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[2012] NSWSC 511
plaintiff. The defendant's motion for further security for costs is dismissed; Mr Bennett's personal undertaking is accepted; unless parties approach within 14 days on costs, the defendant must pay the...
ASIC sought additional security for costs after discovery increased its costs. The court applied r 42.21 UCPR and the established multi-factorial test (from KP Cable and other authorities). It refused to order further security in respect of past costs because that would be unjust given the defendant's delay in applying. For future costs, the court accepted a personal undertaking from Mr Bennett, the controlling shareholder, after finding his uncontested evidence showed most assets were illiquid and that requiring further lump-sum security would likely stultify the proceedings. The defendant's motion was dismissed and the undertaking accepted; the defendant was ordered to pay costs of the motion unless parties sought a costs hearing (see [21], [29]–[33]).
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1,917 words · generated 11/09/2026
This interlocutory ruling (Chapel Road Pty Limited v Australian Securities Investments Commission (No 6) [2012] NSWSC 511) concerns a defendant's application for further security for costs under r 42.21 of the Uniform Civil Procedure Rules 2005. ASIC sought additional payments into court (two tranches of $75,000, see [1], [4]) after earlier consent security orders (Nov 2009 and May 2010) left unpaid tranches and led to a stay which was subsequently managed by consent and extension in May 2011 (see [2]). Discovery ordered in May 2011 led to substantial additional cost for ASIC (see [3]), which in turn prompted ASIC's motion filed February 2012 to require further security, and to stay the proceedings if that security were not provided (see [1], [4]).
No linked legislation citations have been extracted yet.
Chapel Road resisted. Its central factual contention was that its impecuniosity flowed from ASIC's conduct (the revocation of its securities dealer licence), conduct which was later reversed by the AAT; the claim therefore was pleaded as bona fide and that the litigation was necessary to vindicate rights and to demonstrate causation of financial loss ([5], [8], [19]). Mr Bennett, the substantial shareholder and director (holding ~91.2%), swore affidavits explaining his and the company's present financial position, the illiquidity of many assets previously valued (he explained earlier statements of larger asset values as 'potentially theoretical', see [27]), and proffered a personal undertaking to meet any adjudicated costs to the extent of his assets (see [9], [25], [30]). The defendant countered that the evidence did not prove the plaintiff would be unable to pay costs but for ASIC's conduct, and relied on other documentary material indicating larger earlier asset valuations (see [6], [11]).
Schmidt J applied the familiar multi-factorial test derived from authorities such as KP Cable and Bryan E Fencott and considered relevant authorities (see [14]–[16]). The Judge found: (a) the plaintiff's claim disclosed a cause of action and thus should be treated as bona fide (see [19]–[20]); (b) an order for security in respect of past costs would be unjust and oppressive given ASIC had delayed in making the application despite knowing of the significant discovery-related costs (see [21]–[23]); (c) as to future costs, ASIC's assessed further costs were up to $198,000 (see [24]), but the court must weigh the risk that a security order would stultify proceedings against protecting defendants; (d) Mr Bennett's uncontested evidence established the illiquidity of many assets and his inability realistically to provide further lump-sum security without selling the business from which he earns his living (see [25]–[31]); and (e) Mr Bennett's undertaking had 'real value' and was sufficient to cover assessed future costs should Chapel Road fail (see [30]). The motion was dismissed; the undertaking accepted; and costs of the motion were ordered against ASIC unless the parties sought a costs hearing within 14 days (see [31]–[33]).
The judgment follows the established discretionary framework for security for costs applications. The governing rule is r 42.21 UCPR, allowing security where there is reason to believe a corporate plaintiff will be unable to pay costs (see [14]). The court must exercise an unfettered discretion while taking into account well-known guidelines summarised from authorities such as KP Cable (see [16]). Those guidelines include considerations of promptness of the application, the strength and bona fides of the plaintiff's case, whether the plaintiff's impecuniosity was caused by the defendant's conduct, whether an order would be oppressive, whether persons standing behind the company can and will provide security, and whether personal undertakings have been offered and their nature (see [16]).
