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Security for costs in representative proceedings April 7, 2016


De Jong v Carnival PLC [2016] NSWSC 347

[6] The power to order security for costs is to be exercised in the manner stated by Carr J in Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 (“Bray”) at [141] namely by balancing the policy reflected in s 181 of the CPA against the risk of injustice to a defendant. In circumstances where the representative party is impecunious, but is neither suing on behalf of a person with assets who seeks to avoid a costs liability nor supported by an external funder, then a determination of whether security will be ordered and, in particular, whether an order for security will stifle the proceedings requires that consideration be given to the financial circumstances of group members. If a reasonably strong case for security is made out then it may, and often will, be appropriate to ascertain the capacity and willingness of group members to contribute to a fund to meet any order for security that is made against the representative party.

  1. At first instance, the primary judge, Murphy J, declined to make an order for security (Kelly v Willmott Forests Ltd (in liquidation) [2012] FCA 1446) (“Kelly v Willmott”). His Honour listed the following factors as relevant to the determination of whether or not to order security (at [13]):

“(a)   Whether there is reason to believe that the applicants will be unable to pay the respondents’ costs if so ordered, that is, whether the applicants are impecunious?

(b)   Whether the applicants’ insufficiency of means is caused by the conduct which is the foundation for the action?

(c)   The promptness of the application and the stage of the proceedings at which an application for security is brought.

(d)   Whether the proceeding has become bogged down with ‘interminable and expensive interlocutory applications’ for which the applicants bear responsibility?

(e)   The strength and bona fides of the applicants’ claim for relief from the respondents.

(f)   Whether the applicants have been deliberately selected as ‘persons of straw’, in order to immunise from costs orders group members of substantial means?

(g)   Whether the proceeding is essentially defensive in nature?

(h)   Whether the applicants are suing for someone else’s benefit?

(i)   The characteristics of the group members. For example do they include corporations or natural persons, and are they rich or poor?

(j)   Whether someone who stands to benefit from the litigation is funding the applicants?

(k)   Whether security would have been ordered if separate actions had been brought by the group members?

(l)   Whether an order for security would stifle the action and shut the applicants out from pursuing an arguable claim?”

  1. Critically, Murphy J found that an order for security was likely to stultify proceedings in that the inability of the bulk of the known group members to contribute to an order for security would leave a small remaining number to potentially shoulder a greater burden which in turn they would be either unable or unwilling to contribute towards (Kelly v Wilmott at [120] to [121] and [130] to [133]).
  2. In the Full Court, Allsop CJ and Middleton J accepted that the factors listed above were “legitimate” to consider on an application for security (Madgwick v Kelly at [8]), but nevertheless found that Murphy J’s refusal to make an order for security was affected by an erroneous failure to undertake the balancing exercise referred to in Bray (Madgwick v Kelly at [70] per Allsop CJ and Middleton J; contra Jessup J at [142] to [146])….

