When can security for costs be ordered against a liquidator?
An important, often understated, issue arises in cases where liquidators sue in their personal capacity and, as a result, how the courts order the security for costs. Reflecting on the decision in the NSW Court of Appeal, Green (As Liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148 (Green v CGU Insurance), we see that determining the security for costs is an exercise conducted at the court’s discretion, applying various guidelines.
Issues in Dispute
In Green v CGU Insurance, Hodgson JA considered two main issues: (1) whether security for costs can be ordered against a liquidator suing personally, and (2) whether there are rules or practices limiting the discretion to order security for costs.
Guidelines
Hodgson JA held that a court considering applications for security for costs against liquidators should not treat the matter as being ‘entirely at large’. His Honour set out various guidelines that courts ought to have regard to:
1. Generally, liquidators suing in their personal capacity are to be treated in the same way as natural persons. This means that costs orders will be made against them if proceedings fail. However, from a general law position, security for costs should only be ordered in ‘special circumstances’, where ‘the court thinks fit’ pursuant to UCPR 42.21 and 51.50. Note that the court maintains that mere inability to meet costs orders does not amount to special circumstances.
2. Where the Plaintiff is a company in liquidation, and not the liquidator, then security for costs will more readily be ordered, although the court’s discretion is ‘unfettered’ and there is no presupposition in favour of granting security. The court will not refuse to order security on the ground that this will frustrate the litigation unless the company proves that those who stand behind the company and would benefit from the litigation are unable to provide security.
3. Cases in which security for costs might be ordered against a natural person or a liquidator outside those provided for in UCPR 42.21 include cases where, in addition to proof that there is reason to believe the Plaintiff will be unable to pay the Defendant’s costs, the Plaintiff has dissipated assets and/or has not paid previous costs orders. This is especially so if those costs orders were in favour of the Defendant, and/or the Plaintiff brings a weak case to harass the Defendant and/or brings a case for the benefit of others (albeit not solely for their benefit as apparently required by UCPR 42.21(1)(e)). However, if liquidators have a statutory right and duty to bring a case for the benefit of others this is generally insufficient to justify security for costs.
Hodgson JA emphasises that there should not be undue inhibitions on less wealthy persons from seeking vindication of their rights against more wealthy persons. These considerations make it desirable that guidelines be adhered to, even though the question is ultimately for the court’s discretion.
Other Considerations
Litigation funder as a relevant factor: a court should be readier to order security for costs where the non-party who stands to benefit from the proceedings is not a person interested in having rights vindicated but rather is a person whose interest is solely to make a commercial profit from funding the litigation.
Delay in seeking security for costs is detrimental to the application: where substantial costs have been incurred since the time when an application for security should have been brought, it would be unreasonable to deny the existence of prejudice to the Plaintiff, unless the Defendant can prove exactly what the Plaintiff would have done if the application had been brought earlier.
Key Takeaways
Liquidators acting as a plaintiff are not automatically exempt from security for costs. When liquidators sue in their personal capacity, security will only be ordered against a liquidator in special circumstances and is not an automatic requirement.