May 2021

Stopping self-represented litigants in their tracks: how to use security for costs and other procedures

One of the enduring, not to mention expensive, bugbears for every local council is unmeritorious litigation from self-represented plaintiffs.

Regardless of their merits, such claims generally cost large sums of public money to defend. Winning them is often of little comfort to councils because the legal costs are usually not recoverable, as self-represented litigants rarely have the means to pay them.

Costs generally take two forms: hard costs from external legal counsel, and the indirect cost of the time spent by council’s own legal and other staff.

It is understandable how such situations can arise. One of the principles of our legal system is that everyone should have fair access to “their day in court”. However, often it seems that the playing field is tilted unduly in favour of self-represented litigants.

Helpfully, the courts’ position has shifted of late, with recent cases demonstrating a greater willingness to order security for costs against individuals and require self-represented litigants to expose their personal assets to a costs order. The net effect is that councils do have effective options to bring actions to a speedy conclusion and protect themselves against non-meritorious or vexatious proceedings.

Two procedures in particular are relevant here:

  1. The first is the court’s ability to order a plaintiff to provide security, usually by way of a bank guarantee or cash deposit, which can be called on by the council at the end of proceedings, assuming costs are awarded in favour of council.

  2. The second is the requirement that a company be represented either by a solicitor or by a director of the company. This requirement means a plaintiff cannot hide behind a shell company and also avoid incurring their own legal costs. If a director does appear, their personal assets are available to satisfy an order for costs – a prospect sufficient to give any such plaintiff serious pause for thought. If the company is not represented in the manner prescribed, the judge can order proceedings to be stayed.

The principle in both cases is simple: a plaintiff must have “skin in the game” when bringing proceedings. If the plaintiff has assets, that means those assets must be put at risk. If they don’t have assets, they need access to funds sufficient to cover a potential adverse costs order.

Until recently it was considered that an order for provision of security for costs would only be made against an individual (as opposed to a corporation) where the plaintiff had divested assets with the intention of avoiding the consequences of the proceedings.

However in Mohareb v Fairfax Media Publications Pty Limited, the Supreme Court of NSW held that the Supreme Court has inherent jurisdiction to order security, and that the question whether to order security is a discretionary matter, to be determined in light of all relevant circumstances.

Further, the Court stated that there is no justification for limiting the circumstances in which a court can order an individual to provide security for costs to cases where the divesting of assets, or the deliberate organisation of affairs to avoid acquiring assets, occurs after proceedings have been commenced or are in active contemplation.

In A-Link Technology Pty vs Cumberland Council, both procedures were used to contain Council’s costs and to stay the proceedings before they ran very far.

The dispute concerned a contract to purchase land from the Council. The plaintiff stated that the Council had misled it concerning the ability to develop the property, and had wrongfully rescinded the contract. The plaintiff claimed damages of approximately $56m.

In bringing the claim, A-Link was not represented by a solicitor (the notorious Mr Salim Mehajer had been primarily communicating on behalf of the plaintiff) and none of its directors were named as a joint plaintiff, as would be required by Uniform Civil Procedure Rule
(UCPR) 7.1.

The plaintiff was in a delicate financial position, its assets consisting mainly of property in which it held little, if any, equity.

The Council had asked the plaintiff to produce its financial records, but the plaintiff had failed to do so.

The Council therefore requested that the Court require the plaintiff to provide security for costs, and for a stay of proceedings until a solicitor was appointed or one of the directors was joined as a party to the proceedings.

The Court held that the evidence comprehensively established a valid concern regarding the plaintiff’s ability to pay costs if unsuccessful. This conclusion arose not only from the plaintiff’s failure to provide the information Council had requested, but also from matters to which a Court is to have regard when considering ordering security for costs.

Those matters, set out in UCPR 42.21, included:

  • the slender prospects of the claim succeeding

  • the apparent impecuniosity of the plaintiff(s)

  • the Council having not caused the plaintiff’s impecuniosity

  • no matter of public importance in the case having been demonstrated

  • the events that led to the proceedings being dated and the delay in commencing the proceedings

  • the likelihood of costs being substantial

  • that although making an order for security might stultify the proceedings, there was no evidence that the director and shareholder of the plaintiff did not have the ability to fund them.

Based on evidence from the Council regarding its likely costs, the Court ordered the plaintiff to provide a bank guarantee or cash bond of $340,000, until which time proceedings would be stayed.

The Court also ordered that as the plaintiff was in breach of Rule UCPR 7.1, and because the breach had been pointed out twice by Council to no effect, the proceedings were therefore not competently constituted and should be stayed until a director of the plaintiff was joined as an additional plaintiff in the proceedings or until a solicitor filed a notice of appearance for the plaintiff.

Takeaways for councils

The main takeaway from this case and the case law surrounding it is that councils need not unduly fear vexatious or non-meritorious litigation from those unable or unwilling to cover orders for court costs.

Self-represented plaintiffs (corporate or individual) can be expected to demonstrate an ability to pay any costs awarded against them before proceedings go ahead, and councils have the ability to apply for a stay of proceedings when a plaintiff fails to do so.

In the few cases where proceedings do go ahead, a council can then expect to recover all or most of its costs in those cases that lack merit.

Author: David Creais