There may be circumstances where a Liquidator or the company (or both) is a plaintiff in Court proceedings and the defendant’s solicitors have made a request that the Liquidator pay security for the defendant’s costs of the proceeding.  The general rule is that that where a Liquidator is a party to the proceeding as a plaintiff, the Court will not ordinarily make an order for security for costs because the Liquidator can be ordered personally to pay costs of the proceeding (although there are some exceptions where the Court may order a Liquidator to pay security for costs which may include the nature of the claims).  FCW Lawyers acted for a Liquidator recently and successfully opposed an application seeking an order for security for costs.

There are several principles which are relevant for consideration in these applications:

1. Two provisions will be relied upon in respect of the application;
   1. Rule 62.02(1)(b) of the Supreme Court (General Civil Procedure) Rules 2015  provides that security may be ordered where the plaintiff is a corporation or (not being a plaintiff who sues in a representative capacity) sues, not for the plaintiff’s own benefit, but for the benefit of some other person, and there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so;
   2. Section 1335(1) of the Corporations Act 2001 (Cth) provides that security may be ordered where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

Although the wording of Rule 62.02 differs from the wording of section 1335, identical principles have been developed and applied for each provision.

1. It is for the defendant to satisfy the court that the party against whom security is sought lacks the financial capacity to meet a costs order. A Liquidator is generally not required to post security in circumstances where he is pursuing a remedy for the benefit of creditors of a company in liquidation.
2. Where there are multiple plaintiffs with a common cause of action, security should not be ordered against one unless it would be ordered against all. This is so even where the Liquidator is not a necessary party to the proceeding.
3. The Court’s discretion to order security for costs must be exercised judicially having regard to the circumstances of each case and having regard to the interests of justice.
4. The quantum of security for costs should be sufficient to provide a measure of security to the defendant for the costs it will incur in defending the action. The Court should have regard to the probable costs which the defendant may be put to so far as they can be ascertained. The security ordered should not be illusory on the one hand or oppressive on the other. In other words, the Court will consider the quantum of security which has been sought and the plaintiff’s ability to pay such amount if ordered to do so.  The Court will also exercise its discretion to ensure that the plaintiff’s ability to continue to pursue claims in proceedings is not be impacted by an order for security.
5. The Court should take a “broad brush” approach to the quantum of an order for security for costs as the Court is not required to conduct a taxation in ascertaining the amount of security which should be ordered.  Therefore, it will not examine every line item in consideration of the defendant’s estimate of costs.
6. There may be grounds for the plaintiff to demonstrate that even if security for costs may be ordered, the estimate of the defendant’s costs may be excessive, there may be duplication between solicitors, certain tasks for preparation for trial may be unreasonable (for example, they may have estimated costs for a three day trial when it may only likely go for one day) and preparation will be reduced if evidence-in-chief will be by affidavit evidence.

In our recent matter, the Liquidator has issued proceedings for recovery of a debt owed to the company.  At the application hearing, reliance was placed on section 556 of the Corporations Act 2001 (Cth) (the Act) and the case of Mio Art Pty Ltd v Mango Boulevard Pty Ltd to demonstrate that costs of the proceedings are expenses incurred as a result of the process of recovering a debt incurred in the ordinary course of the company’s business – the company was carrying on business, work was performed, a debt was incurred in the ordinary course of its business and unpaid invoices are sought to be recovered.  In other words, the litigation can be characterised as part of carrying on the company’s business.

The Magistrate accepted that the costs of prosecuting the claim do fall under the priority provision for the reasons set out in the case of Mio Art Pty Ltd v Mango Boulevard Pty Ltd and as the company is the plaintiff pursuing the cause of action, it falls within the priority under section 556 of the Act.  In addition, the Liquidator holds substantial funds in the liquidation which would be sufficient to cover any adverse costs order and this was another factor which was relevant to security not being ordered.  As a result of the submissions (which were supported by Affidavit evidence), the application for security was refused with a costs order in favour of the plaintiff.

Catherine Pulverman has considerable experience in this area where she acts for (a) plaintiffs (including Liquidators and the company) in responding to letters seeking security for costs and then (where necessary) opposing applications seeking orders to pay security for costs; and (b) defendants as the party pursuing orders for security where the plaintiff clearly has no financial capacity to satisfy an adverse costs order (including a matter where orders for further security are now being sought due to the trial estimate significantly increasing by 5 extra days, further expert evidence being called and the delay by the plaintiff in obtaining its own expert evidence).  If you require advice in relation to security of costs, Catherine and her team would be happy to provide assistance.