Security For Costs

Introduction

Security for costs is money or money’s worth that a plaintiff is ordered to provide to the court or a party as a condition of continuing with a claim, and which will be applied against any subsequent costs order that may made against the plaintiff.

This sum serves as a safeguard to satisfy any adverse costs order that may be made against the plaintiff. Its primary function is to protect the defendant against the risk that any such order might be rendered ineffective due to the plaintiff’s lack of financial resources.

Courts possess broad discretion to grant an order for security for costs. Such orders are typically made upon application by a defendant, respondent, or cross-respondent. In exercising this discretion, the court will take into account all relevant circumstances of the particular case.

Jurisdiction to order security for costs

In New South Wales, security for costs applications are governed by regulation 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”). It states that if in any proceedings, it appears on the application of the defendant that the plaintiff will be unable to pay the defendant’s costs if so ordered, the court may order the plaintiff to give such security it thinks fit, in such manner as it directs, for the defendant’s costs of the proceedings.

The court has additional discretionary power to order security for costs if the plaintiff is a corporation. Pursuant to section 1335(1) of the Corporations Act 2001 (Cth), where a corporation is plaintiff in any action or other legal proceeding, the court may require sufficient security be paid into court where there is reason to believe that the corporation will be unable to pay the costs of the defendant if the plaintiff’s claim is unsuccessful.

Amount and application of security

The court does not undertake to indemnify a defendant in respect of legal costs. Rather, it is incumbent upon the defendant to adduce evidence establishing the costs and disbursements likely to be incurred in the preparation of the matter for hearing—including, where applicable, the anticipated costs of the trial itself—so that the court may assess and determine an appropriate quantum of security. Where the plaintiff resides outside the jurisdiction, and that fact alone may form the basis for seeking security, the defendant may be entitled to security in respect of the costs associated with enforcing any costs judgment in the plaintiff’s country of residence.

Application for security for costs

An application for security for costs should be made by notice of motion filed by the defendant and should be supported by credible testimony of the plaintiff’s impecuniosity.

Although such applications ought to be brought at the earliest possible stage of the proceedings—and delay is a significant factor the court may take into account—the Courts have observed that delay does not necessarily render the application fatal.

An order for security for costs

Security is to be provided in accordance with the directions of the court, pursuant to rule 42.21(2) of the UCPR, rule 19.01(1)(a) of the Federal Court Rules, and section 56(2) of the Federal Court of Australia Act.

In practice, this typically involves the payment of a specified sum into court or into a solicitor’s trust account within a prescribed period. Alternative options may involve the provision of a bank guarantee or pledging real estate as security. 

When the court issues an order for security for costs, the proceedings are typically stayed (i.e. postponed) until the plaintiff complies with the order and provides the required security. If the plaintiff fails to comply with an order for security for costs after the passage of a reasonable time period, regulation 42.21(3) of the UCPR permits the court to dismiss the plaintiff’s claim.