Unfulfilled Security for Costs Orders

INSIGHT | South Australia’s new Court of Appeal shows preparedness to dismiss appellate proceedings where security for costs is not given: Draoui v Le & Ors [2021] SASCA 33; Eustice v Channel Seven Adelaide Pty Ltd & Ors [2021] SASCA 43

Introduction

Security for costs orders require litigants to pay monies into Court, or provide some other form of security acceptable to the Court, to meet the possibility that the party ordered to provide security will fail in the proceedings, and will be unable to pay costs ordered against that party in favour of the party seeking security.

In Draoui v Le & Ors [2021] SASCA 33 (Draoui) and Eustice v Channel Seven Adelaide Pty Ltd & Ors [2021] SASCA 43 (Eustice), South Australia’s new Court of Appeal has shown it is taking a strict approach, and will only act on cogent affidavit material from the party ordered to provide security.

It follows that parties against whom security for costs orders are made ought to consider taking legal advice on the merits of appealing against such orders if they are unable to promptly provide the security ordered, particularly in the context of appellate proceedings.

Rule 115.1 of the Uniform Civil Rules 2020 (SA)

Under r 115.1(1) of the Uniform Civil Rules 2020 (SA) (Rules) a security for costs may be ordered where:

• the applicant is bringing the claim or application for somebody else’s benefit;
• the applicant is ordinarily resident outside Australia;
• there are reasonable grounds to suspect that the action has been brought for an ulterior purpose;
• the order is authorised by statute. The statutes presently authorising security for costs orders include the Corporations Act 2001 (Cth), s 1335; Service and Execution of Powers Act 1992 (Cth), s 19; Trans-Tasman Proceedings Act 2010 (Cth), s 15;
• the order is necessary in the interests of justice.

Rule 115.1 goes on to provide that: the Court may stay proceedings until security is given: r 115.1(2); the Court may vary or revoke a security order and may require additional security be given: r 115.1(3); the Court may dismiss an action if security is not given: r 155.1(4).

If proceedings are stayed under r 115.1(2) for six (6) months without security having been given, the action is automatically dismissed for want of prosecution: r 115.1(5).  However, for ‘special reasons’, the Court may reinstate proceedings dismissed under r 115.1(4) or (5): r 115.1(6).

“6-month trigger” in r 115.1(5)

In Eustice, the appellant failed to provide security in the 10 months following an order for security for costs argued that, because no time was fixed within which the appellant was to provide security, the 6-month period after which the proceedings were automatically stayed did not run.  The respondent argued that the order should be construed as requiring security be provided “forthwith”.

The Court observed (at [15]) that, by reference to former r 135(2) of the Supreme Court Civil Rules 2006 (SA) – which provided that where the Court did not fix a time within which something had to be done, it is to be done within 14 days – 14 days was the outer limit of the order for Mr Eustice to have provided security, and that the “6-month trigger” ran from that point in time.

General approach to security for costs orders

Rule 115.1 was closely examined in Draoui and Eustice.

In Draoui the Court confirmed (at [67]) that the general approach to dismissing proceedings for want of security in South Australia under the Uniform Civil Rules 2020 (SA) remains informed by the factors (albeit non-exhaustive) drawn from previous authority summarised in Ulowski v Miller [1968] SASR 277, 280 (Bray CJ), being:

1. length of the delay since time security was ordered;
2. (any) explanation for the delay;
3. hardship to the applicant if the action is dismissed and left statute-barred;
4. (any) prejudice to the respondent if the action was allowed to proceed notwithstanding the delay;
5. conduct of the respondent in the litigation.

Additional factors relevant to exercise of discretion

To those factors the Court added [at 69-70] the following additional factors in the context of dismissing appellate proceedings:

6. whether the applicant has received notice of the application for dismissal;
7. (any) prejudice to the respondent associated with further delay in the resolution of the appeal;
8. the appellant’s ability to find the appeal, including the security;
9. the position of the Court, in the sense of impact of the delay in efficient management of the Court’s business in the interests of not just the parties, but litigants more generally;
10. hardship to the applicant associated with dismissal of an appeal, and the significance of the step of shutting a litigant out of an appeal.

The Court held, on the facts, that it was appropriate to dismiss Mr Draoui’s appeal for want of security.

Reinstatement of action for ‘special reasons’

Mr Draoui also made an application for reinstatement for ‘special reasons’ under r 115.1(6).

In dismissing that application, the Court confirmed (at [117-118]) that the correct approach to ‘special reasons’ remains that espoused by Stanley J in Psevdos v Commonwealth Bank of Australia [2018] SASC 9, [47-48], being (citations omitted):

“What constitutes ‘special reasons’…has not been authoritatively decided, but the expression is used in other legislation where it has been held that it is constituted by reasons that are extraordinary, unusual or atypical or being the contemplation of Parliament. 

The requirement for ‘special reasons’ as a condition precedent to the exercise of a discretion to permit a party to reinstate an action lies in public policy considerations surrounding the need for finality of litigation.  Given the importance of the principle of finality, the rules erect a significant obstacle to the Court’s discretion to reinstate an action.  Once an action or appeal stands dismissed, parties are entitled to arrange and conduct their affairs accordingly.  Courts should not change this situation unless special reasons to do so are found to exist.”

The Court also confirmed (at [119]) that the fact that an appellant is now in a position to provide security will be necessary to establish special reasons, but not ordinarily sufficient.  The Court further confirmed at [120] that the appellant’s prospects of success on appeal and disproportion of any damages award and the costs required to secure that outcome were also relevant factors.

Necessity of sworn evidence

The decision in Eustice also reinforced, strongly, that a party ordered to provide security for costs must have sworn evidence from the appellant.

Absent affidavit material from the appellant, the Court refused (at [10-11]) to act on affidavit material from the appellant’s lawyers deposing in general terms to difficulties obtaining instructions and the appellant’s ill-health, sporadic employment due in part to the COVID-19 pandemic, and arrest on fraud charges outside the State.

The Court refused to accept (at [11]) submissions from the bar table that the appellant wished to borrow money from family members in circumstances where there was no affidavit material about his attempts to do so or the likely success of those attempts.