Security for costs

[2-5900] The general rule
[2-5910] The power to order security for costs
[2-5920] Exercising the discretion to order security
[2-5930] General principles relevant to the exercise of the discretion
[2-5935] The impoverished or nominal plaintiff: r 42.21(1B)
[2-5940] Issues specific to the grounds in r 42.21(1)
[2-5950] Nominal plaintiffs
[2-5960] Corporations
[2-5965] Ordering security in appeals
[2-5970] Amount and nature of security to be provided
[2-5980] Practical considerations when applying for security
[2-5990] Dismissal of proceedings for failure to provide security
[2-5995] Extensions of security for costs applications
[2-6000] Sample orders
Legislation
Rules
Further references

Acknowledgement: the following material has been prepared by Her Honour Judge J Gibson of the District Court.

Portions of this chapter are adapted from NSW Civil Practice and Procedure, Thomson Reuters, Australia.

To top [2-5900] The general rule

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. 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].

Amendments to r 42.21, which came into effect on 9 August 2013, will provide direction in achieving that balance by adding a non-exhaustive list of matters to which the court may have regard: r 42.21(1A). A provision has also been included to 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.

To top [2-5910] The power to order security for costs

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) 208 ALR 564 at [34].

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.

To top [2-5920] Exercising the discretion to order security

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) 236 ALR 143 at [12].

To top [2-5930] General principles relevant to the exercise of the discretion

The relevant factors have been summarised and discussed in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52, most recently by the NSW Court of Appeal in 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):

(a)

The prospects of success or merits of the proceedings: r 42.21(1A)(a)

A consideration of the plaintiff’s prospects of success is an important element of balancing justice between the parties. However, care needs to be exercised when assessing the proportionate strength of the cases of the parties at an early stage of proceedings: Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at [39].

As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, then, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide and has reasonable prospects of success: KP Cable Investments Pty Ltd v Meltglow Pty Ltd, above, at 197; Staff Development & Training Centre Pty Ltd v Commonwealth of Australia [2005] FCA 1643 at [12]–[13].

(b)

The genuineness of the proceedings: r 42.21(1A)(b)

Whether the claim is bona fide or a sham is a relevant consideration, and the court will take into account the motivation of a plaintiff in bringing the proceedings: Bhagat v Murphy, above, at [20]–[21]. Examples include an unsatisfactory pleading, or a vexatious claim (Bhagat at [26]), particularly where the plaintiff is self-represented with “abundant time” to pursue incessant and numerous applications: Lall v 53–55 Hall Street Pty Ltd [1978] 1 NSWLR 310 at 313–314.

(c)

The impecuniosity of the plaintiff: r 42.21(1A)(c)

The court must first consider the threshold question of whether there is credible testimony to establish that the plaintiff will be unable to pay the defendant’s costs if the defendant is ultimately successful: Idoport Pty Ltd v National Australia Bank Ltd at [2], [35] and [60]. However, once the defendant has led credible evidence of impecuniosity, an evidentiary onus falls on the plaintiff to satisfy the court that, taking into account all relevant factors, the court’s discretion should be exercised by either refusing to order security or by ordering security in a lesser amount than that sought by the defendant: Idoport Pty Ltd v National Australia Bank Ltd at [62] and [65]. In other words, proof of the unsatisfactory financial position of the plaintiff “triggers” the court’s discretion: Fiduciary Ltd v Morningstar Research Pty Ltd, above, at [35]–[36]; Thalanga Copper Mines Pty Ltd v Brandrill Ltd [2004] NSWSC 349 at [12]–[13]; Acohs Pty Ltd v Ucorp Pty Ltd, above, at [10]; Ballard v Brookfield Australia Investments Ltd [2012] NSWCA 434 at [29]–[41].

