Security for costs 

An order for security for costs requires a plaintiff to put up money or other security against the defendant's costs before the proceeding goes further. It sits uncomfortably between two principles: a defendant dragged into litigation should not be left with an unenforceable costs order, and a plaintiff with a genuine claim should not be shut out of court because they are poor. The discretion exists to hold those in balance, and almost every contested application turns on which way the balance tips.

Where the power comes from

Two sources operate together. Each jurisdiction's rules of court confer a general discretion to order security, typically listing circumstances in which it may be granted — a plaintiff ordinarily resident outside the jurisdiction, a plaintiff suing for someone else's benefit, an address not disclosed or wrongly stated, or a change of address to evade the consequences of the litigation.

For corporate plaintiffs, s 1335 of the Corporations Act 2001 (Cth)¹ provides a distinct statutory power: where credible testimony establishes reason to believe the corporation will be unable to pay the defendant's costs if unsuccessful, the court may require security and stay the proceeding until it is given. Courts also retain an inherent jurisdiction, though it is rarely necessary to rely on it.

The threshold, and then the discretion

The analysis has two stages, and running them together is the most common error. First, is the threshold engaged — is the plaintiff a corporation with the requisite inability to pay, or within one of the rule-based categories? Establishing the threshold does not entitle the defendant to an order; it merely opens the discretion.

Second, should the discretion be exercised? The factors are settled and are weighed together rather than counted:

• The strength of the claim. A claim that appears strong tells against security; a weak one, in its favour. Courts are careful not to conduct a mini-trial.
• Whether the plaintiff's impecuniosity was caused by the defendant's conduct. If the very wrong complained of is what left the plaintiff unable to pay, an order would compound it.
• Whether an order would stifle a genuine claim. This is often decisive. The plaintiff bears the onus of showing that security would stop the proceeding, and must ordinarily show not only its own inability to pay but that those who stand behind it — directors, shareholders, funders — cannot or will not.
• Delay. A defendant who waits until the eve of trial will find the application harder; the prejudice of an order increases as costs are already sunk.
• The presence of a litigation funder, which tells strongly in favour of security, and whether the plaintiff is really suing for the benefit of another.
• Public interest in the litigation being determined, where the proceeding raises a question of general importance.

Natural persons are treated differently

Poverty alone is not a ground for ordering security against a natural person. The rules generally require something more — residence outside the jurisdiction, a nominal plaintiff, an address concealed. The distinction is deliberate: an individual has no limited liability shield, and the policy against denying access to the courts weighs more heavily.

That said, the position of an individual ordinarily resident overseas is different again. The concern is not poverty but enforceability, and the strength of it depends on whether a costs order could be enforced where the plaintiff's assets are.

Form, quantum and consequences

Security is usually ordered as payment into court or a bank guarantee, and is fixed by reference to a realistic estimate of the defendant's costs to a defined stage of the proceeding rather than to judgment. Courts commonly order security in tranches, revisiting the amount as the matter progresses.

Failure to provide security within the time ordered ordinarily results in a stay, and continued failure may lead to dismissal. The order does not decide the merits, and a plaintiff who later obtains funds may apply to lift the stay.

Timing and delay

An application should be made promptly. Delay is one of the most significant discretionary factors, and an application brought on the eve of trial will often fail even where the threshold is comfortably established.

The reasoning is practical. The purpose of security is to protect the defendant against an unrecoverable costs order while giving the plaintiff the choice whether to continue on those terms. That choice is illusory once the plaintiff has already incurred the costs of preparing for trial, and an application made late looks like a tactic rather than a protection.

Where circumstances change — the plaintiff's financial position deteriorates, or a funding arrangement is disclosed — a later application may be justified, and a further application may be made for additional security as the matter progresses.

Litigation funders and third parties

Where a funder stands behind the plaintiff, security is more likely, not less. The court will consider whether the funder has agreed to meet an adverse costs order and whether that undertaking is worth anything — a funder incorporated offshore with no assets in the jurisdiction offers little.

Courts have also made security orders directly against non-party funders, and have required that the funding agreement or its material terms be disclosed for the purpose of the application.

The same reasoning applies to a plaintiff who is a nominal party for someone else's benefit. The court looks at who really stands to gain and who would really bear an adverse costs order.

Appeals

Security is more readily granted on appeal than at first instance. The successful party below has a judgment in their favour, the presumption of innocence of liability no longer assists the appellant, and the impecuniosity argument carries less weight because the appellant has already had access to justice.

The stifling consideration is correspondingly weaker: refusing an appellant the means to appeal is not the same as denying access to the courts altogether.

Applying this in a problem question

1. Identify the plaintiff — corporation, natural person, or nominal plaintiff — because that selects the source of the power and the threshold.
2. Establish the threshold before turning to discretion, and say expressly that the threshold does not entitle the defendant to an order.
3. Work the discretionary factors as a balance, and identify which is decisive on the facts rather than listing all of them.
4. Address stifling squarely if the plaintiff is impecunious, including whether those behind the plaintiff can provide security.
5. Deal with delay if the application is late, and propose a realistic quantum and stage.

Self-check

• Have I kept the threshold and the discretion as separate steps?
• Have I asked whether the defendant's own conduct caused the impecuniosity?
• Have I put the onus on the plaintiff to prove stifling, including as to those behind it?
• Have I remembered that poverty alone will not support an order against an individual?