It isn’t fair! Even if you win, there is no way you can recover any part of your legal costs. How could this be allowed to happen?
The good news - it often isn’t! Thanks to what is known as a “security for costs order”. This is a court order where a plaintiff (party suing) must provide financial security before their case is allowed to proceed.
When will a court make a security for costs order?
Questions the court will ask:
1. Is the plaintiff ordinarily resident outside Australia?
An order will likely be made against a plaintiff who resides overseas and who has no assets in Australia.
2. Has the plaintiff lied about their address or changed their address after proceedings were commenced?
3. Is the plaintiff a company which might be unable to pay costs if ordered to do so?
If so, other relevant factors are:
Whether anyone else (for example directors or shareholders) will offer a personal undertaking to be liable for costs.
What does the company own - for example real estate, business, assets etc
If the plaintiff is an individual they will not normally be required to provide security for costs merely on account of a poor financial situation.
4. Is the plaintiff suing for the benefit of a third party and unable to pay costs if ordered to do so?
5. Has the plaintiff sold or hidden assets with the intention of not paying a potential costs order?
Even in one of the situations above, the court will exercise discretion by considering the following factors:
Prospects of success of the proceedings - is the plaintiff’s case hopeless or does it have reasonable prospects of success?
Genuineness of the proceedings - the court will likely order security for costs where the proceedings are frivolous or vexatious.
Financial circumstances of the plaintiff - would the plaintiff be unable to pay your costs if you are successful in defending the claim?
Whether your conduct caused the plaintiff’s poor financial circumstances - for example, is the only reason the plaintiff is broke because you transferred all of the money out of their bank account into your own without any justification?
Whether the plaintiff is effectively a defendant - the court will not order security against parties who are forced to defend themselves.
Whether an order for security for costs would stifle the proceedings - a corporate plaintiff seeking to raise this must also demonstrate that the individuals behind it (director, shareholders etc) are also without financial means.
Whether there has been an admission or payment in court.
Whether any delay by the plaintiff in commencing proceedings has prejudiced the defendant.
Costs of the proceedings - the court is unlikely to order security for costs if the amount sought is relatively small compared to the importance of the issues in dispute.
Timing of the application for security for costs - the court is less likely to order security for costs where an application for security is not made relatively early in a proceedings.
Whether an order for security against the plaintiff would be enforceable in Australia.
The ease and convenience of enforcing a local judgment or court order in the country of a foreign plaintiff – the court is likely to make a security for costs order where difficulty in enforcing an order for costs overseas against a non-resident plaintiff can be demonstrated, even if the plaintiff is relatively wealthy in the foreign jurisdiction.
Tips when applying for security for costs
Do so promptly after proceedings are commenced.
Provide evidence about your likely costs and disbursement so the court can determine a reasonable amount as security. An order for security may include both future costs and legal costs already incurred, but will not provide a complete indemnity for costs.
Seek an order that the plaintiff be required to pay the security into court or into a solicitor’s trust account within a specified time period.
You may reapply for additional security where the original order for security was made on a limited basis, for example. costs up to a certain stage of the proceedings only.
If you are ultimately successful in defending the claim, you may be able to recover all or part of your legal costs from the amount paid by the plaintiff as security.
What if an order for security for costs has been obtained against me?
If you have been ordered to provide security for costs:
The court proceedings will ordinarily be stayed until security is given.
A failure to comply with the security for costs order may result in your claim being dismissed.
If you are unable to provide security within the specified time period, you may be entitled to obtain an extension of time.
If a plaintiff suing you may be unable to pay your legal costs, or a security for costs order is sought against you - contact Longton Legal today to obtain advice about security for costs!
*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice beforetaking any course of action.*
Partner | Accredited Commercial Litigation Specialist NSW
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