Two practical features drove the outcome.
First, the court considered fairness in relation to past costs. Significant costs were incurred after discovery. The Judge accepted that ASIC ought to have applied promptly when the scope of discovery (and resulting costs) became apparent. Seeking security only after substantial work had been done can be unjust because it enables a defendant to 'stand by' while a plaintiff incurs expense then demand security retrospectively. For that reason the court refused to order security for past costs as unreasonably oppressive (see [21]–[23]).
Second, as to future costs, the court weighed the risk that requiring the further tranches would stultify the proceedings against ASIC's need for protection. Mr Bennett was the dominant shareholder and had already provided substantial security ($175,000). He gave detailed, uncontested evidence explaining why many of his previously-asserted assets were illiquid or theoretical and why he could not realistically provide further lump sums without destroying his livelihood. Taking his evidence and undertaking together, the Judge concluded there was a 'very substantial risk' that ordering the security would stultify the litigation, and that the personal undertaking had sufficient value to satisfy assessed future costs (see [25]–[31]). Thus the court accepted the undertaking and refused ASIC's motion.
Before this judgment, the law governing security for costs in New South Wales was framed by r 42.21 UCPR and the line of authorities summarised in KP Cable, Bryan E Fencott and related cases. Those decisions established the range of discrete but interlocking factors for the discretion.
This judgment applies that established framework to the practical situation where (a) earlier consent security orders had been given; (b) substantial discovery increased the defendant's costs; (c) the defendant delayed in seeking further security until after those costs were incurred; and (d) the plaintiff produced a dominant shareholder's personal undertaking supported by specific asset liquidity evidence. The decision reinforces two discrete points: (1) security for past costs may be refused where the defendant delayed seeking protection after significant costs were incurred (see [21]–[23]); and (2) a carefully-explained, uncontested personal undertaking by a controlling shareholder, particularly where prior significant security has been given and where assets are substantially illiquid, can be accepted in lieu of further lump-sum security if the court concludes the orders sought risk stultifying litigation (see [25]–[31]).
It therefore clarifies how the general principles operate in the context of regulatory litigation against a well-resourced public body and where the plaintiff attributes impecuniosity to the defendant's conduct.
Paragraph 14: The judgment reproduces r 42.21 and situates the court's power to order security. Plain English: If a defendant fears a corporate plaintiff cannot pay costs, the court may require money or other security as it thinks fit, and stay proceedings until security is provided.
Paragraph 16: The court summarises the established factors from KP Cable and related cases (promptness, bona fides, causation, oppression, persons behind the company, undertakings, and whether the proceedings are defensive). Plain English: There's no fixed formula; the judge must weigh several factors, including whether the claim is genuine, whether the plaintiff's poverty is due to the defendant, whether making an order would unfairly block litigation, and whether people who stand to benefit will provide security.
Paragraph 21: "In the circumstances such an order would be unreasonably oppressive." Plain English: Requiring security for costs already incurred would be unfair because ASIC let the case develop and only later asked for more security.
Paragraph 29: "There is a very substantial risk that the proceedings will be stultified, if the order sought is made..." Plain English: If ASIC's proposed orders had been made, there's a real likelihood the case would effectively stop, because the plaintiff (or its controlling shareholder) could not meet the payments without devastating consequences.
Paragraph 30: The undertaking has 'real value' despite illiquid assets. Plain English: Even though many assets cannot be sold immediately, Mr Bennett's income-generating activities and prior security make his promise to be personally liable meaningful and adequate to cover likely further costs.
