If you are a party to proceedings, you may have wondered what happens if the other side can no longer afford to pay an adverse cost order. 

Fortunately, this question was revisited by the Federal Court just this past week in Shaanxi Nutracare v Viplus Dairy [2021]. 

In this matter, the Respondent became concerned that the applicant lacked sufficient assets to cover an adverse cost and sought an order under r 19.01 of the Federal Court Rules 2011 (Cth) that the applicant provides security for the Respondent’s costs and that the hearing be stayed until this is provided. 

Providing Security: Important Considerations

Succeeding in a security application is no easy feat. 

Instead, the Court needs to strike a balance between providing reasonable protection for defendants and avoiding injustice to an ‘impecunious plaintiff’. [1]

 In achieving this balance, the Court may consider the following factors, among others: 

  1. Whether the application for security was unduly delayed;
  2. The strength of the applicant’s case;
  3. Whether the Respondent’s conduct (subject of the claim) caused the plaintiff’s precarious financial position; and
  4. Whether the application for security is ‘oppressive’ or used to deny the plaintiff’s right to a trial. 

In this Matter:

In opposing the application, the applicant argued that the application for security was unduly delayed and would cause ‘serious forensic prejudice’.[2] Additionally, the applicant identified that the Respondent’s conduct caused this financial difficulty.

The Court’s Determination:

Ultimately, the Court granted the application for security. This conclusion was premised on the ‘equivocal nature of the evidence’ that revealed Nutracare’s inability to pay any cost order should their action fail. Interestingly, the Court afforded no weight to the submission that the Respondent caused the applicant’s financial difficulties, concluding that this was impossible to determine. 

Key Takeaways:

This case clarifies the key factors the Court will consider in determining whether to grant an application for security. Further, this case confirms that although delays in making an application for security are an essential consideration, it is not determinative. Instead, applications for security remain a matter for judicial discretion, and other relevant considerations must be considered. 

 

***Assisted by: Kayla Cook***

 

  [1] Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467, 470 (Giles J). 

[2] [15].