An application seeking security for costs can be a useful weapon when defending against a proceeding brought in a State or Federal Court. If successful, it will provide a defendant with comfort that some of its costs will be met if a costs order is successfully obtained, and might also severely dent the war chest available to the plaintiff. It will certainly cause the proceedings to be stayed until the security is provided and in some cases, it can bring the matter to a permanent end if the security does not appear.
One limiting factor is that security for costs is not ordinarily ordered against a natural person, no matter how impecunious, save for limited circumstances. As a party to the litigation, they are exposed to a costs order and the Court will not permit orders for security “to be used as a means of keeping a plaintiff out of Court” (Harpur v Ariadne  2 Qd R 523). Additionally, the discretion to order security for costs is not to be exercised with a predisposition to the protection of a respondent to litigation (Equity Access Ltd v Westpac Banking Corporation & Ors (1989) ATPR ¶40-972). Nevertheless, where a person has deliberately organised their affairs so they will not be subject to the vicissitudes of litigation, the court may take a different view.
A recent New South Wales Supreme Court decision is an example of a case where the court ordered security against an individual who the respondent submitted had “effectively made himself litigation proof” by having no assets in his own name “nor visible or available income”. It is also noteworthy as a case in which security was ordered despite there being a delay of two and a half years between the commencement of the proceedings and the applications for security (Mohareb v Harbour Radio Pty Ltd  NSWCA 231).
Mr Mohareb argues he has been defamed
Mr Nader Mohareb began defamation proceedings against Harbour Radio City in 2017. In 2018, he was declared bankrupt, and later acknowledged that he would not be able to meet any consequential costs orders. Sometime in 2019, Harbour Radio's solicitors learnt that Mr Mohareb's trustee in bankruptcy was investigating the transfer of funds offshore, to a bank account in Egypt in Mr Mohareb's name. A Notice to produce documents relevant to these transactions was then issued by Harbour Radio's solicitors.
Mr Mohareb denied any knowledge of the transaction or the documents, but bank documents confirmed the payments had been made from an account in the name of Mr Mohareb's mother, to which appeared to have unlimited access and was operating.
Shortly after this discovery, Harbour Radio filed a notice of motion seeking an order for security of costs. It was contended that Mr Mohareb had made himself "litigation proof" by having no assets in his own name. Mr Mohareb maintained his denial of any knowledge of the transfers or how the money came to be in the Egyptian account in his name.
In bringing an application for security for costs, Harbour Radio relied on the Court's inherent jurisdiction, as opposed to rule 42.21(1)(f) of the Uniform Civil Procedure Rules 2005 (NSW). It also provided evidence of the costs already incurred by it and the expected costs of a trial, which amounted to approximately $250,000.
An evasive and untruthful witness harms his own cause
At first instance, the Court rejected Mr Mohareb's assertions that he had no knowledge of the transfers, describing them as "evasive" and "untrue". It noted that he failed to disprove or even address the affidavit evidence provided by Harbour Radio which detailed transactions made by Mr Mohareb into his offshore accounts. Instead, Mr Mohareb merely denied he had any knowledge of the Egyptian account in his name and he continued to maintain that the money was not his. It was satisfied that Mr Mohareb had arranged his affairs so as to not be susceptible to the burdens of litigation, and ordered him provide security for costs by paying into Court an amount of $75,000.
In his application for leave to appeal, Mr Mohareb continued to assert that he did not know about the funds in his Egyptian account or how they came to be there. He argued that the application for security should have been refused because, amongst other matters:
- there had been a delay of two and a half years between the commencement of the proceedings and the application for security;
- an order for security would stifle the proceedings; and
- ·of what Mr Mohareb referred to as the "strength" of the defamation proceedings.
The Court of Appeal was not persuaded by any of Mr Mohareb's arguments and held that there was no error in the primary judge's finding that the order would not stifle proceedings. The transfers established that Mr Mohareb had access to sufficient funds to meet the orders and the primary judge was not satisfied that Mr Mohareb did not have resources available to him through family members.
As for the delay argument, it held there was no prejudice, and (appropriately) security was not sought for already incurred costs. Although Harbour Radio was criticised for not having explicit evidence from its witnesses to the effect that the first it learned of the transfer was in August 2019, Mr Mohareb did not contest this. As the Court of Appeal noted "[s]uch evidence should have been explicit, because providing a full explanation for the lengthy delay should have been at the forefront of the application". An inference was nevertheless supported by the flurry of subpoenas and notices to produce that were filed.
While orders for security of costs against a natural person are rare, so too are orders in applications for security which are not made promptly. Several factors nevertheless justified an order for security of costs in this case, said the Curt of Appeal, including:
- Mr Mohareb's history of failure to comply with costs orders;
- the transfer of money to an overseas account; and
- Mr Mohareb's prevarication and lack of frankness in his evidence on that subject.
Finally, it held the order made by the primary judge was reasonable (she decided to adopt a "staged approach") and it was significantly less than that sought by Harbour Radio.
Consequently, leave to appeal was refused and Mr Mohareb was ordered to pay Harbour Radio's costs of the application.
Key takeaways for defendants
It can be easy to dismiss the option of seeking security for costs where the action is brought by a natural person, either on their own or alongside trusts into which they have placed their assets. However, this decision serves as a reminder that, while it is difficult to obtain such an order, it is not impossible. It also reinforces the importance of performing thorough due diligence on the financial position of the other parties and, if there might be evidence of dissipation of assets or similar, acting quickly upon that information. As the court in Morris v Hanley  NSWCA 374 noted in 2001, a defendant in possession of sufficient information to justify an order who stands by while a plaintiff expends resources (and time) on preparation may fail if an application is later made.
Additionally, while the rules of Court provide a regulatory basis for applications, defendants should not hesitate in invoking the inherent power of the Court to make orders, particularly in circumstances where there is evidence of untoward behaviour by the other party.