This decision is most directly relevant where the following factors are present:
a corporate plaintiff sues a large, well-resourced defendant (for example, a regulator), and the litigation turns on conduct alleged to have caused the plaintiff's financial downfall (paras [5], [24]);
earlier consent security orders or other security were provided but subsequent events (for example extensive discovery) gave rise to significant additional costs not contemplated in the earlier orders (paras [2]–[4]);
the defendant delays making a further security application until after those costs are incurred (paras [21]–[23]);
a substantial shareholder or person behind the company offers an uncontested evidence-supported personal undertaking and explains why further lump-sum security cannot be provided without destroying their livelihood or the company's ability to prosecute (paras [25]–[31]);
many assets are illiquid or 'theoretical' as explained by affidavit evidence (para [27]).
Where these features are present, this case supports refusal of further security for past costs and acceptance of a carefully evidenced personal undertaking in respect of future costs.
This ruling applies and reaffirms established principles rather than creating novel law. In the judgment the court relies on KP Cable, Jazabas, Cameron's Unit Services, Tim Barr and Pioneer Park (see [15]–[18], [22]). Later courts looking at security for costs will treat this as an example of applying the multi-factorial test where delay by the defendant and an adequate personal undertaking were determinative. It is a useful example for practitioners assembling evidence to show why a personal undertaking should be accepted: factual, uncontested evidence about illiquidity, nature of income and prior security will be influential.
Practitioners should watch for distinctions in future cases: the acceptability of an undertaking will turn on the quality of evidence, whether the defendant acts promptly once additional costs become known, the identity of persons 'behind' the company and their willingness and capacity to be bound, and the relative policy concern about denying access to courts where the defendant is a public regulator.
The decision turned heavily on the uncontested nature of Mr Bennett's affidavits and the absence of cross-examination. How would the outcome differ if the shareholder's affidavit evidence were challenged or undermined by cross-examination or contrary documentary evidence? The judgment indicates contestability matters (see [28]–[29]) but does not produce a catalogue of thresholds.
The boundaries between security for 'past' and 'future' costs can be fact-sensitive. The judgment refused security for past costs because of delay (see [21]–[23]); future cases will need careful analysis of when a defendant is taken to have known costs were increasing and when delay becomes oppressive.
The judgment treats an undertaking by a substantial shareholder as having 'real value' even where assets are illiquid, by reference to ongoing income streams (see [30]). The precise evidentiary standard to quantify the sufficiency of such income-based undertakings remains fact-specific and subject to judicial assessment.
The decision acknowledges but does not tightly define how courts should balance the public interest in allowing litigation against regulators (see [24]). Future cases may further define the weight to be accorded to this public-interest dimension.
The interplay between earlier consent orders requiring security and later amendments is practical and critically influences outcomes. The judgment warns that defendants who permit work to proceed without prompt application may be barred from recovering security for costs later; the precise timing triggers for reasonable promptness remain to be developed.
Final note: This analysis explains and summarises the court's reasoning in Chapel Road Pty Limited v ASIC (No 6) [2012] NSWSC 511 and extracts key legal principles and factual triggers from the judgment. It is general legal information, not legal advice. I can make mistakes. Before you act on, rely on, or use any part of this analysis or any draft documents, get a qualified Australian lawyer to check it.
