Recently the Courts have adopted a new approach to determining an application for security for costs. The purpose of a security for costs order is to protect a defendant in whose favour the Court makes an order for costs from having that order wholly frustrated by the inability of the plaintiff to satisfy it.[1] Courts will generally be inclined to order a plaintiff to provide security for the defendant’s costs if there is a concern that the plaintiff will not be able to comply with a future costs order.
Plaintiff’s ordinarily seek to overcome a security for costs application by providing evidence to the Court that it is and will be financially able to comply with a future costs order. However, the Court has often shown a willingness to consider alternatives to cash security, such as a secured interest in property and personal guarantees or undertakings provided by directors or officers of the plaintiff.
The NSW Court of Appeal case of Vintage Marine Art Pty Ltd v Henderson & Cremer (No 2) [2019] NSWCA 252has changed the landscape of the Courts threshold to overcome a security for costs order. In Vintage, the appellant (Vintage Marine Art Pty Ltd) sought leave to appeal an order made in the Supreme Court of NSW requiring the respondents (Henderson & Cremer) to provide further security for costs. The Court of Appeal granted leave to the appellant and in doing so, held that the mere proffering of an undertaking from an individual on behalf of a company to be personally liable for any future costs order, coupled with other discretionary considerations was considered a sufficient alternative to cash security, notwithstanding the absence of any evidence that the individual who proffered the undertaking could satisfy a future costs order against the company.
Factual Background
The respondents entered into a licence agreement with Vintage Marine Art Ltd (the UK Company). The parties to that agreement entered into a 50-year addendum to it. The primary dispute in the proceedings is whether the UK Company assigned its rights under the licence agreement and the addendum to the appellant, Vintage Marine Art Pty Ltd, a NSW company. The appellant commenced the proceedings for breach of warranty and misleading or deceptive conduct in connection with the licence agreement.
First Application for Security
The respondents (defendants) made an application for security for costs on the grounds that there was reasonable belief of corporate impecuniosity[2]. The Court was satisfied that impecuniosity was in fact established, and so, the appellant (plaintiff) would not in a financial position to comply with a future cost order. Accordingly, the appellant was ordered to pay security for the respondents’ costs.
Second Application for Security
The respondents later filed another application seeking additional security for costs. Given that the Court had already determines the appellant was impecunious, it ordered the appellant to pay additional security.
The appellant subsequently applied for leave to appeal the additional security order, on three grounds:
- first, that there had been no material change of circumstances in the appellant position since the first order for security was made;
- second, that the application ought to have been made promptly and not on the eve of the hearing; and
- third, that an undertaking from an individual to be personally liable for any costs had been proffered and ought to have been accepted as the proffering of an undertaking is an essential determinative factor that the Court ought to have considered.
The Court considered the Federal Court of Australia matter of KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 held that the correct approach to determine such application is:
The offer of security by way of guarantee from the directors… was a factor, which could be decisive in a given case, to be considered in determining whether any other form of order for security for costs should be made…
The Court held that whilst the mere proffering of an undertaking does not conclusively determine the question as to whether a security for costs order should be made, it is nonetheless a matter which ought to be given due and careful consideration and in some circumstances, may be the determinative factor. Further, the proffering of an undertaking is considered even in circumstances in the absence of any evidence as to whether the person who proffers the undertaking is himself / herself pecunious.
The decision of the Court of Appeal in Vintage is one which could have significant implications on future security for costs applications. It establishes a willingness of the Courts to deal with applications pragmatically. It provides corporate plaintiffs with a viable alternative to providing cash security in the event it cannot adduce evidence to establish that it is pecunious. It is equally an alternative to cash security that defendants ought to be weary of, particularly given the Court’s willingness to accept a personal undertaking in lieu of cash security even without any evidence as to the individual’s capacity to satisfy a costs order.
Contact one of our highly experienced commercial litigation team today to guide you through the process of applying for or resisting an application for security.
The content of this article is intended to provide a general guide to the subject material that is discussed here and does not constitute legal advice.
[1] Jodast Pty Ltd v A & J Blattner Pty Ltd (1991) 104 ALR 248.
[2] Corporations Act 2001 (Cth), s1335.