While “mere impecuniosity” does not justify an order for security for costs in itself, impecuniosity when combined with other factors led to an order for security for costs in Levy v Bablis [2011] NSWCA 411 at [9], although payment was adjusted to be made in two tranches (at [11], [13] ff). Particular note should be taken of UCPR r 42.21(1B). Where the plaintiff is a natural person, an order cannot be made because of mere impecuniosity.

(d)

Whether the plaintiff’s impecuniosity is attributable to the defendant: r 42.21(1A)(d)

Where the plaintiff’s lack of funds has been caused or contributed to by the defendant, the court will take this consideration into account. This has been described as the “causation” factor: Fiduciary Ltd v Morningstar Research Pty Ltd at [85]–[101]. It is a relevant consideration that an order would effectively shut a party out of relief in circumstances where that party’s impecuniosity is itself a matter which the litigation may help to cure: Merribee Pastoral Industries v Australia and New Zealand Banking Group Ltd, above, at [26.4(g)]. However, a plaintiff cannot rely on the poverty rule where he or she has so organised their affairs so as to shelter assets: Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 at 452. See also UCPR r 42.21(1)(f).

In Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11 at [34] the court noted that, in determining the causation factor, it is not inappropriate to have regard to the apparent strength of the case.

(e)

Whether the plaintiff is effectively in the position of a defendant: r 42.21(1A)(e)

It is appropriate to examine whether the impecunious plaintiff is, in reality, the defender in the proceedings, and not the attacker: Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 88 ALR 63 at 67–8.Where a plaintiff has been obliged to commence proceedings, and is effectively in the position of a defendant, security may not be ordered: Hyland v Burbidge (unrep, 23/10/92, NSWSC). Each case will turn on its facts. In Hyland v Burbidge, the claim that an overseas plaintiff was effectively in the position of a defendant and should not be ordered to provide security was dismissed. However, in Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd [2009] NSWSC 1095 at [13]–[15] the court held that the plaintiff’s principal claim was a defence to the defendant’s claims of forfeiture of a lease and the retaking of possession. The plaintiff was effectively in the position of a defendant, and the application for security dismissed.

(f)

The “stultification” factor: r 42.21(1A)(f)

Where the effect of an order for security would be to stifle the plaintiff’s claim, this is an important consideration to be weighed, particularly in light of the poverty rule: Fiduciary Ltd v Morningstar Research Pty Ltd at [72]; Staff Development & Training Centre Pty Ltd v Commonwealth of Australia, above, at [39]. It may also be appropriate to look behind the actual litigant to examine the means of others who stand to benefit from the litigation: Acohs Pty Ltd v Ucorp Pty Ltd at [49]; Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 5) [2006] FCA 1672 at [38.8]. In Pioneer Park Pty Ltd (In Liq) v ANZ Banking Group Ltd [2007] NSWCA 344 at [56], Basten J noted that it might be seen as oppressive to allow a large corporate defendant to obtain an order for security for costs likely to stifle the litigation, in circumstances where the claim had potential merit and the security sought, although a relatively insignificant amount, was beyond the capacity of the corporate plaintiff to pay. However, in Odyssey Financial Management Pty Ltd v QBE Insurance (Australia) Ltd [2012] NSWCA 113, McColl JA held that to demonstrate that there was such oppression, it would be necessary for those who stood behind the corporate plaintiff to demonstrate that they were also without the means to provide an order for security in the relatively modest amount sought by the corporate defendant: at [17].

(g)

Whether the proceedings involve a matter of public importance: r 42.21(1A)(g)

If the proceedings raise matters of general public importance, this may be a factor relevant to the discretion. This may be the case where the area of law involved requires clarification for the benefit of a wider group than the particular plaintiff: Merribee Pastoral Industries v Australia and New Zealand Banking Group Ltd at [31]; Soh v Commonwealth of Australia (2006) 231 ALR 425 at [26].

