Beware "agitators": when security for costs can be awarded against "natural persons"

Ian Bloemendal, Nick Josey, Tim George and Thomas Ryan
19 Jul 2023
Time to read: 4 minutes

Defendants should not assume that they will not obtain security for their costs simply because the plaintiff is a natural person, but they need to move promptly.

Orders for security for costs are valuable for defendants because they force a plaintiff to put their money where their mouth is early in the litigation; an order can either stall proceedings before they really get going, or even bring them to an end if the security is not provided. It is rare, however, for such an order to be made against a natural person plaintiff. A recent Queensland Supreme Court decision shows that cases can arise where it is fair for a plaintiff's impecuniosity to keep them from prosecuting their claim – even if they are a natural person – particularly one who persists in making constant and ill-advised claims (Pearson v ING Bank (Australia) Ltd [2023] QSC 86).

What is an order for security for costs (and why aren't they usually made against individuals)?

An order for security for costs generally requires a plaintiff to pay a certain amount of money into court before the proceeding can continue. That money is held until the proceeding is resolved so that it is available to the defendant to meet any costs order they might obtain.

The theory behind the rule is that it guards against a situation where a defendant may be dragged into a proceeding and forced to incur (potentially significant) costs without any chance of later being able to recover those costs if they successfully defend the claim (for example, where the corporation is foreign, with no assets in Australia).

The court has a broad discretion as to whether to grant such an order and will usually look to factors such as:

  • the impecuniosity of the plaintiff;
  • whether it has any assets in the jurisdiction in which the claim has been commenced;
  • whether the plaintiff can satisfy an order for security for costs not only from its own resources, but from other resources including those who will benefit from the litigation; and
  • whether an order will frustrate the litigation.

However, courts are generally reluctant to make such orders in respect of natural person plaintiffs since they "stand there for all they are worth" and the consequences for a natural person failing to pay a costs order (ie. bankruptcy) are usually considered to be a sufficient deterrent.

What happened in Pearson?

Over a decade ago, Mr Pearson had a loan agreement with Pioneer Mortgage Limited. When he failed to make repayments, proceedings were commenced and a default judgment obtained against him. Mr Pearson applied to set aside default judgment but was unsuccessful.

The matter was revived in November 2022 when Mr Pearson (self-represented) commenced proceedings. While not a party to the original loan agreement with Mr Pearson, ING Bank (Australia) Ltd was included as a party to the claim.

ING defended the claim and brought an application for security for costs against Mr Pearson. It argued that the justice of the case required the making of an order as Mr Pearson's claims had poor prospects of success. It argued:

  • Mr Pearson had conducted the proceeding in a vexatious manner;
  • ING's costs of defending the claim were likely to be substantial; and
  • Mr Pearson had not demonstrated he would be able to meet any costs order.

In response, Mr Pearson argued, amongst other things, that his financial position should not bar pursuit of his claims, and ING's application was merely an attempt to bring a summary end to the proceeding.

Why was security for costs granted?

In considering whether to grant ING's application, the Court noted its broad discretion and that the relevant factors can vary from case to case. Whilst the Court agreed in principle with Mr Pearson's submission that poverty should not be a bar to justice, that was not the only matter to be considered. The real question the Court must consider was:

whether it would be vexatious or oppressive to the defendant, or otherwise be an abuse of the court’s process, to permit the action to continue in all the circumstances without the provision of security for costs.

While it was acknowledged that any order for security would "stifle the proceeding", the Court stated that this needed to be weighed against the matters raised by ING, along with any other relevant matters. In particular, the Court interrogated the prospects of success of the claims and Mr Pearson's conduct of the proceeding.

As to the prospects of success, while the Court was careful to clarify that it was not determining the matter, having regard to the material Mr Pearson had filed it was clear his claim had limited prospects even if the Court were to assume (which it did, in determining this issue) that Mr Pearson was able to establish that ING was a party to the loan agreement in question.

As to Mr Pearson's conduct of the proceeding, while some leeway was to be provided to self-represented litigants, the Court observed that Mr Pearson had:

  • prepared Court documents with deficiencies so great that it was difficult for both ING and the Court to determine what in fact was the true basis of his claims;
  • missed several Court deadlines for filing material;
  • sought to agitate several matters which had no prospects of success (including one seeking to restrain ING's solicitors from acting for it) by way of interlocutory applications;
  • served an unreasonably large amount of written material on ING which was irrelevant and repetitious; and
  • made several allegations of fraud, criminal activity and immoral behaviour against both ING's solicitors and ING.

Given these matters, the Court determined that Mr Pearson's claim had limited prospects of success, his conduct of the proceeding was vexatious, and in those circumstances the Court should exercise its discretion to order that Mr Pearson provide security for ING's costs in the sum of $164,354.10, to be paid into Court.

Key takeaways for security for costs

There are three important points to take away from this decision.

First, defendants should not assume that they will not obtain security for their costs simply because the plaintiff is a natural person. While it ordinarily remains difficult to obtain an order for security against a natural person, it is possible and can provide an effective means of defeating a claim by proxy, without having to go through the hassle and cost of contesting the entire proceeding. This is particularly the case where the plaintiff is acting in a vexatious manner.

Equally, natural person plaintiffs should not assume that they will be safe from having a security for costs order made against them. Plaintiffs should ensure that their claim is bona fide – with reasonably good prospects of success – and brought in a timely and efficient manner. They should also take care to ensure that only the parties who are necessary for the resolution of their claim are included in a proceeding.

Finally, defendants should act promptly in seeking security for their costs. The proceeding against ING was filed on 14 November 2022 and ING's application was listed by 24 March 2023. Acting quickly to seek an order for security can help limit substantial costs being incurred before you know if your costs could be met by the plaintiff. Whether security has been sought promptly is also a factor a court will take into account in deciding whether to exercise its discretion to order that security.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.