How to Obtain Security for Costs in Australian Commercial Litigation (2026): Thresholds, Strategy and Recent Practice

Security for costs Australia applications remain a prominent feature of commercial litigation in 2026, driven by the continued use of third-party litigation funding and a steady stream of insolvency-driven claims that leave defendants exposed to the risk of winning a case yet never recovering their costs. This practitioner guide explains when Australian courts will order a plaintiff to put up security, how to build a persuasive application, what evidence to adduce, and how litigation funding and corporate insolvency reshape the court’s discretion. It compares Federal Court practice with the leading state courts, sets out methods for quantifying security, and provides tactical options for both applicants and the plaintiffs resisting them.

The short recommendation: where a plaintiff is impecunious, funded, or outside the jurisdiction, defendants should consider a security for costs application early, lead focused financial evidence, and offer or demand practical security mechanisms rather than leaving the question to the eve of trial.

Who this article is for: in-house counsel, defendants, directors, insolvency practitioners, litigation funders and plaintiffs. It explains when and how to apply for security for costs in Australia across the Federal Court and the main state courts, the evidence to adduce, how litigation funding affects orders, and practical drafting and quantification guidance.

When courts grant security for costs, legal thresholds

The power to order security for costs rests on two foundations: an inherent and statutory discretion in the superior courts, and specific rules of court and statutory provisions that regulate its exercise. For corporate plaintiffs, the key statutory hook is found in the Corporations Act 2001 (Cth), with section 1335 empowering a court to order security where there is credible evidence that a company plaintiff will be unable to pay the defendant’s costs if the defence succeeds. The Federal Court exercises a parallel discretion under its own rules and practice documents, and each state Supreme Court operates under its procedural rules.

The twin rationales are straightforward. An order protects a successful defendant against the prospect of an unrecoverable costs judgment, and it guards the administration of justice against claims pursued with no genuine exposure to the usual costs consequences of litigation. The discretion, however, is broad and fact-sensitive: no single factor is decisive, and the court always weighs the risk to the defendant against the plaintiff’s right of access to justice.

General principles and security for costs factors

Across jurisdictions, courts weigh a recognised, overlapping set of security for costs factors when exercising the discretion. The most commonly cited considerations include:

• Impecuniosity. Credible evidence that the plaintiff (particularly a corporate plaintiff) will be unable to meet an adverse costs order is the central trigger, especially under section 1335 of the Corporations Act.
• Foreign or non-resident plaintiffs. Where a plaintiff resides or holds its assets outside the jurisdiction, enforcing a costs order becomes difficult and expensive, which weighs in favour of security.
• Corporate structure and the corporate veil. Courts scrutinise whether a corporate plaintiff has been structured to shield assets, or whether those who stand behind and benefit from the litigation are shielded from costs exposure.
• Insolvency or receivership. A plaintiff in liquidation, administration or receivership presents an obvious recovery risk for a successful defendant.
• Abuse of process or fraud indicators. Evidence that proceedings are being used oppressively, or are part of a pattern of unmeritorious claims, can support an order.
• The merits and bona fides of the claim. A claim that appears weak or speculative increases the risk and the equity of ordering security, though courts avoid conducting a mini-trial on the merits.
• Delay and the stage of proceedings. A late application, after the plaintiff has incurred substantial cost in reliance on the proceedings continuing, may be refused or discounted.

Countervailing factors, such as the possibility that an order will stifle a genuine claim, delay by the applicant, or conduct by the defendant that contributed to the plaintiff’s financial position, are routinely argued and frequently determine the outcome.

Jurisdictional variations: Federal, NSW, Victoria and Queensland

While the governing principles are broadly consistent nationally, the procedural source and emphasis differ. In the Federal Court, the discretion is exercised under the Federal Court Rules 2011 and the Court’s published practice notes, read together with section 1335 of the Corporations Act for corporate plaintiffs. In New South Wales, applications proceed under the Uniform Civil Procedure Rules 2005 (NSW), which set out the grounds and the court’s power in the Supreme Court. Victorian and Queensland Supreme Courts apply their own rules (the Supreme Court (General Civil Procedure) Rules in Victoria and the Uniform Civil Procedure Rules 1999 in Queensland) and practice notes.

The practical takeaway for a national litigant is to identify the correct procedural rule for the forum early, because the evidentiary expectations and the court’s customary forms of security vary between registries.

