Security for Costs

Date: Aug 08, 2010
Document Type: Article
The general rule is that everyone should be able to enforce their rights in the Courts – poverty should be no bar to justice.
The General Rule is not absolute. The Court can order that the injured party, the plaintiff, provide security for the costs the defendant is likely to incur in defending the claim. This is part of the balancing process to ensure all parties are treated fairly. The Court must balance between ensuring that fair protection is given to the defendant, and avoiding injustice to a poor plaintiff by shutting them out of the Court process.
The power to order security for costs is discretionary - the order will not be automatic.
General Principles relevant to ordering security for costs
For a defendant to be given security for costs, there must be evidence that the plaintiff will be unable to pay the defendant’s costs if the defendant is ultimately successful. It is then up to the plaintiff to persuade the Court that is should not order security or should order security in a lesser amount than that sought by the defendant.
Denying genuine claims
If an order for security for costs would prevent the plaintiff bringing a genuine claim, this is an important consideration to be weighed, particularly in light of the rule that poverty should be no bar to justice
The chances that a claim will succeed
In balancing the interests of the parties the Court will look at whether a claim has a real chance of winning.
The causation factor
The Court will take into account whether the defendant has contributed to the plaintiff’s lack of funds.
It is also relevant to consider whether an order would effectively deny a party the assistance of the legal process where that party’s lack of funds might be cured by the litigation.
The Court will not be impressed if a plaintiff has deliberately organised their affairs so as to shelter assets.
Whose claim is it?
It is a relevant consideration 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. This is relevant where the plaintiff’s own lawyers are being funded by an insurer or by a third party commercial litigation funder who will take a large portion of the winnings.
Nominal Plaintiffs
The real plaintiff should not be allowed to avoid the risk of an adverse costs order by suing through a nominal plaintiff who is a person of straw. 
Foreign Plaintiffs
Where a plaintiff lives overseas and has no assets in Australia, there must be good reason not to order security for costs. A defendant should not ordinarily have to risk enforcing a costs order in a foreign country. 
Delay by a defendant is a relevant factor in the exercise of the discretion. However, this is only one factor to be considered.
Public Interest
It is relevant to the Court’s consideration if the case raises matters of general public importance, for example, where the law requires clarification for the benefit of a wider group than the particular plaintiff(s).
The Plaintiff is a Corporation
It is not enough to prove simply that the plaintiff is a corporation. There must be evidence that the corporation is likely to be unable to pay the defendant’s costs if unsuccessful.
Other Considerations
1.     whether the parties or some of them are legally aided;
2.          that the likely order as to costs, even if successful, may not be in favour of the winning defendant;
3.          that the plaintiff is a vexatious litigant, particularly where self-represented;
4.          the relative disparity of resources of the parties.
Amount and nature of security to be provided
The Court requires evidence to estimate the defendant’s likely recoverable costs. In addition to traditional payment into Court, the security may include guarantees, charges or the provision of a bank bond. It may, in some cases, be appropriate to stage payments.
Practical considerations when applying for security
It is important to foreshadow any application in correspondence.
Difficulties can arise where there are two or more plaintiffs, or where one is an individual and another is a company, or when one of a number of plaintiffs lives overseas; or where the chances success vary as between the plaintiffs. Problems also arise when only one of several defendants applies for security.
Ordering security against a defendant
An order for security will not usually be made against parties defending themselves and thus forced to litigate.
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.
For assistance with litigation, phone Dominic Wilson of Craddock Murray Neumann on 8268 4000.
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