Security for Costs: Evidence for Litigators

What Security for Costs Protects

Security for costs provides protection for potential recoverable litigation costs through money or another form the court accepts. The order addresses the risk of non-payment before the final costs decision. It does not decide the underlying claim or make the secured amount payable to the opponent immediately.

Keep four different requests separate. Security concerns the opponent’s costs exposure. Litigation funding pays for the client’s conduct of the case under agreed terms. An interim damages payment advances part of the substantive recovery. A freezing order preserves assets against a risk of dissipation.

Start the file with the court, the party’s legal identity and the claim to which security would attach. The Federal Court’s statutory power differs from the NSW Uniform Civil Procedure Rules (UCPR) route. Corporate plaintiffs also raise a separate statutory question.

Grounds and Discretion in the Chosen Court

The chosen court determines the power, the required evidence and the available orders. Identify the legal ground before using financial records to support it.

Federal Court

In the Federal Court of Australia, section 56 of the Federal Court of Australia Act 1976 supplies the security power. It extends to applicants in proceedings and appellants within the specified appellate jurisdiction.

For an original proceeding, rule 19.01 of the Federal Court Rules 2011 requires an affidavit supporting the application. Address inability to pay costs, overseas residence, proceedings for another person’s benefit and impecuniosity where relevant. Use an interlocutory application under rule 17.01. Seek the amount and terms of security, any stay and the proposed consequence of default expressly.

NSW Civil Proceedings

In NSW, UCPR rule 42.21 provides specified grounds, followed by a discretion whether to order security. For a corporate plaintiff, rule 42.21(1)(d) concerns reason to believe it cannot pay the successful defendant’s costs. Overseas residence and asset divestment to avoid the proceedings’ consequences are separate grounds. The Judicial Commission’s security-for-costs guidance explains the grounds and discretion.

Prepare a notice of motion with supporting affidavit evidence for the NSW application. The Law Society of NSW Costs Guidebook describes the procedure. Seek directions for the amount, form and time. A stay can operate pending security, and failure to comply can lead to dismissal.

The Corporate Provision

Section 1335 of the Corporations Act 2001 supplies a separate power where a corporation is a plaintiff. Credible testimony must give reason to believe the corporation cannot meet the defendant’s costs if the defence succeeds. The court can require sufficient security and stay proceedings until it is given. The provision has an express exclusion for Aboriginal and Torres Strait Islander corporations, which have a separate statutory provision.

Evidence for Each Side

The NSW discretion includes prospects, stifling, delay, proportionality and whether the defendant caused the plaintiff’s financial position. Separate each ground from the reasons to exercise the discretion.

For the party seeking security, explain how the records establish the alleged shortfall. For an overseas enforcement argument, identify where assets sit and the practical recovery obstacle. A foreign address alone says little about an identified Australian asset.

For the party resisting security, explain the actual consequence of the proposed order. If it would stop the claim, support that position with cash-flow evidence and the result of genuine funding enquiries. Identify available shareholder support, its terms and the supporter’s means. A general statement that the company has no money leaves those questions unanswered.

Set out when the financial concern became apparent and what happened before the application. This chronology helps the court assess delay without confusing it with the financial ground.

Amount, Form and Timing of Security

The proposed amount needs a defined costs period and an estimate of recoverable costs for that period. Keep the client’s full litigation budget separate from the amount the opponent might recover.

Prepare the estimate by procedural stage. Explain the work assumed, counsel’s involvement, hearing length and anticipated disbursements. State the costs basis and tax treatment used. Identify work already incurred and work still to come so the proposal does not count either twice.

A fictional estimate might seek $45,000 through disclosure and a further $70,000 before trial preparation. Each stage needs its own calculation. Those figures illustrate staging only and are not a tariff, typical order or prediction.

Propose the form as well as the figure. Payment into court and payment to a solicitor’s trust account are familiar forms described in the Law Society’s guide. If proposing a bank guarantee, provide its draft terms and seek acceptance of that form. Identify the beneficiary, payment trigger and expiry so its protection can be assessed.

In the Federal Court, section 56(2) gives the court control over amount, timing and form. Section 56(3) permits changes to those terms. A staged proposal can therefore identify the next procedural milestone and when further security will be considered.

If circumstances change, support a variation request with the changed evidence. Examples include a reduced trial estimate, new funding or a material asset sale. Address any existing compliance deadline before it expires. A new funding proposal does not itself vary an order.