(h)

Whether there has been an admission or a payment into court: r 42.21(1A)(h)

The circumstances in which parties may pay money into court are outlined in JKB Holdings Pty Ltd v de la Vega, above, at [11]–[13]. Where there has been an existing order made, and a further order sought, this may be a factor to take into account: Welzel v Francis (No 3) [2011] NSWSC 858.

(i)

Whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant: r 42.21(1A)(i)

In addition to bringing the application for security promptly, the conduct of the litigation may be taken into account, including delay in the commencement of the proceedings, where there is evidence that the defendant is prejudiced by that delay.

(j)

The costs of the proceedings: r 42.21(1A)(j)

The party seeking the order generally tenders evidence of costs estimates for preparation for hearing and hearing costs and, if overseas enforcement is required, information about the likely costs and difficulties. In Western Export Services Inc v Jireh International Pty Limited [2008] NSWSC 601 at [82] Jagot AJ took into account that the defendant would incur “substantial legal costs” in defending the proceedings.

(k)

Proportionality of the security sought to the importance and complexity of the issues: r 42.21(1A)(k)

The court may have regard to the proportionality of the costs to the activity or undertaking the subject of the claim. An example would be where the amount sought is so minuscule as to impose an undue hardship on an already vulnerable plaintiff, see Shackles & Daru Fish Supplies Pty Ltd v Broken Hill Proprietary Co Ltd [1996] 2 VR 427 at 432. The court may also take into account the relative disparity of resources of the parties (P M Sulcs v Daihatsu Australia Pty Ltd (No 2) [2000] NSWSC 826 at [82]) and the modesty of the sum sought in comparison to the importance of the issue: Maritime Services Board of NSW v Citizens Airport Environment Association Inc (1992) 83 LGERA 107.

(l)

The timing of the application for security: r 42.21(1A)(l)

Applications for security should be brought promptly. Delay by a defendant is a relevant factor in the exercise of the discretion: Idoport Pty Ltd v National Australia Bank Ltd, above, at [68]. A corporate plaintiff is expected to know its position “at the outset”, before it embarks to any real extent on its litigation: Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 at 309.

The passage of time is only one item in the list of factors to be taken into account in the balancing exercise: Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114 at 123 ff; Thalanga Copper Mines Pty Ltd v Brandrill Ltd [2004] NSWSC 349 at [25]–[26]; P M Sulcs & Associates Pty Ltd v Daihatsu Australia Pty Ltd (No 2) [2000] NSWSC 826. The delay must be weighed not only in terms of prejudice, but also in terms of the factors that have led to the delay: Acohs Pty Ltd v Ucorp Pty Ltd (2006) 236 ALR 143 at [61] ff; Re GAP Constructions Pty Ltd [2013] NSWSC 822 at [14]–[15] (order for security made notwithstanding the delay).

(m)

Whether an order for costs is enforceable in Australia: r 42.21(1A)(m)

The Law Reform Commission report, above, identifies the problem of recoverable costs in terms of overseas enforcement. This provision should be read in conjunction with r 42.21(1A)(n).

(n)

Ease and convenience (or otherwise) of overseas enforcement: r 42.21(1A)(n)

A defendant is not expected to bear the uncertainty of enforcement in a foreign country: Cheng Xi Shipyard v The Ship “Falcon Trident” [2006] FCA 759 at [9], Gujarat NRE Australia Pty Ltd v Williams [2006] NSWSC 992 at [29]. It has been stated that this principle is not absolute and must be weighed against other discretionary considerations: Corby v Channel Seven Sydney Pty Ltd [2008] NSWSC 245. However, the difficulty in enforcing an order for costs overseas against a non-resident plaintiff will usually be sufficient to ground an order: Shackles & Daru Fish Supplies Pty Ltd v Broken Hill Proprietary Co Ltd [1996] 2 VR 427, especially where there is no reciprocal right of enforcement in the relevant foreign jurisdiction or legislation which may make recovery difficult: Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd (in liq) [2011] NSWCA 84.

