Abstract

Security for Costs

Article

If a plaintiff will be unable to pay the costs which would be ordered to be paid by him if his claim were to be dismissed, the court has a complete discretion as to whether to order security for costs, and it will act in the light of all the relevant circumstances. It may be opposed on the grounds, inter alia, that it will stifle the claim and that there has been inordinate delay in making this application.

To stifle proceedings is to prevent a party from bringing it or continuing it. Its probability is not alone sufficient to refuse the order. The court must find the balance between any injustice to the plaintiff by prevention from pursuing a proper claim by an order, and any injustice to the defendant if the claim fails and it cannot recover the costs incurred in the defence of the claim. The power is not to be used for stifling a genuine claim by an impecunious company against a more prosperous one, particularly if the claimed cause of action might have been a material cause of the impecuniosity. But reluctant to order security should not llow the impecunious company to use its inability to pay costs to put unfair pressure on the other.

 

Before an order is refused, the court must be satisfied that it is probable that the claim would be stifled, which can be inferred without direct evidence. However, it should be considered not only whether the plaintiff can provide security out of its own resource, but also whether it can raise it from its directors, shareholders or other backers or interested persons. It must fully satisfy the court on the balance of probabilities by a full account of the resources available to it that it would be prevented by an order from continuing the litigation: Keary Developments Ltd v Tarmac Construction Ltd. [1995] 2 BCLC 395; Allen v Bloomsbury Publishing Plc [2011] EWHC 770 Ch; Accident Exch v McLean [2018] EWHC 1533 (Comm).

 

For all practical purposes, if it is established that it would probably stifle them, the condition should not be imposed. But even when it appears to have no realisable assets of its own with which to satisfy it, a condition for payment will not stifle its claim if it can raise the required sum. The fact that the man has no capital of his own does not mean that he cannot raise any capital: he may have friends, business associates or relatives, all of whom can help him. But there must be caution if the applicant suggests that the company can raise money from its controlling shareholderhose distinct legal personality must be respected unless he has sought to abuse the distinction: Prest v Prest [2013] UKSC 34, [2013] 2 AC 415, 487. This is foremost.

The criterion is whether it has established that no such funds would be made available to it by its owner or some other closely associated person as would enable it to satisfy an order? Its application is likely to be more difficult. The court should judge the probable availability of the funds by reference to the underlying realities of the party's financial position; and by reference to all aspects of its relationship with its owner: Goldtrail Travel Ltd. v Onur Air Tasimacilik AS [2017] 1WLR 3014(SC).

 

The court will have regard to delay, when exercising its discretion,though there is no set rule other than the competition of justice to the parties. It may refuse an order if it has deprived the claimant of time to find security, or has led him to act to his detriment or may cause hardship in the future costs of the action; or it may deprive the applicant of security for some or all of his past costs or restrict it to future costs: Re Bennet Invest Ltd [2015] EWHC 1582. An order can be made at any time during the proceedings though the supporting material had long been available and the application could have been made at the commencement of the action rather than shortly before trial: Warren v Marsden [2014] EWHC 4410 (Comm). This could be met by limiting the order’s application to costs from and after a later point:  Re RBS [2017] 1 WLR 4635. A broad-brush estimate of quantum of an order will be taken: Stokors SA & Ors v IG Markets Ltd. [2012] EWCA Civ 1706; Accident Exch v McLean [2018] EWHC 1533 (Comm).

The court has jurisdiction to make an order against a corporation for security for costs, pursuant to s 1335(1) of the Corporations Act, if there is credible evidence that it will be unable to pay the applicant’s costs if it is successful in its defence. A balance is to be struck between protecting the applicant from being sued by an impecunious corporation with limited liability and avoiding injustice to the corporation by unnecessarily causing it prejudice in its conduct of the litigation: Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301; Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19. The court also has an inherent jurisdiction to make an order requiring a plaintiff to provide security for costs.

A party who is served with third party proceedings is in the position of a defendant in relation to them, as though in a separate action: Johnson v Ribbins [1977] 1 WLR 1458; [1977] 1 All ER 806; Commercial Developments Pty Ltd v Mercantile Mutual Insurance (Workers' Compensation) Ltd (1991) 5 WAR 208. the same applies to fourth party proceedings.

As to whether there is credible testimony that there is reason to believe that the corporation will be unable to pay the costs if it is unsuccessful, the court is required to judge the quality of the evidence put before it to see whether the evidence objectively gives rise to a reason to believe that the corporation will be unable to pay the applicant's costs, but the applicant bears no evidentiary burden of proof on this issue: FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd  (2000) 22 WAR 241. The principles are set out in Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd (supra); McMuray -v- AIG Insurance Australia Ltd [No 2] [2018] WASC 391.

The question is not whether the party whom an order for security for costs is sought against will be unable to meet an adverse costs order, but whether there is reason to believe that it will be unable to do so. The threshold is low, and if it is met, it is then a question of the court’s exercise of its discretion to make an order.

Factors that may be relevant to the exercise of the discretion are discussed in Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57. A respondent corporation's unsatisfactory financial position is important: Veneziano Coffee Roasters WA Pty Ltd v Healthy Nut Café Pty Ltd [2018] WASC 363; McMuray -v- AIG Insurance Australia Ltd [No 2] (supra).