Background
Stelamar LLC and Issuer Solutions LLC sought orders under ss 445D and 447A of the Corporations Act 2001 (Cth) setting aside or terminating a deed of company arrangement executed by Soar.Earth Limited and winding up the company. The plaintiffs were foreign corporations with no Australian assets and did not dispute that the Court had jurisdiction to order security for costs.
Soar.Earth’s deed administrators, appearing as the second defendants, sought security of $89,520 for the estimated party-party costs of acting as contradictors in the substantive proceeding. The plaintiffs argued that $50,000 transferred to their solicitors’ trust account was sufficient, subject to liberty for the administrators to seek more, and challenged aspects of the administrators’ estimate, including the inclusion of costs incurred in bringing the security application itself.
The Court’s Holding
Jackman J ordered the plaintiffs, within 14 days, to provide $89,520 as security by payment into Court or by a bank guarantee from an Australian authorised deposit-taking institution. The Court accepted the administrators’ solicitor’s broad-brush estimate of likely recoverable party-party costs, finding that it had a cogent basis and that the plaintiffs’ criticisms did not justify a reduction.
The Court held that the security could include the administrators’ costs of successfully bringing the security application. Although authorities were divided, the weight of authority and the principle that a successful applicant should be able to recover those costs favoured inclusion. The Court also rejected the proposed trust-account arrangement in favour of the conventional forms of security and ordered the plaintiffs to pay the administrators’ costs of the interlocutory application.
Key Takeaways
- Security for costs may include the successful applicant’s costs of obtaining the security order, even though those costs arise from a separate interlocutory application.
- A solicitor’s cogently supported estimate of likely party-party costs may be accepted on a broad-brush basis, particularly where that solicitor has detailed knowledge of the work required.
- Payment into Court or an Australian bank guarantee remains the conventional form of security; funds held in a solicitor’s trust account will not necessarily suffice.
Why It Matters
The decision clarifies the Federal Court’s approach to quantifying security for costs and supports including the costs of the security application itself. It also underscores that foreign corporate plaintiffs with no Australian assets may be required to secure the full, reasonably estimated costs of insolvency litigation, including the costs incurred by deed administrators in fulfilling their responsibilities as balanced and properly informed contradictors.