A list foreign jurisdictions where there is a reciprocal right of enforcement is set out in the Foreign Judgments Act 1991 (Cth); Sch 2 to the Foreign Judgments Regulations 1992 (Cth).

The residence of an appellant outside Australia is a powerful factor in favour of ordering security, even where enforcement may not be an issue. Security for costs was ordered where the appellant resided in Papua New Guinea in Batterham v Makeig (No 2) [2009] NSWCA 314 at [8] (see [2-5940] below) and in Mothership Music v Flo Rida (aka Tramar Dillard) [2012] NSWCA 344, where the appellant resided in the United States.

 

The non-exhaustive nature of the list

This list is non exhaustive. The court will always take into account factors peculiar to the circumstances of the proceedings: Equity Access Ltd v Westpac Banking Corp [1989] ATPR ¶40-972. Other relevant factors considered by the courts include: that the parties or some of them are legally aided, see Webster v Lampard (1993) 177 CLR 598; that the likely order as to costs, even if successful, may not be in favour of the winning defendant, see Singer v Berghouse (1993) 67 ALJR 708 at 709.

Security may be ordered in any cause of action. Although it has been suggested that security for costs will not be ordered against a plaintiff in personal injury or similar tortious proceedings (De Groot (an infant by his tutor Van Oosten) v Nominal Defendant [2004] NSWCA 88 at [29]–[30] per Handley JA), such orders have been made where the plaintiff resides overseas: Li v NSW [2013] NSWCA 165 (appeal from order for security for costs dismissed); Chen v Keddie [2009] NSWSC 762; Jennings-Kelly v Gosford City Council [2012] NSWDC 84.

To top [2-5935] The impoverished or nominal plaintiff: r 42.21(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).

To top [2-5940] Issues specific to the grounds in r 42.21(1)

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

(a)

The plaintiff is ordinarily resident outside Australia: r 42.21(1)(a)

The question of what the term “ordinarily resident” means is discussed in Corby v Channel Seven Sydney Pty Ltd [2008] NSWSC 245.

UCPR r 42.21(1)(a) was amended to replace “New South Wales” with “Australia” by Uniform Civil Procedure Rules (Amendment No 61) 2013. This provision is designed to be read in conjunction with r 42.21(1A)(m) and (n), as to which see [2-5930], above.

(b)

Misstatement of address: r 42.21(1)(b)

It was previously the case that the defendant must prove a plaintiff has failed to state an address, or has misstated an address, with the intention to deceive, or has changed address with a view to avoiding the consequences of an adverse costs order: Knight v Ponsonby [1925] 1 KB 545 at 522. The requirement for compliance with this rule will lighten the evidentiary burden.

(c)

Change of address after proceedings are commenced: r 42.21(1)(c)

This is a rarely used provision. In Ghiassi v Ghiassi (unrep, 19/12/2007, NSWSC), Levine J rejected an application made after the plaintiff left to travel overseas, on the basis that it was unsupported by evidence. In Kealy v SHDS Services Pty Ltd as Trustee of the SHDS Unit Trust [2011] NSWSC 709 the defendant complained that the plaintiff returned to Ireland without notice, although he later disclosed his new address in an affidavit of documents. Johnson J considered that the basis of the application was essentially that the plaintiff resided outside the jurisdiction, and made an order for security for costs in the sum of $40,000.

(d)

The plaintiff is a corporation: r 42.21(1)(d)

It is not sufficient to prove simply that the plaintiff is a corporation. There must be some credible testimony that the corporation is likely to be unable to pay the defendant’s costs, if unsuccessful. The test for the application of r 42.21(1)(d) is substantially similar to that for s 1335 of the Corporations Act 2001 (Cth) (Fitzpatrick v Waterstreet (1995) 18 ACSR 694), and this topic is therefore considered together with the section below on “Corporations” at [2-5960].