How to make a security for costs application: procedure and evidence checklist

A security for costs application is an interlocutory step, and timing is often decisive. The strongest applications are brought early, ideally at or shortly after the first return date, and generally before the defendant has incurred the bulk of its costs. An application brought late, after the plaintiff has pressed on in reliance on the litigation proceeding, invites the criticism of delay and risks being refused or heavily discounted. As a working sequence, the applicant files an interlocutory application or notice of motion, supported by affidavit evidence, seeking an order that the plaintiff provide security in a specified amount and form, with a stay of the proceeding until security is furnished.

Before filing, the applicant should assemble the evidentiary foundation. A well-constructed security for costs application does not rely on assertion; it proves the recovery risk with documents. The court will expect to see why the defendant genuinely fears it cannot recover its costs, and what sum fairly protects that risk.

Affidavit evidence, essential content for a security for costs application

The applicant’s affidavit is the engine of the application. It should be specific, document-driven and candid about any weaknesses. Essential content typically includes:

• Company and ASIC searches. Current extracts showing the plaintiff’s corporate status, any external administration, charges registered on the Personal Property Securities Register, and the identity of directors and shareholders.
• Evidence of impecuniosity. Financial statements, filed accounts, unsatisfied judgments, statutory demands, winding-up applications, or default notices demonstrating the plaintiff’s inability to pay an adverse costs order.
• Foreign residence or asset location. Evidence that the plaintiff, or the individuals behind it, reside or hold assets outside Australia, and material on the difficulty and cost of enforcing a costs order in the relevant jurisdiction.
• Litigation funding material. Any publicly available indication that the claim is funded, together with the applicant’s request for disclosure of the funding arrangement where its existence is apparent.
• A costs estimate. A reasoned estimate of the defendant’s recoverable costs to the relevant stage, prepared by the solicitor or a costs consultant, forming the basis for the amount sought.
• Correspondence. Any pre-application correspondence inviting the plaintiff to provide security voluntarily, which supports both the merits and the applicant’s conduct on the question of delay.

Where the application is resisted, the plaintiff will usually file responsive affidavit material addressing its financial position, offering a detailed disclosure of means, and advancing any stifling argument. Candour cuts both ways: a plaintiff who refuses to disclose its true financial position, or the terms of its funding, often strengthens the case for an order.

Draft orders and proposed security mechanisms

The application should annex draft orders specifying the amount, the form of security, the timeframe for providing it, and the consequence of default (usually a stay, with liberty to apply for dismissal). The common forms of security are an unconditional bank guarantee from an Australian authorised deposit-taking institution, payment of a sum into court, a personal or third-party undertaking supported by acceptable assets, or, where dissipation of assets is a concern, a charge or an order made in conjunction with a freezing order. Flexibility helps: courts respond well to applicants who propose a practical, proportionate mechanism rather than insisting on the most onerous option.

Federal Court practice: rules, practice notes and tactical considerations for security for costs australia

In the Federal Court, security for costs australia applications are governed by the Federal Court Rules 2011 and shaped by the Court’s practice notes, which emphasise proportionality, the just resolution of disputes as quickly, inexpensively and efficiently as possible (consistent with the overarching purpose in the Federal Court of Australia Act 1976 (Cth)), and active case management. The Court’s discretion is wide, and its practice documents on interlocutory applications and case management inform both the evidence expected and the manner in which the application is listed and heard. For corporate plaintiffs, the Court exercises the section 1335 power alongside the Rules.

Tactically, the Federal Court’s docket system means an application is typically managed by the docket judge, who will expect the parties to have conferred and to have narrowed the issues. Applicants should be ready to justify both the entitlement to security and the quantum, and to explain why the application is timely. The Court will be alert to any suggestion that an order would stifle a genuine claim, and will often prefer a staged or capped order to a single large sum ordered at the outset.

How the Federal Court quantifies and sets amounts

The Court does not fix security as a precise pre-estimate of taxed costs. Instead, it makes a broad, impressionistic assessment of a reasonable sum to protect the defendant, informed by the solicitor’s or costs consultant’s estimate, the complexity of the matter, the likely length of trial, and the stage to which security is sought. It is common for security to be ordered in stages, for example, up to the close of pleadings or discovery, with liberty to apply for further security as the matter progresses. This staged approach balances the defendant’s protection against the risk of over-securing and stifling the claim.

