A court may, in its judicial discretion, order that a party to proceedings pay security for costs which may be incurred by their opponent(s). Costs in this sense refers to the legal costs incurred in litigating a dispute. Where a party fails to oblige an order for security for costs the proceedings will generally be stayed until that party’s compliance is forthcoming. These types of orders a generally granted where there are some prospects of a party failing to pay an order for costs at the conclusion of the litigation.
The law on security for costs
Section 56 of the Federal Court Act 1976 (Cth) provides as follows:
“The Court of a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 or Part III, to give security for the payment of costs that may be awarded against him or her.”
The ‘mechanics’ behind this statutory position is provided for in the Federal Court Rules 2011 (Cth) (Rules). Rule 19.01 provides:
- A respondent may apply to the Court for an order:
- that an applicant give security for costs and for the manner, time and terms for the giving of the security; and
- that the applicant’s proceeding be stayed until security is given; and
- that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed.
- An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought.
The affidavit referred to in subrule (2) above must include particulars as to:
- Why the applicant will be unable to pay the respondent’s costs if ordered;
- Whether the applicant is ordinarily resident outside Australia;
- Whether the applicant is suing for someone else’s benefit;
- Whether the applicant is impecunious; and
- Any other relevant matter.[1]
That statutory discretion afforded to Judges of the Federal Court afforded under this section has been described as a broad discretion to be exercised judicially.[2] McHugh J in P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 held at 323:
“To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case.”
Therefore, it is for the respondent to bring a convincing case before the Federal Court such that the order should be made. The question arises then, what matters should a respondent argue in order to secure an order for security for costs?
Considerations the Federal Court will make
Strong consideration should be had to those matters which must be particularised in an affidavit under rule 19.01 above. As these matters are prescribed by the rules it follows that strong judicial consideration will be had to those factors. However, in addition to those matters the Federal Court has provided some insight as to what matters will be considered in an application for security for costs.
In the matter of KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 the Court summarised the chief matters appropriate for consideration in an application for an order for security for costs, they are:
- that such application should be brought promptly;
- that regard is to be had to the strength and bona fides of the Applicant’s case;
- whether the Applicant’s impecuniosity was caused by the Respondent’s conduct the subject of the claim;
- whether the Respondent’s application for security is oppressive, in the sense that it being used merely to deny an impecunious applicant a right to litigate;
- whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security;
- whether the persons standing behind the company have ordered any personal undertaking to be liable for the costs and if so the form of any such undertaking;
- security will only ordinarily be ordered against a party who is in substance a plaintiff, and on order not to be made against parties who are defending themselves and thus forced to litigate.
Each of these considerations can give rise to lengthy, detailed arguments. The Federal Court will determine each point in their discretion and it is for the respondent to be discerning in which matters they raise before the Federal Court.[3]
It is worth noting that where an applicant resides ordinarily outside of Australia the Federal Court has generally seen fit to grant an order for security for costs.[4] This is especially true where the applicant has no substantial resources within the Australian jurisdiction