Judgment 1By motion filed in February 2012 the defendant sought further security for its costs in the proceedings, by the plaintiff being required to pay two further tranches of $75,000 into Court, with consequential orders as to the stay of the proceedings, if the further security is not provided. 2Orders for security were earlier made by consent in November 2009 and May 2010. They required payment into Court of $50,000 by 30 April 2010; $50,000 by 31 August 2010; and $75,000 by 31 December 2010. The plaintiff failed to pay the second and third tranches, with the result that the proceedings were stayed. Further orders were made by consent in May 2011, extending the time for payment and the matter proceeded. 3There was then a dispute in relation to discovery, dealt with by an order made in May 2011 (see Chapel Road Pty Limited v Australian Securities Investments Commission [2011] NSWSC 419). This resulted in considerable work being undertaken by the defendant, in giving the discovery ordered. Inevitably the result was that significant further costs have been incurred. That they were not expected at the time of the earlier security order, must be accepted. The defendant thus foreshadowed seeking a further security order, which is now pursued. 4On the evidence the defendant has incurred costs of some $460,117.41 since August 2009. Further costs of up to $198,000 are assessed. Security of $175,000 has already been paid. In submissions, further security of a minimum of $150,000 and up to $250,000 was pressed, payable in further tranches. 5As earlier discussed in Chapel Road Pty Limited v Australian Securities Investments Commission, what the plaintiff seeks to establish in these proceedings is that its circumstances are the result of its treatment by the defendant, which involved inconsistent application of its own policies in relation to a breach of the plaintiff's license. It is alleged that this was a breach which under the relevant policy was at the bottom of a pyramid of such breaches, being of the least serious kind and for which publicised sanctions involved fining, reprimanding and in more serious cases, enforceable undertakings. Instead, the plaintiff's license was revoked for what the defendant had identified to be a trivial breach. At the same time the defendant treated others involved in similar breaches by encouraging them to take steps which the plaintiff also undertook and accepting from them enforceable undertakings. The plaintiff seeks to establish that this differential treatment was undertaken maliciously, with the result that it had to cease trading and was unable to recommence trading, even when the AAT restored its license, some 26 months later. 6To establish the jurisdictional fact that the plaintiff will be unable to pay the defendant's costs, if ordered to do so, the defendant relied on written advice given it by the plaintiff's solicitors in July 2009, that the plaintiff 'for all intents and purposes has no assets'. This position had not changed. It argued that in those circumstances the Court's jurisdiction was enlivened and that the discretion would be exercised in its favour, having in mind the need to achieve a balance between ensuring that there is adequate protection of the defendant and avoiding injustice to the plaintiff. 7While the plaintiff relied on the evidence of Mr Bennett, a shareholder and director, who had sworn a number of affidavits as to his position and that of the plaintiff, the most recent sworn on 8 March, the defendant argued that this evidence did not attempt to establish that the plaintiff would have been able to meet a costs order, but for the defendant's conduct. That would require an explanation of the plaintiff's financial position before and after the conduct in issue, which was not given. 8The plaintiff resisted the further security sought. Its case was that the proceedings resulted from actions taken by the defendant to cancel the plaintiff's securities dealer's license and that there was a direct causal connection between its impecuniosity and the defendant's conduct. The revocation of the plaintiff's license was later reversed by the AAT, which directed that its license be reinstated. This was submitted to reveal the strength of the plaintiff's case, a matter relevant to the application, as well as to the public interest inherent in the litigation. 9It was argued for the plaintiff that the application was an attempt to delay or stultify the proceedings. The plaintiff relied on the affidavit evidence of Mr Bennett. He was not required for cross-examination. He offered an undertaking, as clarified by counsel, that in the event that the plaintiff's case fails, and an order is made in favour of the defendant, he would meet those costs to the extent of his assets, which on his evidence as value of some $900,000, which it was submitted the Court would accept in the circumstances. 10It was submitted that Mr Bennett's evidence showed that to provide further security would require him to sell the business from which he makes his living. There was also evidence of earlier unsuccessful attempts to raise funds against his family home. That he had previously raised funds to provide security, did not establish that he had an ability to do so now. He controlled some 91.2% of the plaintiff, by virtue of direct personal or shareholder ownership. It was disputed that the authorities provided that if he had assets which were capable of supporting an order for security, there was no reason why the order sought would not be made. The substantial security already provided and the material contribution of the defendant to the plaintiff's position, were also factors which would be considered, in the exercise of the Court's discretion, together with Mr Bennett's undertaking. 11The defendant relied on evidence which shows that the plaintiff has a number of other shareholders, personal and corporate, apart from Mr Bennett, who will benefit from any successful outcome in the proceedings. The evidence did not establish that the proceedings would be stultified given their financial position had not been disclosed. That was necessary to be established, before the undertaking could be considered. It was submitted to be relevant that while Mr Bennett deposed to now having net assets in excess of $900,000, that earlier affidavits disclosed assets of over $8m. 12It was the plaintiff's case that what had been disclosed in Mr Bennett's previous affidavits, were theoretical assets. An explanation had been given by Mr Bennett as to why he is unable to raise further funds, in order to provide further lump sums by way of security. In those circumstances, and having in mind that Mr Bennett makes his living from operation of a financial services license, the Court would accept his undertaking. The alternative would be to require him to liquidate his interest in his financial planning business, from which he makes his living, if the proceedings were to continue. 13 In the event that further security was ordered, it was submitted that the Court would only consider future costs, thus security in excess of $100,000, representing 60% of the defendant's assessed further costs, would not be ordered.