Timing, interlocutory lists and urgent hearings

Applications are brought as interlocutory applications and listed before the docket judge. Where there is a genuine urgency, for instance, an imminent transfer of assets offshore, the Court can accommodate an expedited hearing, and in an appropriate case a security application may be run alongside an application for a freezing order. Early engagement with the registry and the docket judge’s chambers is the practical route to a prompt listing.

Third-party funding, insolvency and litigation funding security for costs

The interaction between litigation funding security for costs and the court’s discretion is one of the most heavily contested areas of interlocutory practice. The headline answer to the common question, does third-party funding affect a security for costs order?, is that it can, and often in the applicant’s favour. The presence of a commercial funder who stands to profit from the litigation can materially change the equities. A defendant can argue that it should not bear the risk of unrecoverable costs while a commercial backer takes the upside, and courts have, in appropriate cases, ordered security against funded plaintiffs, particularly where the nominal plaintiff is impecunious.

The Law Council of Australia has engaged extensively with the policy and regulatory dimensions of third-party litigation funding, reflecting its growth and the attention it has drawn from courts and legislators. Several practical dynamics flow from a funded claim. First, the existence of a funder does not itself defeat an application; it frequently supports one, because the defendant’s costs risk is real even though the litigation is well-resourced on the plaintiff’s side. Second, the terms of the funding agreement matter, in particular whether the funder has agreed to indemnify the plaintiff for adverse costs and whether that indemnity is backed by security such as an after-the-event insurance policy.

Third, funder solvency and the enforceability of any adverse-costs indemnity against the funder are legitimate concerns the applicant can raise.

Typical defences by funded plaintiffs

Plaintiffs resisting security in funded proceedings commonly deploy several arguments. They assert that the funder’s adverse-costs indemnity already protects the defendant, making an order unnecessary. They resist disclosure of the funding agreement on confidentiality and privilege grounds, offering only a redacted version or a confirmation of the indemnity’s existence. They argue that an order would stifle access to justice, particularly in representative or class proceedings. And they contend that the defendant’s conduct, or the strength of the claim, tells against ordering security. These arguments are often met, in practice, by a court requiring at least confirmation that an enforceable, adequately secured adverse-costs indemnity exists before declining to order security.

Practical steps against funded plaintiffs

Applicants facing a funded plaintiff should move deliberately. Useful steps include seeking disclosure of the funding arrangement or, at minimum, confirmation and evidence of the adverse-costs indemnity and any ATE insurance; pressing for information about the funder’s identity, standing and solvency; and, where the funding agreement is withheld, inviting the court to draw inferences from the plaintiff’s reticence. Where there is a genuine risk that assets or funds may be dissipated, a freezing order may be sought in conjunction with the security application. Cross-claims and assignments should also be assessed, since the party truly driving the litigation may be reachable through a direct costs order in an appropriate case.

Quantifying security: methods, amounts, and the security for costs amount

Determining the security for costs amount is both an art and a negotiation. Courts and practitioners draw on three broad methods:

• Estimated recoverable costs to judgment, plus interest. The applicant’s solicitor or a costs consultant estimates the party-and-party costs likely to be recovered to a defined stage, discounted to a reasonable, recoverable figure rather than solicitor-client costs.
• The taxed or assessed costs method. A projection based on the historical ratio between costs incurred and costs ultimately recovered on assessment, applied to the projected spend for the matter.
• Settlement and exposure estimates. A broader commercial assessment used mainly to sense-check proportionality, ensuring the security sought is neither oppressive relative to the claim nor trivially inadequate.

In practice, courts set a conservative figure representing a reasonable proportion of estimated recoverable costs, frequently in tranches tied to the procedural milestones of the case. Over-estimation invites a stifling argument; under-estimation leaves the defendant exposed and may prompt a later application for further security.

Sample calculation, an illustrative example

By way of illustration only, assume a defendant estimates its total costs to the end of a five-day trial at AUD 600,000 on a solicitor-client basis. If historical recovery on party-and-party assessment runs at roughly 60 per cent, that gives an estimated recoverable figure of about AUD 360,000. The defendant might seek security in two tranches: an initial amount to cover the period up to the close of discovery, and a further amount as trial approaches, with liberty to apply. This staged approach protects the defendant progressively, keeps the initial order proportionate, and reduces the force of any argument that a single large order at the outset would stifle the claim.

