(a) Summary of legal principles
25 The application for security for costs is made pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) (FCA Act), r 19.01 of the 2011 FCRs and s 1335 of the Corporations Act 2001 (Cth) (the Act).
26 The Court has a discretion under s 56 of the FCA Act and r 19.01 of the 2011 FCRs to order an applicant to give a security for the payment of costs that may be awarded against it. Further, s 56(2) provides that the security shall be of such amount, and given at such time and in such manner and form, as the Court directs.
27 It is well settled that the Court's discretion under s 56 is broad and unfettered, but it must be exercised judicially (and with close attention to the circumstances of the particular case (see Lim v Comcare [2016] FCA 1346 at [18] per Wigney J).
28 At [19] of Lim, Wigney J said:
The various considerations that may bear upon the making of an order have been considered in numerous authorities. Those considerations include: the appellant's prospects of success; the extent of the risk that a costs order against the appellant will not be met if the appeal is unsuccessful; whether the making of an order for security for costs would be oppressive, in that it would stifle a reasonably arguable claim; whether any impecuniosity of the appellant arises out of the conduct complained of; whether there are other aspects of the public interest that weigh in the balance against the making of an order for security; and whether there are any particular discretionary matters peculiar to the circumstances of the case: see generally Equity Access Ltd v Westpac Banking Corporation [1989] FCA 520; (1989) ATPR 40-972 at 50,635 [24]; Soh v Commonwealth of Australia [2008] FCA 1524 at [10]; Clack v Collins (No 1) [2010] FCA 513 at [13].
29 Under s 1335 of the Act, the Court has a discretion to order a corporation, which is a plaintiff in any action or other legal proceeding in which the Court has jurisdiction, to order security for costs "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 the defendant succeeds.
30 The purpose for making an order for security for costs is to protect the respondent against the possibility that the applicant, if unsuccessful, will be unable to meet an order for costs. Where an application for security for costs is made in respect of a corporate applicant, the following three issues usually rise (see Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 at [5] per Brereton J):
(a) whether the "jurisdictional issue" is established, namely that credible testimony demonstrates that the applicant corporation is unable to pay the respondent's costs, in which event the Court's discretion to order security for costs is enlivened;
(b) where the jurisdictional issue is established, whether an order for security should be made as a matter of discretion; and
(c) the quantum and terms of security to be given.
31 On the first of those matters, Thawley J recently observed in Brecher v Barrack Investments Pty Ltd [2018] FCA 472 at [18] that there are two features:
(a) the likely quantum of costs of the respondent; and
(b) the ability of the applicant corporation to pay costs in that amount.
32 If the corporate applicant has no capacity to meet a costs order because, for example, it has no assets or other means of meeting any such order, the jurisdictional issue may be able to be determined without reference to the likely quantum of costs. Where, however, the corporate applicant has some capacity to meet a costs order, the position is less straightforward (see Brecher at [18]).
33 A respondent who seeks security has the evidentiary onus of satisfying the Court that a corporate applicant will be unable to meet the respondent's reasonable costs if the respondent succeeds in its defence. If that jurisdictional issue is satisfied, the evidentiary burden then shifts to the corporate applicant to satisfy the Court that, taking into account all relevant factors, the Court's discretion should be exercised by refusing to order security or by ordering security of a lesser amount than that sought (see Fiduciary at [36] per Austin J).
34 The position is more complex where, in a case such as the present, there are overlapping claims as between individual and corporate applicants. This is a matter which is emphasised by the applicants here in opposing security.
35 Fiduciary contains a helpful discussion of the principles and their application in a case where security is sought against a corporate applicant where a person who controls the corporation is also an applicant, which is the case here. The issue is whether the presence of an individual applicant prevents the Court from ordering the corporate applicant to provide security. It was contended there that no such order should be made against corporate plaintiffs in circumstances where, in accordance with the general (but not absolute) rule that security would not be required from an individual plaintiff who is impecunious because poverty is no bar to a litigant. After discussing some relevant cases, both local and foreign (including Harpur and Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621), Austin J described at [62] the effect of those cases as being that:
… the presence of an individual plaintiff, alongside the corporate plaintiffs against whom security is sought, is to be taken into account in the weighing up of discretionary considerations, but it is not an absolute bar to the ordering of security…
36 Justice Austin stated that it was relevant to consider whether the causes of action asserted by the various applicants are sufficiently distinct such that, if they are unsuccessful, the Court is unlikely to make the individual applicant responsible for failure of the claims made by the corporate applicants. In that case, it is likely that the respondents, if successful against the corporate applicants, will be forced to look to the corporate alone for recovery of costs in respect of that success, such that the normal rules for corporations to apply security should apply.
37 Justice Austin found in Fiduciary that, in the particular circumstances, there was a substantial degree of overlap in both the causes of action and underlying factual grounds for the individual and corporate applicants. His Honour stated at [68] that while it was strictly possible for the individual applicant there to succeed and for the corporate applicants to fail (and vice versa) "there is such a high degree of overlapping of the factual grounds of the claims that the probability, should the defendants be successful, of a separate order for costs against the corporate plaintiffs is very low". His Honour concluded that there was "a high probability" that all the applicants would be made jointly and severally liable to pay the respondents' costs, if the respondents succeeded.
38 Justice Austin then stated at [69] that, once the likelihood of a joint and several costs orders is established, the financial capacity of the individual applicant to meet an adverse costs order which the corporate applicants could not pay had to be considered. He added that, as was the case in Harpur, if the individual applicant has adequate financial means, it is likely that an order for security will be denied.