The relevant tests 14The application is governed by Rule 42.21 of the Uniform Civil Procedure Rules 2005, which relevantly provides: "42.21 Security for costs (cf SCR Part 53, rules 2, 3, 4 and 5; DCR Part 40, rule 1; LCR Part 31, rule 11A, Part 31A, rule 11) (1) If, in any proceedings, it appears to the court on the application of a defendant: ... (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or ... the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given. ..." 15There was finally no issue as to the plaintiff's financial situation or the terms of the undertaking Mr Bennett proffered. His willingness to provide an undertaking of personal liability is, however, but a factor to be considered, albeit an important one. It is not a decisive consideration, as discussed in Jazabas Pty Ltd v Haddad [2007] NSWCA 291 at [78] - [80]. 16 At [74] McClellan CJ in CL there referred to the relevant principles, as summarised by Beazley J as her Honour then was, in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196 - 198: "Principles governing application for security for costs The law is now settled that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security: see the review of the authorities by French J in Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 AT 509. See also Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 at 623-624 and Zeeman J's decision in Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 at 188. In Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 at 415, Cooper J stated that: '[i]t is not possible or appropriate to list all of the matters relevant to the exercise of the discretion. The factors will vary from case to case. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 65 ALJR 642 at 643.' Notwithstanding the broad unfettered discretion with which the Court approaches an application for security for costs, there are a number of well established guidelines which the court typically takes into account in determining any such application. They are:
The case is brought bona fide 19There was no issue between the parties that the plaintiff's claim discloses a cause of action. Accordingly, the application must be considered on the basis that the claim is bona fide, with a reasonable prospect of success. 20Given the nature of what is in issue, it follows that it must be accepted that the plaintiff has an arguable case that its financial position is the result of the defendant's actions. The plaintiff claims that it lost its securities licence, on which its business depended, as the result of actions wrongly taken by the defendant, in circumstances where it later succeeded in having its license restored to it, but was unable to re-establish its business, given what had transpired during the time that it was unable to operate.
No further order as to past costs 21The next matter to be considered is that since the earlier consent orders were made, very significant additional costs have been incurred by the parties. It seems to me in the circumstances which have arisen, further security may not be justly ordered in respect of any past costs which have been incurred. In the circumstances such an order would be unreasonably oppressive. 22As discussed by Barrett J, as he was in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 563 at [35] - [40] it is well recognised that it may be unjust for a defendant to stand by and allow a plaintiff to work on the case and then to ask for costs, only after they have been incurred. The longer the delay and the more acts done in the interim, the more difficult it will be to persuade the Court that an order for security for past costs will not be unjust or oppressive. 23In this case it has been apparent to the parties for some time that significant additional costs have been incurred in the discovery process, costs not comprehended in the earlier consent orders. That development ought to have led to a prompt further application for security, if there was a concern as to the inadequacy of the security already provided. In the circumstances, as a matter of justice between these parties, any further security should be restricted to future costs.
