Application for security for costs against a liquidator

Where a company in liquidation commences proceedings against a defendant, each party will inevitably incur legal fees and disbursements in order to prosecute and defend the proceedings. A liquidator would ordinarily engage solicitors and barristers on the basis that their costs would only be paid on a successful result. In most cases, once a judgment regarding the proceedings is determined, orders are subsequently made for the unsuccessful party to pay the costs of the successful party. However, in some situations, despite the cost orders being made, the unsuccessful party may be unable to satisfy the costs incurred. This is a likely scenario for liquidators if they are unsuccessful in proceedings as companies in liquidation are often without funds.

In order to avoid the unsuccessful party being unable to satisfy any order for costs, a defendant may seek an order for the party commencing proceedings to provide security for costs. The main purpose of the order is to ensure any unsuccessful proceedings do not disadvantage the defendant. It is important to note however, that a liquidator does not always need to provide security for costs when bringing proceedings against a defendant. The court may consider a number of factors when determining whether to order security for costs. Some factors which are particularly relevant for liquidators include:

  • the prospects of success or merits of the proceedings brought by the liquidator
  • the genuineness of the proceedings brought by the liquidator
  • whether the administration is without funds and whether this is attributable to the defendant
  • the reasons for the proceedings and the conduct of the proceedings
  • where the effect of an order for security would be to stifle the liquidator’s claim
  • whether the proceedings involve a matter of public importance
  • the overall costs of the proceedings
  • proportionality of the security sought to the importance and complexity of the issues
  • the timing of the application for security

In the case Golden Mile Property Investments Pty Ltd (In Liquidation) v Cudgegong Australia Pty Ltd [2014] NSWCA 224, the Supreme Court of New South Wales – Court of Appeals decided against an order for security of costs to be paid by the liquidator. Some of the factors that were considered in making the decision were as follows:

  • the strength and genuineness of Golden Mile’s proceedings
  • whether Golden Mile’s inability to provide security for costs was caused by the actions of Cudegong Australia
  • whether security for costs would stultify the litigation

This decision demonstrates that the court will consider the unique facts of each proceeding when exercising its discretion in making an order for security for costs. An application for security of costs against a liquidator that has limited or no funds may not be successful.

Cristy Houghton