(e)

The plaintiff is suing for the benefit of some other person: r 42.21(1)(e)

See Riot Nominees Pty Ltd v Suzuki Australian Pty Ltd (1981) 34 ALR 653. This ground overlaps the inherent jurisdiction and is discussed more fully below in the section on “Nominal plaintiffs”. The discretion is more likely to be exercised where the nominal plaintiff has insufficient assets within the jurisdiction: Bellgrove v Marine & General Insurance Services Pty Ltd (1996) 5 Tas R 409. See [2-5950] below, “Nominal plaintiffs”.

(f)

There is reason to believe the plaintiff has divested assets to avoid the consequences of the proceedings: r 42.21(1)(f)

This new provision was added on 9 August 2013. Applications have been brought on such a basis in other jurisdictions in Australia, as summarised in Vizovitis v Ryan t/as Ryans Barristers & Solicitors [2012] ACTSC 155 at [49]–[54] (the application in those proceedings failed due to lack of evidence). In Evans v Cleveland Investment Global Pty Ltd [2013] NSWCA 230, Leeming JA made an order for security for costs of $15,000 where the respondent alleged that a series of withdrawals contrary to Mareva orders.

To top [2-5950] Nominal plaintiffs

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) 208 ALR 564 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.

To top [2-5960] Corporations

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].

To top [2-5965] Ordering security in appeals

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] and Ballard v Brookfield Australia Investments Ltd [2012] NSWCA 434 at [13]–[28]. 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. 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).

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].

To top [2-5970] Amount and nature of security to be provided

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, 2nd ed, LexisNexis Butterworths, Sydney, 2009 at [29.96].

To top [2-5980] Practical considerations when applying for security

1. 

Timing of an application
It is important to foreshadow any application in correspondence: Crypta Fuels Pty Ltd v Svelte Corp Pty Ltd (1995) 19 ACSR 68 at 71. The court will exercise care when assessing the proportionate strength of the cases of the parties at the early stages of proceedings: Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at [39].

2. 

Multiple parties
Difficulties arise where there are two or more plaintiffs, including one or more individuals and one or more corporations, or where one or more of the plaintiffs resides overseas; or where the prospects of success vary as amongst the co-plaintiffs: Fiduciary Ltd v Morningstar Research Pty Ltd, above, at [54] ff. Similarly, when only one of several defendants applies for security: Gujarat NRE Australia Pty Ltd v Williams [2006] NSWSC 992.

3. 

Ordering security against a defendant
An order for security will not ordinarily be made against parties defending themselves and thus forced to litigate: Weily’s Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 at 189. Where, however, the defendant is in fact pursuing a claim as, in substance, the claiming party, the position is reversed: Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 12 ACLC 334; Motakov Ltd v Commercial Hardware Suppliers Pty Ltd (1952) 70 WN (NSW) 64. Where a corporation, which is a defendant, brings a cross-claim, an application for security for costs in relation to the cross-claim may be made.

To top [2-5990] Dismissal of proceedings for failure to provide security

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).

To top [2-5995] Extensions of security for costs applications

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.

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).

To top [2-6000] Sample orders

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

  • Corporations Act 2001 (Cth), s 1335

  • Foreign Judgments Act 1991 (Cth)

  • Foreign Judgments Regulations 1992 (Cth)

Rules

  • UCPR Pt 7 r 7.3A, Pt 42, r 42.21, Pt 50, Pt 51 r 51.50

Further references

  • G Dal Pont, Law of Costs, 2nd ed, LexisNexis Butterworths, Sydney, 2009

  • NSW Law Reform Commission, Security for costs and associated costs orders, Report 137, 2012, <www.lawreform.lawlink.nsw.gov.au/agdbasev7wr/lrc/documents/pdf/r137.pdf>, accessed 15 August 2013

  • P Blazey and P Gillies, “Recognition and Enforcement of Foreign Judgments in China”, International Journal of Private Law, Macquarie University, 2008, (cited in Chen v Keddie [2009] NSWSC 762 at [18]).