Will I be Successful in a Security of Costs Application Against my Opponent in NSW?

The general premise of advancing a security of costs application under rule 42.21 in the Uniform Procedure Rules 2005 (NSW) (“UCPR”) is to minimise the risk of substantial collateral financial loss in the event your impecunious plaintiff opponent is unsuccessful in its case and is ultimately ordered to pay you costs. In summary, this is sought by pressing an application under rule 42.21 of the UCPR in court to seek its discretionary authority to secure the potential windfall of a monetary costs order from your opponent, early on in the litigation timetable.

Although the advancing of a security of costs application may be seen to be at odds with the fundamental principle of securing the right of any litigant to pursue the enforcement of their rights in court, the court essentially employs a balancing act to ensure justice between the parties. That is, that the defendant is adequately protected, against avoiding injustice to a penurious plaintiff by prejudicing it in making a security of costs order against them.

The defendant bringing a security of costs application against the plaintiff needs to demonstrate a sufficient reason to believe that in the event the court makes an adverse costs order, the plaintiff will be unable to meet it.

The court in Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 12 ACSR 1 at [61] had cause to consider whether the mere suspicion that a plaintiff will not be able to meet an adverse costs order was sufficient alone to meet the court’s threshold:

“The evidence to be relied on must have some characteristic of cogency. Further, speculation as to the insolvency or financial difficulties experienced by the plaintiff company is insufficient to ground the exercise of the discretion”

The criteria of considerations of the Court in exercising their discretion to order security are set out by Her Honour Beazley J in the Federal Court case of KP Cable Investments Pty Ltd v Meltglow Pty Ltd & Ors (1995) 56 FCR 189, namely:

1. Merits of the proceeding (rule 42.21(1A)(a) of the UCPR);
2. Is the claim bona fide? (rule 42.21(1A)(b) of the UCPR);
3. Will the plaintiff be unable to meet an adverse costs order if the defendant is ultimately successful? (rule 42.21(1A)(c) of the UCPR);
4. If the plaintiff has demonstrated a lack of funds, is this due to the conduct or contributed by the defendant? (rule 42.21(1A)(d) of the UCPR;
5. If it can be shown that the plaintiff is defending themselves and thus is forced to litigate (rule 42.21(1A)(e) of the UCPR);
6. Whether the ordering of a security of costs application would end the plaintiff’s claim (rule 42.21(1A)(f) of the UCPR);
7. Whether the issue tried in the proceedings is of public importance (rule 42.21(1A)(g) of the UCPR);
8. Whether the security sought is proportionate to the claim of the dispute (rule 42.21(1A)(j) and (k) of the UCPR);

Further, the matter of Kennedy v Nine Network Australia Pty Ltd [2008] QSC 134 regarded the delay of the defendant filing a security of costs application as another salient discretionary factor in the court making an order for security.

Ultimately, it is at the court’s discretion as to whether an order for security will be made.

This is demonstrated in the decision of King v Commercial Bank of Australia Limited [1920] HCA 62 at [292]:

“The legislature […] has left absolute discretion to the court, and has done so without prescribing any rules for its exercise. In these circumstances, no rules can be formulated in advance by any judge as to how the discretion shall be exercised. It depends entirely on the circumstances of each particular case. The discretion must, of course, be exercised judicially, which means that in each case the judge has to inquire how, on the whole, justice will be best served…”.