Part 2: Who is the true aggressor? Security for costs where the plaintiff is in the position of the defendant
This is the second in a series of articles which we will be publishing over the coming months concerning security for costs in civil disputes. The first article (available here) summarised the legal basis for these types of applications and the tests and consideration applied by the courts in determining them.
In this article we consider the circumstances in which a plaintiff can resist an application for security for costs on the basis that the defendant is, in substance, the aggressor of the litigation, and whether it is possible in those circumstances for the plaintiff to bring an application for security for costs against a defendant.
As we noted in our first article in this series, one rationale behind making security for costs orders is to ensure that a defendant is not unduly exposed in respect of its costs of defending the claim given that, ordinarily, the plaintiff has effectively ‘forced’ the defendant to participate in the proceedings and to incur legal costs in defending the plaintiff’s claim.
However, it is sometimes the case that the plaintiff has been compelled to commence proceedings by some act or omission of the defendant, such that the defendant is the legal “aggressor” and the plaintiff is, in substance, in the position of defendant. Some examples of this are provided further below.
A tip for plaintiffs: Resisting an application for security for costs
If a plaintiff demonstrates that they are effectively in the position of a defendant, this will be a persuasive reason to oppose any security for costs application brought by the named defendant in the proceedings. This discretionary factor is expressly incorporated into the UCPR at r.42.21(1A)(e).
Whilst the UCPR includes this circumstance as “a” matter to be considered, Sundberg J in Aquatown Pty Ltd v Holder Stroud Pty Ltd (1995) 18 ACSR 622 (at 623 and 626) (Aquatown) remarked that this factor is “more than a matter to be taken into account” in the exercise of the Court’s discretion and that it would be sufficient, alone, to defeat any application seeking security for costs brought by a defendant.
The following examples illustrate the types of circumstances in which security for costs applications are likely to be dismissed on the ground that the plaintiff / applicant is really in the position of a defendant, and is the "party attacked" rather than the “party attacking”.
1. The plaintiff commences proceedings in response to a statutory notice
In Willey v Synan (1935) 54 CLR 175, a ship crewmember travelling from New Zealand to Melbourne found some valuable coins on board the ship. When the ship arrived in Melbourne, the Collector of Customs took possession of the coins. The Collector issued a statutory notice under the Customs Act to the crewman which required him to commence proceedings to recover the coins, and stated that if the crewman did not commence proceedings, the coins would be forfeited to the Crown. The crewman commenced proceedings against the Collector to recover the coins. The Collector made an application for security for costs against the crewman.
Dixon J considered the relevant provisions of the Customs Act, and commented: “It appears to me that the collector is the actor. The notice… is a statutory substitute for judicial proceedings by the Crown against the goods. Its effect is to cast the onus of taking proceedings upon the owner or supposed owner.” [emphasis added]
Latham CJ made similar remarks and the High Court rejected the application for security for costs on the basis that the plaintiff was effectively in the position of the defendant.
Similarly, in Re Travelodge, Australia Ltd (1987) 21 ACTR 17, the applicant was a shareholder in a company that had received a takeover offer. The shareholder refused to accept the offer, and as a result, was served with a notice under the Companies Ordinance 1962, the effect of which was that if the shareholder did not commence proceedings, the respondent would have been entitled to forcibly acquire the applicant’s shares. The shareholder commenced proceedings in the ACT Supreme Court to prevent this from happening, and the respondent applied for security against the shareholder.
Blackburn CJ refused the application for security, and found that the case came within the principle espoused in Willey v Synan, in that the applicant commenced proceedings “in order to preserve to himself a right which he considers a valuable one, which by the combined effect of a statute and the actions of the respondent may be taken away from him”.
2. The plaintiff commences proceedings in response to a statutory demand
In Aquatown, the respondent served a statutory demand on the applicant company under section 459E of the Corporations Act, which required the applicant to pay the sum demanded within 21 days of service, or apply to the Court for an order setting aside the demand within that time, failing which a statutory prescription of insolvency would arise which the respondent could rely upon to have the applicant wound up.
The applicant applied to the Court to have the demand set aside, and the respondent made an application for security under section 1335 of the Corporations Act.
The Court found that the applicant was, in a practical sense, ‘forced’ into initiating the litigation in order to avoid a ground upon which it could be wound up. In those circumstances, the Court dismissed the respondent’s application for security, with costs.
3. The plaintiff commences proceedings in response to a threat to its commercial interests
In Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 19 FCR 324, the defendant (“Warman”) wrote to one of Amalgamated Mining Services’ (“AMS”) customers alleging that the customer had been offering to supply replacement parts for Warman pumps to AMS, thereby infringing Warman’s copyright in the drawings of those parts. The letter stated that unless AMS’ customer provided an undertaking to cease and desist from such conduct within 21 days of the letter, Warman would “take such action as it may consider necessary to protect its rights”.
AMS commenced proceedings against Warman for a declaration that the threats made by Warman against AMS’ customer were ‘unjustifiable’ under section 202 of the Copyright Act 1968, which provides that a person aggrieved by ‘unjustifiable threats’ of copyright infringement can apply to the court for (among other things) an injunction preventing any further threats, and damages for loss caused by the threats.
Warman applied for security for costs against AMS. AMS resisted the application on the basis that it was really in the position of being a "party attacked" rather than a "party attacking".
Importantly, the court commented that Warman’s letter put AMS “in the position either of suffering losses of sales… or of going to court to assert its rights”. In other words, had AMS done nothing, it would have lost its customer’s sales. Accordingly, the Court refused to grant Warman’s application for security for costs.
Roles Reversed: Can a plaintiff bring an application for security for costs?
The decisions summarised above demonstrate that a plaintiff who can establish that it is, in substance, the defendant or the “party being attacked” will be well placed to defeat any attempt by a defendant to obtain security for its costs against the plaintiff.
The decision of Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263 (Classic Ceramic) takes the issue one step further – it suggests that it is possible for a plaintiff to bring an application for security for costs against a defendant.
In Classic Ceramic, the plaintiff (“CCI”) commenced proceedings seeking to set aside a statutory demand issued by the defendant (“Antiga”). CCI then brought an application seeking an order that Antiga, a company incorporated in Spain which did not have any business or assets in Australia, provide security for costs. This was an unconventional application because security was being sought by the plaintiff and not the defendant.
In Classic Ceramic, Young J confirmed (at 267) that:
“Commercially speaking, the person who issued the statutory demand is the attacker and an applicant for an order under s 459G is responding to that attack…”
Accordingly, the Supreme Court of NSW stated that because Antiga was the ‘legal aggressor’, CCI had standing to bring an application for security for costs.
Whilst CCI failed to persuade the Court that it ought to exercise its discretion in making an order requiring Antiga to provide security, the decision is a meaningful confirmation that a plaintiff who is compelled to bring proceedings by reason of some action or inaction of the defendant, may be able to obtain security for their costs in prosecuting claims against ‘legal aggressor’ defendants (in appropriate circumstances).
The above illustrates that where a plaintiff can demonstrate that it has been ‘forced’ to proceedings, and is in substance the party being attacked as opposed to the party attacking, this will be a strong ground to resist an application to security for costs, and may even be grounds for the plaintiff to bring its own application for security against the defendant.
Parties to litigation should understand that for the purposes of considering whether their opponent should be required to provide security for costs, the real character of a party’s role in the context of the dispute over the form and how they are named in the court documents.