What is Security for Costs?

According to our litigation lawyers, the general principle of law that applies for costs order is “costs follow the event”. This means that the party who loses a case will generally pay the costs (e.g. solicitor fees, filing fees etc.) of the winning party. So what is Security for Costs?

In circumstances where the losing party could potentially not be able to afford payment of the winning party’s costs, the winning party is able to seek an order of “securities for costs”. This means that the losing party, before the case even begins, is required to provide some form of security (generally money) to be held by the court, for the payment of the winning party’s costs.

Now obviously there is no way at this time to know who will be the “winning” party or the “losing” party, before the Court makes a decision, so how does Court determine when to make these orders?

Before continuing, it is worth mentioning that most of the time, the Plaintiff (the party brining the claim) is generally the party who provides a “Securities for Costs” at the application of the Defendant.

Balance of Justice

The overriding principle a Court must consider when making a decision whether or not to award Security for Costs, is the principle of justice, or more specifically, justice between the parties.

Having been on both sides, our litigation lawyers know that each side of a dispute have their own interests:

• for the plaintiff, the right to be able to bring the claim, no matter how poor, and not be “shut out” by needing to provide a Security for Costs before the matter can even proceed; and
• for the defendant, the right to know that it is not “wasting” money by being required to defend a hopeless case.

Things to consider

Regulation 42.21(1A) of the UCPR (Uniform Civil Procedure Rules 2005 (NSW)), also provides some guidance by setting out a non-exhaustive list of matters which a Court can take into consideration when determining whether to make a Security for Costs order. These include:

• the prospects of success or merits of the proceedings;
  • the lower the prospect of success, the lower the merits of the proceedings, the higher the likelihood of an order being made.
• the genuineness of the proceedings;
  • is there an “ulterior motive” for the claim, if so, then there is a higher likelihood of an order being made.
• the impecuniosity (poorness) of the plaintiff;
  • is the plaintiff actually poor, or more precisely, will the plaintiff actually be unable to pay the defendant’s costs should they lose?

The list goes on.

On the facts

The main point to remember, is that an order of Security for Costs is always based on the particular facts of the proceedings. What this means is that such an order is an exercise in discretion.

How much is awarded?

Security for Costs are not complete indemnities for all costs. Rather, based on the evidence, the amount for the order will be based on an estimate (provided by, for example, the defendant’s litigation lawyer or a formal cost assessor) of the defendant’s probable recoverable costs. Again this is an exercise of discretion and is based on the facts of the particular case.

Conclusion

If you are currently in a dispute, and you believe you should obtain a Security for Costs order or simply want more information, please contact us at 1300 544 755 and one of our litigation lawyers will be able to assist you.