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Most court proceedings involve at least two parties: - the party who commenced the proceedings (the plaintiff) and the party being sued (the defendant). Usually, if the defendant succeeds at trial, the plaintiff will be ordered to pay the defendant's legal costs. But what if a defendant has reason to believe the plaintiff has minimal assets?
Security for costs
To avoid the situation of a defendant being dragged through costly court proceedings, succeeding at trial but being unable to recover its costs from the plaintiff, the defendant can apply to the court for a Security for Costs order.
A Security for Costs order requires the plaintiff to pay a certain amount of money into the court which the court holds as security for the defendant's anticipated legal costs of defending the action. That way, if the defendant succeeds at trial, the defendant can recover its costs by accessing the money that was paid into court, rather than being left to chase a broke plaintiff. (If the defendant does not succeed at trial, the plaintiff gets its money back from the court.)
A major benefit of a Security for Costs order is that, until the plaintiff makes the required payment into court, the proceedings will be at a standstill and cannot move forward.
Security for Costs applications are not straight forward. The court will only make such an order in certain circumstances. The application usually needs to be filed very early in the proceedings. Also, the court can and will consider the plaintiff's financial position, whether the plaintiff operates any business or owns assets outside of Australia, and what the defendant's anticipated legal costs are likely to be. The court will also consider a wide range of discretionary factors, such as if there's been any delay in bringing the application, the genuineness of the claim and whether a Security for Costs order would be oppressive.
The delayed application
There is a longstanding principle that Security for Costs applications should be brought promptly (very early in the proceedings), otherwise they are typically refused.
An exception was seen in the Supreme Court of Queensland case of ADLU Pty Ltd v Ertech (Queensland) Pty Ltd & Anor [2025] QSC 328 where, highly unusually, the first defendant (Ertech) applied for Security for Costs somesix yearsafter the proceedings were commenced.
The relevant background of that long-running case was as follows:-
In 2019, the plaintiff commenced the proceedings against Ertech. In 2021, Ertech first raised the possibility of it applying for Security for Costs against the plaintiff. After the exchange of correspondence between the parties, Ertech decided against making the application - it was satisfied the plaintiff could pay any adverse costs order.
That view changed more than four years later (2025), by which time the proceedings still hadn't reached trial. In mid-2025, Ertech learned that the plaintiff wasn't running its business anymore and that, instead, the business was now being run by a new company associated with the plaintiff's director.
Ertech was of the view that the plaintiff had intentionally restructured its affairs in a way that significantly increased the risk of the plaintiff being unable to pay a judgment or costs order. So, Ertech applied to the Court for Security for Costs. Specifically, Ertech sought an order that the plaintiff pay security for Ertech's total expected costs from mid-2025 to the first day of trial, estimated to be $847,000.
Ertech accepted that its delay in making the Security for Costs application (that is, six years after proceedings were commenced and four years after it was first floated) was a factor that ordinarily could justify the refusal of the application. However, Ertech argued there was a sufficient and compelling explanation for the delay because the information it received in 2025 gave rise to a real concern that the plaintiff would be unable to pay an adverse judgment or costs order, and Ertech applied soon after those new facts emerged.
The Court was persuaded by this, based on the evidence before it at least. Therefore, the substantial delay did not weigh heavily in the Court's assessment of the various discretionary factors it had to consider. Ultimately, the Court accepted the plaintiff should pay security for Ertech's costs of defending the claim for that period from mid-2025 to the first day of trial.
As to what Ertech's costs would be for that period, Ertech provided an estimate of $847,000. The plaintiff argued that estimate was excessive, unsound and that significant deductions should be made by the Court. The Court agreed to a certain extent.
The Court ordered that the plaintiff pay into Court the sum of $350,000 as security for Ertech's costs.
Final comments:
Although it is not necessarily the be-all and end-all for a defendant to avoid any delay in applying for Security for Costs, delays are often detrimental. Therefore, if a defendant is sued by a party who it suspects doesn't have any money or assets behind it, it is very important to obtain legal advice at the earliest opportunity regarding any potential Security for Costs application.
If you have any queries about applying for security for your legal costs, contact Charlie Young or one of the other team members at Bennett & Philp. Finally, a thank you to Eloise Cook for her research during the preparation of this article.
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.