Supreme Court’s power to award security in representative proceedings

  1. Leaving aside Pt 10 of the CPA, there are three potential sources of this Court’s power to award security for costs or make an order relating to security for costs.
  2. The first is Uniform Civil Procedure Rule (“UCPR”) 42.21(1), which relevantly confers a power to make an order that a plaintiff provide security for costs and that the proceedings be stayed until it is provided if “it appears to the court on the application of a defendant … (e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so” (emphasis added).
  3. Mr Hogan-Doran initially sought to invoke this rule. However, in his written submissions, he accepted that it was not apposite to the plaintiff in that she is suing for her own benefit, as well as for others (see Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148 (“Green”) at [45] per Hodgson JA). Otherwise it should be noted that subrule 42.21(1A) lists a series of factors relevant to the exercise of that power that are similar to those set out in [29] and which include “whether an order for security for costs would stifle the proceedings” (UCPR 42.21(1A)(f)).
  4. The second source is s 67 of the CPA, which confers on the Court a power, subject to the rules, to order a stay of any proceedings either permanently or until a specified date. In Philips Electronics Australia Pty Ltd v Matthews [2002] NSWCA 157; 54 NSWLR 598 at [47] (“Philips Electronics”), Hodgson JA held that the former s 156 of the District Court Act 1973 (NSW) conferred on the District Court a power to make an order staying proceedings unless and until security for costs was given. His Honour held that the power was not limited by the District Court Rules which specified circumstances in which it was appropriate to make such an order against an individual (at [50] to [52]). However, his Honour added (at [53]) that the existence of such rules meant that a “strong case” would need to be made out that it was necessary in the interests of justice to stay proceedings until security for costs was provided, although it was not necessary to demonstrate that the proceedings were an abuse of process (at [47]). Mason P agreed with Hodgson JA and stated that the circumstances in which the power to order a stay conditional upon the grant of security in categories falling outside those prescribed by the rule would be exercised were “exceptional” (at [13]).
  5. Mr Barry QC submitted that, because the operation of s 67 of the CPA is expressed to be “subject to rules of Court”, it does not confer a power to order a stay in lieu of security being provided in circumstances that do not fall within UCPR 42.41. Former s 156 of the District Court Act, which was the subject of the judgment in Philips Electronics, was not expressed to be “subject to rules of Court”.
  6. I reject this submission. In Liristis v Danic [2011] NSWCA 239 (at [15]) and Hassoun v Wesfarmers General Insurance Ltd t/a Lumley General [2015] NSWCA 33 at [38] to [45], the Court of Appeal proceeded on the basis that there was no relevant difference between s 67 of the CPA and former s 156 of the District Court Act. Simpson J proceeded on the same basis in Byrnes v John Fairfax Publications Pty Ltd [2006] NSWSC 251 at [18] (“Byrnes”).
  7. The third is the “inherent jurisdiction of the Supreme Court to make orders for security for costs” in circumstances other than those prescribed by the rules (Philips Electronics at [52] per Hodgson JA; Green at [33] per Hodgson JA, Campbell JA agreeing; Charara v Integrex Pty Ltd [2010] NSWCA 342 at [15] per McColl JA; Byrnes at [17] per Simpson J; Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 at 447). In Green at [45] Hodgson JA specifically instanced a plaintiff “bring[ing] a case for the benefit of others (albeit not solely for their benefit as apparently required by UCPR 42.21(1)(e))” as a circumstance that would warrant this Court exercising its inherent power to award security for costs. Further, his Honour stated the following concerning the principles that govern the exercise of this power (Green at [46]):

“In my opinion, it would be an oversimplification to say that underlying these guidelines is a broader principle that defendants should be protected against being unable to collect costs ordered against plaintiffs unless this would stultify the litigation. Certainly, these are relevant considerations; but in my opinion also relevant are the considerations that there should not be undue inhibitions on less wealthy persons from seeking vindication of their rights against more wealthy persons, and that there could be such inhibitions if it was in every case open to defendants to apply for security for costs on the basis of some evidence (or even on the basis of fishing notices to produce) suggesting inability to pay costs, and to claim that security should be given unless the plaintiff can prove it would stultify the litigation. In my opinion these considerations make it desirable that guidelines be adhered to, even though the question is ultimately for the court’s discretion.” (emphasis added)

  1. Are these sources of power to order security or order a stay in lieu of it being provided limited in their application to proceedings under Pt 10 of the CPA? Each of the parties pointed to different provisions in Pt 10. Mr Barry QC contended that there was no power to order security. He referred to s 181 of the CPA which provides that:

“Despite section 98, in any representative proceedings, the Court may not award costs against a person on whose behalf the proceedings have been commenced (other than a representative party) except as authorised by sections 168 and 169.”

  1. Section 98 of the CPA confers a power on the Court to award costs. Sections 168 and 169 are of no present relevance. They concern the determination of questions that are not common to all group members and the intervention in the proceedings by individual members of the group in relation to the determination of issues that relate to only that member.

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Abuse of process

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