What is security for costs?
It is a fact of life that plaintiffs and defendants in legal proceedings represented by lawyers will incur costs, which in some cases can be substantial.
Generally, the unsuccessful party in those proceedings is ordered to pay the costs of the successful party. Those costs are usually either agreed between the parties to the proceedings or assessed by a Court appointed costs assessor.
If you have been sued by someone (the plaintiff), and you are concerned that the plaintiff will not be able to pay your costs if you are successful in the proceedings, you can in some circumstances ask the court to order the plaintiff to provide security for your costs of the proceedings.
The type of security that is usually ordered by the court typically comprises an unconditional bank guarantee from an Australian Bank in a form acceptable to the defendant, payment of sufficient funds into a controlled monies account or payment into court.
If the plaintiff does not comply with an order for security for costs the proceedings may either be stayed or dismissed.
Obtaining security against non-resident plaintiffs
One of the circumstances in which a court may order security for costs is where the plaintiff is ordinarily resident outside Australia.
In that case, an application for security for costs should be considered at the outset of proceedings.
A defendant is generally not expected to bear the uncertainty of enforcement of a costs order in a foreign country.
As Ward CJ in Eq recently said in Anderson v Paterson Securities Ltd [2019] NSWSC 852 at [101]:
‘difficulty in enforcing an order for costs overseas against a non-resident plaintiff will usually be sufficient to ground an order [for security for costs], especially where there is no reciprocal right of enforcement in the relevant foreign jurisdiction or legislation which may make recovery difficult (see Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd [2011] NSWCA 84 at [32]-[39] per Young JA)’
A list of foreign jurisdictions where there is a reciprocal right of enforcement with respect to Australia is set out in the Foreign Judgments Act 1991 (Cth); Sch 2 to the Foreign Judgments Regulations 1992 (Cth).
In relation to non-resident plaintiffs, it is worth noting the decision of McHugh J in the High Court of Australia in PS Chellaram & Co Limited v China Ocean Shipping Co (1991) 102 ALR 321; [1991] HCA 36 where it was accepted that a plaintiff resident outside the jurisdiction, with no assets within the jurisdiction, is likely to face great difficulty in avoiding an order for security for costs.
Security for costs was ordered where the appellant resided in Papua New Guinea in Batterham v Makeig (No 2) [2009] NSWCA 314 at [8] and in Mothership Music v Flo Rida (aka Tramar Dillard) [2012] NSWCA 344, where the appellant resided in the United States.
More recently, in Pun v Poon [2019] NSWSC 918 the Supreme Court of New South Wales was required to determine an application for security for costs in respect of proceedings in which the plaintiff (who lived in Macau) claimed an interest in a residential apartment in Ultimo, Sydney of which the defendant was the registered proprietor. In ordering that security be ordered against the plaintiff in Pun v Poon, the Court observed that the plaintiff’s lack of financial resources in Australia, together with the fact that her ordinary residence is out of the jurisdiction, were matters of great weight in favour of an order for security for costs.
Takeaway
Being a defendant in any proceedings is difficult. You often have no real choice other to incur the costs of participating. If:
- you are sued by a non-resident plaintiff, i.e. someone who does not ordinarily reside in Australia;
- there is no reciprocal right of enforcement in respect of the country that the plaintiff ordinary resides in (e.g. Indonesia) or legislation which may make enforcing an order for costs against the plaintiff in that jurisdiction difficult for you; and
- it appears the plaintiff does not have sufficient assets in Australia from which you may be able to readily satisfy a costs order,
you may be entitled to an order for security for costs against the plaintiff.
Seeking advice at a very early stage in the proceedings is one of the key steps to take if you think you may be entitled to an order for security for your costs.