24The defendant's future costs are assessed to fall in the range of up to $198,000. That is to be considered in the context that this litigation is brought against the defendant, the corporate regulator. As observed in Jazabas at [75]: "The courts are reluctant to make an order which would have the effect of shutting out a small company from making a genuine claim against a large well-resourced and amply funded body such as the State, a council or a major corporation (see KP Cable Investments at 197; Equity Access Ltd v Westpac Banking Corp (1989) ATPR 40-972 at 50,635 and 50,637 per Hill J). A plaintiff should not be denied access to the courts unless the justice of the case makes it imperative ("Law of Costs", G E Dal Pont, [29.87])." 25Mr Bennett is not the only individual or corporation who stands behind the plaintiff and stands to gain from the litigation, but he is by far the most substantial shareholder, with the most significant interest in the proceedings. The financial position of the other shareholders has not been established. They, however, have only a small interest in the outcome of the litigation. It is Mr Bennett who has the most substantial interest and it is he who has already provided $175,000 security thus far. His evidence that he is not in a position to provide more, for reasons which he explained, was not challenged. He is not insolvent and has proffered an undertaking that establishes that the plaintiff is not 'a stalking horse to enable someone else to evade personal responsibility' for the costs of these proceedings, as discussed in Cameron's Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46 at 53. 26Mr Bennett also explained that it is not only the plaintiff whose position is a consequence of the defendant's conduct, which had the result of immediately destroying the plaintiff's business and its good will and leaving as its only income trailing commissions from work previously undertaken. He said that his own reduced financial position is the result of the defendant's act. This evidence was also not challenged. 27Also to be considered is evidence that in the past Mr Bennett has deposed to having significant personal assets, in excess of $8m. Now his assets are said to be worth only some $907,000. The difference is explained on the basis that his previous assessment of his assets reflected a value of a company that was 'potentially theoretical' and that shares in that company cannot be traded. He also explained that significant funds have been expended on software development and that despite negative equity, this company had a value, but that it could not be realised at the moment. Other of his shareholdings could also not be traded, nor were they capable of providing security against funds which could be borrowed. None of the evidence was challenged. 28Mr Bennett also gave an explanation as to how he makes his living and what income that work generates. While it was submitted for the plaintiff that there were various matters left unexplained by his evidence, including for example the income which his exertions generated for other of his companies, he was not cross-examined. In the result, his evidence that he was not capable of providing further security or borrowing further funds, with the result that the proceedings could not continue, if the orders sought were made was not challenged in cross-examination. Rather, reliance was placed by the defendant on documentary evidence which it was submitted showed that the onus which fell on the plaintiff to establish that the proceedings would be stultified, if the order sought were not made, could not be met, with the result that his undertaking would not be accepted. 29It seems to me that these submissions may not be accepted. In my assessment the evidence does show that there is a very substantial risk that the proceedings will be stultified, if the order sought is made and that in the particular circumstances of this case, Mr Bennett's undertaking should be accepted. 30His evidence that his assets are not liquid was not challenged, nor was his evidence explaining why further security could not be provided. Given that asset position, however, when considered with the income generated by his work as a financial adviser, pursuant to agreements between corporations in which he holds shares and which he controls, the undertaking has real value, sufficient to satisfy the assessed further costs, should the plaintiff's case fail. That situation must be considered in circumstances where Mr Bennett has already provided substantial security. 31In all of these circumstances, it seems to me that the undertaking must be accepted and that the orders sought by the defendant refused. 32The usual order would be that the defendant should bear the plaintiff's costs of the motion. Unless the parties approach within 14 days to be heard on the question of costs, that will be the Court's order.
Order 33For the reasons given, I order that:
Amendments 18 May 2012 - Amendment on coversheet - Additional hearing date added to 'Hearing date' field DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 November 2013
Chapel Road Pty Limited
Australian Securities Investments Commission
(1986) 13 FCR 46
(1995) 56 FCR 189
(1987) 16 FCR 497
(1991) 65 ALJR 642
(1984) 1 FCR 311
(1984) 2 FCR 201
(1984) 2 FCR 1
(1992) 28 NSWLR 120
The defendant's motion for further security for costs is dismissed; Mr Bennett's personal undertaking is accepted; unless parties approach within 14 days on costs, the defendant must pay the plaintiff's costs of the motion (as agreed or assessed) (see [31]–[33]).