In modern times, it is rather hard to believe that a prison term
could be imposed on a person who loses a civil case and fails to
pay part of the other party's pre-litigation costs. That
possibility exists however under section 91 of the Australian
Securities and Investments Commission Act 2001.
That section would allow ASIC to make an order that a person who
loses a case and has judgment against it, to pay the whole of
ASIC's related pre-litigation investigation expenses and
costs. Those costs can include for example, ASIC's
investigative staff's wages, counsel's fees, expert's
fees and travel costs. Since 29 July 2015, ASIC will consider
making such orders in each case where the section could be applied.
Parties are heard by ASIC before orders are made and an appeal can
be brought from their decision.
One unusual feature of section 91 is that the section does not
use the words "reasonable costs and
expenses". Any inefficiencies within ASIC during
the investigation which increase its costs could be borne by the
recipient of the order. An indemnity outcome occurs if ASIC
orders all its costs and expenses to be paid. This process markedly
differs from the process for recovering legal costs from a losing
party in civil litigation, where an independent assessment process
can also occur and an indemnity outcome is the exception.
The ASIC website lists many factors ASIC will consider before
making such orders. They include little prospect of the ordered sum
being paid. Hardship alone is not generally a good reason.
The costs order can be recovered as a debt if it is not paid. If
the order is made and not complied with, it is also an offence with
a possible penalty of a fine and imprisonment for 1 year. Such an
outcome does not apply to a failure to pay an adverse costs order
in other litigation.
Bankruptcy is not really an effective way for dealing with a
section 91 liability if it cannot be afforded. It would catch a
pre-bankruptcy incurred debt due to ASIC following such an order,
but it does not stop the offence and imprisonment risk for non
One effect of section 91 is that it applies additional pressure
on a party who has been investigated, to settle any subsequent
litigation. That party will probably have incurred legal fees in
the investigation and will incur more in any consequential
litigation. Then if they lose, they will suffer ASIC's
assessable costs and potential section 91 costs and expenses.
Bankruptcy cannot absolve a bankrupt from:
An amount payable under an order made under section 1317 G
Corporations Act (pecuniary penalties) – which is a civil
debt payable to ASIC; and,
Penalties and fines imposed by a court in respect of an offence
against a law: section 82 Bankruptcy Act.
ASIC can however bankrupt a person who fails to pay a section
This is presently unchartered territory. We are not aware of
anyone being jailed for failing to pay an ASIC costs order, but the
power to do so is there.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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