cleveland Investment Global Pty Ltd [2013] NSWCA 230 (security of $15,000 ordered); Swift v McLeary [2013] NSWCA 173 (security of $40,000 ordered where unexplained dissipation of assets was alleged); Yu Xiao v BCEG International (Australia) Pty Ltd [2022] NSWCA 223 (security of $120,000 ordered where there had been substantive findings that the appellants had engaged in fraud).

In Porter v Gordian Runoff Ltd [2004] NSWCA 69 at [41], Hodgson JA considered a factor in favour of an order for security to be that the appellant’s legal advisors were owed substantial amounts of money giving them a “large stake” in the success of the appeal. The relevance of that factor is that lawyers with such an interest may reasonably be expected to provide some financial support for the prosecution of the appeal. See also Porter v Gordian Runoff Ltd [2004] NSWCA 171 at [32] (application to discharge the order dismissed) and Murray John Carter v Ian Mehmet t/as ATF Ian G Mehmet Testamentary Trust, above, at [34]. In the latter case, in the unlikely event that the appeal succeeded, the appellants stood to recover their costs incurred at first instance and the beneficiaries of their doing so were their lawyers and others whose fees at first instance remain unpaid.

The court’s role includes a re-exercise of the discretion to award security for costs: Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [53]; Wollongong City Council v Legal Business Centre Pty Ltd (No 2) [2012] NSWCA 366.

In Batterham v Makeig (No 2) [2009] NSWCA 314, Macfarlan JA was of the view that the reference to “plaintiff” in r 42.21(1)(a) encompasses an appellant, even if the appellant was not a plaintiff in the court below: at [6]. In that case, the first appellant’s residence outside Australia, his manifested preparedness to place what hurdles he could in the path of enforcement by the respondent of the judgment, and the limited financial resources available to the first appellant combined to require security to be ordered: at [10].

The order should not provide a complete indemnity for costs: Brundza v Robbie & Co (No 2) (1952) 88 CLR 171 at 175. Fixing the amount to be provided by way of security is part of the exercise of the court’s discretion: Fiduciary Ltd v Morningstar Research Pty Ltd at [132]. The court will therefore require evidence by which it might estimate the defendant’s probable recoverable costs: see, for example, the evidence adduced in such cases as Fiduciary Ltd v Morningstar Research Pty Ltd; Idoport Pty Ltd v National Australia Bank Ltd; and Gujarat NRE Australia Pty Ltd v Williams [2006] NSWSC 1131; Western Export Services Inc v Jireh International Pty Limited [2008] NSWSC 601.

Evidence generally consists of an affidavit from a solicitor or costs assessor as to the amount of costs, although the court may accept a general estimate from a costs assessor or senior solicitor. Factual matters, such as proof of the plaintiff’s residence overseas, or a corporation’s financial circumstances, may be the subject of affidavit or tender.

The court may initially only order security for the costs of preparing the matter for hearing and make further orders at a later date, or order the sum to be paid in tranches (KDL Building v Mount [2006] NSWSC 474 at [36]; Porter v Aalders Auctioneers and Valuers Pty Ltd [2011] NSWDC 96 at [29]–[30]), or make such other order as may be appropriate to ensure that the party paying the security has adequate opportunity to do so. The security may take such form as the court considers will provide adequate protection to the defendant. In lieu of the more traditional payment into court, guarantees, charges or the provision of a bank bond: Estates Property Investment Corp Ltd v Pooley (1975) 3 ACLR 256. Other examples of how security may be provided are set out in the NSW Law Reform Commission, Security for costs and associated costs orders, Report 137, 2012, at [1.6]. The basic principle is that so long as the defendant can be adequately protected, the security should be given in the way that is least disadvantageous to the giver: G Dal Pont, Law of Costs, 4th edn, LexisNexis Butterworths, Sydney, 2018 at [29.96].

The court has power to dismiss proceedings where the plaintiff fails to comply with an order to give security: r 42.21(3): Porter v Gordian Runoff Ltd (No 3) [2005] NSWCA 377 at [36]. Relevant circumstances to be taken into account are discussed in Idoport v National Australia Bank Ltd [2002] NSWCA 271 at [24] ff and [69] ff and in Lawrence Waterhouse Pty Ltd v Port Stephens Council [2008] NSWCA 235. UCPR r 50.8 has been amended to enable a court to which Pt 50 applies to dismiss an appeal or cross-appeal for failure to provide security for costs. UCPR r 51.50 has similarly been amended to enable the NSW Court of Appeal to dismiss appeals or cross-appeals for failure to comply with security for costs orders.

A party unable to provide security within the time frame ordered may seek an extension: Wollongong City Council v Legal Business Centre Pty Ltd (No 2) [2012] NSWCA 366 (application for extension dismissed).

An order for security for costs should not be used as an alternative way of striking out an appeal. Nor should it be used to push an appellant towards discontinuing an appeal. Rather, it is a process available to secure, in advance, the costs of a respondent to an appeal where the circumstances justify reversing the sequence which usually applies: namely that costs orders are made, if at all, after a proceeding has been heard and determined: Nyoni v Shire of Kellerberrinin (No 9) [2016] FCA 472.

Applications for further security may be brought at any time: Welzel v Francis [2011] NSWSC 477; Welzel v Francis (No 2) [2011] NSWSC 648; Welzel v Francis (No 3) [2011] NSWSC 858. There is no express power in the UCPR for the setting aside or varying of security for costs orders, but the general power of the court to set aside or vary orders may be relied upon: Levy v Bablis [2012] NSWCA 128; Republic of Kazakhstan v Istil Group Inc [2005] EWCA Civ 1468; [2006] 1 WLR 596.

Where an order for security for costs has been made and an order for further security is sought, the moving party must establish a material change in circumstances: Misthold Pty Ltd v NSW Historic Sites and Railway Heritage Company Pty Ltd [2022] NSWSC 42; T & H Pty Ltd v Nguyen [2022] NSWCA 180. Overlooked or underestimated costs may be insufficient to establish a material change: SSPeetham Pty Ltd as trustee for the CHB CDI Trust v Marcos Accountants Pty Ltd [2020] NSWSC 378 at [19].

Applications to vary or extinguish the terms may be made during the proceedings before the primary court or on appeal: Nicholls v Michael Wilson & Partners (No 2) [2013] NSWCA 141 (application for release of security).

Either party may seek release of security at any stage of the proceedings (including on appeal: Michael Wilson & Partners Ltd v Emmott (No 2) [2022] NSWCA 48). Such applications are generally made on the basis of asserted success (or partial success) in the litigation the subject of the security orders; the unsuccessful party may respond by seeking a stay of the release: Euromark Ltd v Smash Enterprises Pty Ltd (No 2) [2021] VSC 393. It is not necessary for the application to be deferred pending the assessment of costs where the evidence suggests that the amount of costs is likely to exceed the security: Boz One Pty Ltd v McLellan [2015] VSCA 145.

For an example, see the form of orders in Michael Wilson & Partners Ltd v Emmott (No 2), as set out in the reasons of Brereton JA.

Although judgments may refer to payment of money into court under these provisions, parties generally prefer to provide security by way of a bank bond or a deposit of funds, placed in an interest bearing account in the joint names of solicitors on either side of proceedings: JKB Holdings v de la Vega [2013] NSWSC 501 at [12].

The following sample orders contemplate payment into court, but may be varied to suit the parties’ convenience:

Legislation

Rules

Further references