Build the Corporate Means Evidence

Corporate means evidence needs to connect available resources to the source records and explain competing claims on those resources. Reconcile bank activity to liabilities and asset ownership before drawing a conclusion about capacity to pay costs.

1. Identify the company and the period each record covers. Separate its accounts from director, trustee and related-company accounts.
2. Reconcile opening balances, receipts, payments and closing balances. Match internal transfers so the same money is counted once.
3. Identify restrictions and commitments. Obtain the documents supporting any trust character, charge, repayment obligation or restriction on use.
4. Test other assets and support. Record ownership, secured debt, likely realisation timing and the terms of any funding commitment.
5. Tie each factual statement to its source. The affidavit must explain who knows the fact and how the attached schedule was prepared.

Fictional Corporate Means Schedule

Assume Harbour Equipment Pty Ltd receives $800,000 during a six-month review period. Its closing operating balance is $120,000, and documents identify $95,000 of liabilities due within the next month. Gross receipts do not establish $800,000 available for costs.

Item	Recorded position	Source reference	Evidence needed for availability
Operating account	$120,000 closing balance	Harbour-operating.pdf, page 18	Later movements and any restrictions
Near-term liabilities	$95,000 due within one month	Payables-register.pdf, pages 2–4	Invoices, due dates and disputed items
Internal receipts	$180,000 included in gross receipts	Harbour-reserve.pdf, page 6	Match corresponding debits to avoid double counting
Equipment	$240,000 recorded carrying value	Asset-register.pdf, page 3	Ownership, finance balance and sale evidence
Director support	Up to $60,000 proposed	Director-letter.pdf, page 1	Binding terms, permitted use and evidence of means

The operating balance less those near-term liabilities leaves $25,000 before other cash movements. That arithmetic is a starting point for the liquidity explanation. Carrying value does not establish sale proceeds, and proposed director support is not cash already held by the company.

Use a schedule column for the affidavit paragraph and exhibit reference when adapting this example. Have the deponent explain restrictions from documents and personal knowledge. Distinguish a fact shown by a statement from an inference about who controls or benefits from the money.

A mismatch also tells you what to obtain next. If the ledger shows a related-party receipt without its funding terms, obtain the agreement and evidence from the funder. If the asset register lists equipment subject to finance, obtain the secured balance before treating its gross value as available.

Reduce the Statement Review Work

FinTrace saves litigators and forensic accountants hours of manual statement review by turning supplied PDFs into a searchable ledger and a clear findings report. Source PDF filenames and pages accompany findings, so the evidence for a balance or transfer is already at hand. The service can also flag suspicious transactions and gaps in the supplied statements while following transfers across related accounts.

For a document-heavy application, those outputs help you build the transaction side of the means schedule at a fraction of the cost of manual statement analysis. Forensic accountants can use them directly for their wider financial assessment. Request a matter assessment with the approximate pages and accounts, the issue in dispute and your timeframe. Statements follow assessment and acceptance of the written quote.

Individual Parties and Defendant Cross-Claims

Security against an individual depends on an applicable power and the facts supporting its exercise. Section 1335’s corporate test does not apply automatically to an individual plaintiff.

In NSW, rule 42.21(1B) prevents an order against a natural person merely because of impecuniosity. Another applicable ground, such as ordinary residence outside Australia, needs separate analysis. In the Federal Court, section 56 supplies the broader statutory power, with rule 19.01 governing the supporting application. Identify that power and the evidence relevant to discretion instead of relabelling the individual as a corporation.

An ordinary defendant does not become liable to provide security merely by defending the claim. A defendant seeking affirmative relief through a cross-claim presents a different question. Federal Court rule 19.01(4) expressly includes a cross-claimant within ‘applicant’ and a cross-respondent within ‘respondent’.

In NSW, read rule 42.21 with section 3 of the Civil Procedure Act 2005. Its definition of plaintiff includes a cross-claimant. The NSW Law Reform Commission’s report explains the application to substantive cross-claims. Examine whether the cross-claim seeks independent relief or is defensive in substance. Its label alone does not settle the exercise of discretion.

Before filing, match the requested security to the particular claim and the costs of resisting it. The completed evidence must show the applicable power, the financial facts supporting the request or response and a justified proposed order.