The recent decision of University of Canberra v Zierholz@UC Pty Ltd [2020] ACTCA 45 highlights the need for parties to consider adverse costs orders when commencing proceedings, and in particular appeal proceedings.

The Courts will often consider making an order for security for costs when a party brings an appeal. Such an order requires the Appellant to pay into the Court an amount of money the Court considers appropriate for the Respondent’s legal costs, should the appeal fail.

In this instance, Zierholz brought an appeal from the finding of the primary judge, where the judge at first instance determined that there had been no breach of fiduciary duty, no breach of contract, and no breach of the provisions of the Competition and Consumer Act 2010 (Cth). The Appellant in this instance was a company with little capital, and the directors of Zierholz were also in a financial position where their liabilities exceeded their assets by over $400,000. Accordingly, the Court made an order that Zierholz pay $50,000 into Court as security for costs before it was allowed to proceed with the appeal. This was despite the Respondent estimating $125,000 to $170,000 for its legal costs for the appeal.

While, in some circumstances, the security of costs regime can act as a barrier to obtaining justice, the security for costs operates to protect parties to proceedings from incurring substantial legal costs which are unlikely to be repaid if they are successful. This is demonstrated by the Court’s reasoning at [16] of this decision, where the Court affirmed the view of the Court in Twining v Curtus [2014] ACTCA 19 (Twining) as follows:

“the purpose of such applications is to protect a successful litigant from the injustice caused by being forced to contest a claim for a second time without a probability of obtaining the costs thus expended and thereby to provide a fund to defray such costs and to discourage frivolous and unmeritorious appeals.”

It would be a travesty if a party that was successful in the first instance, and was also successful in defending an appeal, was ultimately in a worse financial position by virtue of being unable to recover their legal costs in relation to the appeal.

This position was further outlined by the Court in this decision where the Court, again, confirmed Twining by quoting:

In Twining at [14]-[15], cited in Haides at [28], Refshauge J stated:

14. I noted, also, that there was a difference between applications for security for costs at trial and on appeal, a position that has been clear since as long ago as 1885: Cowell v Taylor (1885) 31 Ch D 34 at 39. See also Rainbow v Kittoe [1916] 1 Ch 313 at 318. As was pointed out in Riverside Nursing Care Pty Ltd v Minister for Aged Care (2000) 63 ALD 122 at 125; [14], the appellant “has had its day in court”. Thus, there is, in an appellate situation, a decision in the respondent’s favour, which must be taken to be correct until set aside: Kennedy v McGeechan [1978] 1 NSWLR 314 (note) at 315.

15. A particular difference is that in the case of an appeal, unlike the case of a trial, impetuosity of an individual is a ground for the making of an order that an appellant provide security for costs.  The prospects of success are also relevant, despite the difficulty in some cases of assessing them.

Appeals are often costly legal exercises, and the security for costs regime ensures that parties are protected from some of the pitfalls of the litigation process, although in this instance, if the Respondent’s estimate of the costs of the appeal are correct, there will still likely still be a shortfall.