Is there reason to
believe that a costs order will not be able to be paid?
A security for a costs application is a serious
consideration for the defendant where the plaintiff is a
corporation with contingent assets.
In the decision of
Aquatic Air Pty Ltd v Siewert  NSWCA 130 (Court of
Appeal Supreme Court New South Wales) (30 May 2016),
Macfarlan JA considered a security for costs application
made under s 1335 of the Corporations Act 2001 (Cth)
in these circumstances.
Section 1335 (Costs) of the Corporations Act 2001
is as follows:
(1) Where a corporation is plaintiff in any action or
other legal proceeding, the court having jurisdiction in
the matter may, 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
successful in his, her or its defence, require
sufficient security to be given for those costs and stay
all proceedings until the security is given. [emphasis
How did the court find ‘reason to believe’?
Aquatic appealed against the primary judge’s findings
which were adverse to Aquatic in that Mr & Mrs Siewert were
found to have made no misrepresentations and had not
breached a warranty given when they sold shares in certain
companies conducting aviation operations to a related
company of Aquatic.
After examining the Statement of Assets and Liabilities
of Aquatic which showed assets of $2,770,000 exceeding
liabilities of $1,200,000, Macfarlan JA concluded that the
availability of each of the assets to Aquatic was
dependent upon its success on the appeal.
As a consequence, he held that Siewert had satisfied the
precondition to the court exercising its power under s 1335,
namely there was reason to believe that Siewert will be
unable to recover their costs of the appeal from Aquatic
if Aquatic failed in the appeal.
The discretionary factors in making a security for
Being a decision by a judge of the Court of Appeal, the
way in which the discretionary factors were weighed in this
case is of general relevance. The factors were:
Security had already been provided at the first
instance: The argument was that the security provided at
first instance of $65,000 remained available because costs
had not been assessed. The court accepted the evidence of
Siewert’s solicitors which countered this in that there were
unassessed costs incurred which far exceeded that figure
(there were seven hearing days).
Whether the appeal would be stifled: The argument
that an order for security would stifle the appeal was
rejected because the strong probabilities are that the
security would be provided out of the resources of
Delay in making the application for security: The
argument that the application for security had not been
promptly filed was rejected because Aquatic had been put on
notice that security was required when the appeal was filed.
The fact that two months had elapsed before the application
was made was not sufficient delay to refuse the application.
The relevance of the Siewert’s cross-appeal: The
argument was that it may be unfair to allow the cross-appeal
to proceed, while the appeal is stifled, was met by Siewert
assuring the court that the cross-appeal would not proceed
if the appeal did not proceed. Also, the fact that if the
cross-appeal failed they might not obtain a costs order
against Aquatic did not outweigh the real prospect that
Siewert might obtain a costs order in the appeal.
Whether Aquatic’s impecuniosity was caused by Siewert:
This often potent argument was of reduced significance on
appeal because the defendant has the advantage of a judgment
in its favour vindicating its actions. The argument was
rejected because there was no evidence of causation.
Undertaking by sole director of Aquatic: The court
might have accepted a personal undertaking by the director
instead of security for costs, but no details were provided
of the director’s assets and liabilities, which on their
face were contingent in nature.
The security for costs orders made
On the one hand, Siewert estimated a two day hearing with
costs of the appeal of between $93,700 and $170,900. On the
other hand, Aquatic estimated a one day hearing with costs
The court relied upon its own assessment of the
proceedings and ordered that Aquatic provide security for
costs of the appeal of $80,000. Failing payment within 14
days, the appeal be stayed.
An application for security for costs of the appeal has
good prospects of success: if the appellant is a corporation
and it was not successful at the first instance, and if it
can be demonstrated that the availability of the appellant’s
assets to pay the respondent’s costs is contingent upon the
success of the appeal.