Security for costs applications are a common feature of litigated civil disputes. They serve an important role for defendants who have concerns about a plaintiff’s ability to pay their costs of defending proceedings should the plaintiff’s claim fail. They are also often employed by parties strategically and to apply pressure or cause delay to plaintiffs.
Security for costs is a broad topic worthy of specific examination as parties involved in litigation are regularly unaware or have misconceptions about how these types of applications work and about some of the particularities and technicalities which can affect their success or failure.
Over the coming months, we will publish a number of separate articles which will deal with topics and practice tips for aspects which are of particular importance or ones which in our experience are commonly misapplied or misunderstood.
This first article in this series will outline in broad terms the tests that apply to security for costs applications as well as some useful considerations in making such applications from the perspective of plaintiff and defendant.
Depending on the circumstances and jurisdiction of the proceedings, a defendant can apply for security for costs under section 1335(1) of the Corporations Act (where the plaintiff is a corporation), Rule 42.21 of the Uniform Civil Procedure Rules (“the UCPR”) (where the proceedings are in the NSW Local Court, District Court or Supreme Court), or section 56(1) of the Federal Court of Australia Act.
Successful applications for security for costs will generally result in the court directing the plaintiff to provide security in such manner as the Court thinks fit, commonly by way of bank guarantee or deposit of money into court. Ordinarily, if a party is ordered to provide security, proceedings will be stayed until the plaintiff provides security as directed by the court, and if the plaintiff fails to comply with the order after a certain period of time, the court may dismiss the proceedings.
In the event the defendant can support its concerns about the plaintiff’s capacity to pay, the parties will often reach agreement on the amount of security to be provided. However, if agreement cannot be reached, an application to the Court will be necessary to compel the provision of security.
As to this ‘Discretionary Question’, the Court may take into account any matter it considers relevant to its decision whether or not to grant security. UCPR r.42.21 provides some guidance around the matters that may be considered, which include (amongst other matters):
In terms of the quantum of any order for security, the defendant should provide evidence of the costs that it seeks be provided by way of security, including as to the likely costs that the defendant anticipates incurring going forward. In this regard, it is important to note that an application for security for costs should be made promptly in the proceedings, as any unjustified delay on the part of the defendant will be relevant to the Court’s exercise of its discretion, and may affect the amount of security that is granted.
In the future articles in this series we will instead focus on a selection of the more peculiar issues that may arise in security for costs applications, including, security for costs applications where the defendant is the aggressor, security for costs in the context of cross-claims, and whether an applicant is able to seek security in respect of costs that have already been incurred.
If you would like any further information regarding the above or if you have any feedback generally we welcome you to contact us.