The figures above are illustrative; recovery ratios and costs vary significantly by matter and forum.

How courts typically approach security for costs, Federal vs NSW vs Victoria

The table is a working summary; practitioners should confirm the current rule numbers and practice notes for the forum before filing, as registries update their practice documents periodically.

Practical strategies for applicants and resisting plaintiffs

For applicants, the strongest position is built early and evidenced thoroughly. Effective tactics include:

• Move early. File promptly after becoming aware of the recovery risk, and avoid the delay criticism that defeats so many late applications.
• Prove the risk with documents. Lead ASIC searches, financial statements, unsatisfied judgments and enforcement difficulties rather than bare assertion.
• Seek early disclosure of funding. Where a claim appears funded, press for disclosure of the funding arrangement and evidence of any adverse-costs indemnity and ATE insurance.
• Pair with a freezing order where warranted. If there is a genuine risk of asset dissipation, consider seeking a freezing order alongside the security application, and move urgently.
• Propose a proportionate mechanism. Offer a staged, capped structure to pre-empt the stifling argument and present the court with a reasonable path.

For plaintiffs resisting security, the objective is to neutralise the recovery risk and preserve access to justice. Practical responses include offering a solicitor’s or director’s undertaking, providing a detailed and candid disclosure of means, proposing conditional or staged orders tied to milestones, disclosing a funder’s adverse-costs indemnity and its security, and demonstrating that an order would stifle a genuine and arguable claim. A plaintiff who engages constructively, offering reasonable security rather than resisting on principle, often secures better terms than one who forces a contested hearing.

Costs consequences and enforcement of security orders

The consequence of non-compliance is significant. Where a plaintiff fails to provide security within the time ordered, the usual position is a stay of the proceeding, with the defendant then at liberty to apply to have the claim dismissed if the default continues. This gives the order real commercial force: it compels the plaintiff either to fund the security or to confront the end of its claim, and it frequently drives settlement. Once security is in place, it is enforced according to its form, a bank guarantee is called on, funds paid into court are released by order, and an undertaking is enforced against the person who gave it.

Costs orders against a defaulting party, and the leverage the regime creates in negotiation, are among the most important practical reasons defendants pursue security in the first place.

Drafting checklist and sample orders

Before filing, run through a short checklist: confirm the correct procedural rule and any relevant practice note for the forum; assemble ASIC and company searches; obtain a reasoned costs estimate; gather impecuniosity, foreign-residence and funding evidence; send a letter inviting voluntary security; draft orders specifying amount, form, timeframe and default consequence; and consider whether a freezing order should be sought in parallel.

Two short order templates in common use:

1. Bank guarantee or payment into court. “The plaintiff provide security for the defendant’s costs in the sum of AUD [amount], by payment into court or by an unconditional bank guarantee from an Australian authorised deposit-taking institution in a form acceptable to the court, within [number] days; and that the proceeding be stayed until security is provided.”
2. Undertaking with staged payment. “The plaintiff provide security in the sum of AUD [first tranche] within [number] days and a further AUD [second tranche] within [number] days of [defined milestone], by payment into court or acceptable undertaking; with liberty to apply for further security; and the proceeding be stayed pending compliance.”

Sample orders should always be reviewed for formality and jurisdictional specificity by a practising Australian commercial litigator before filing, as registry requirements and preferred forms differ.

Conclusion and next steps

Security for costs australia remains one of the most practically important interlocutory tools available to defendants in commercial litigation, and its significance endures in 2026 as litigation funding and insolvency-driven claims continue to multiply the risk of unrecoverable costs. The tactical roadmap is clear: identify the recovery risk early, prove it with ASIC searches, financial evidence and funding material, seek disclosure of any funding arrangement, and propose a proportionate, staged mechanism that protects the defendant without stifling a genuine claim. Plaintiffs, for their part, should engage constructively, disclosing means, offering realistic undertakings and demonstrating funder indemnities, to secure better terms than a contested hearing would allow.

Given the jurisdictional differences in rules, practice notes and preferred forms of security, tailored advice for the specific forum is essential before filing any application.

For tailored guidance, consult the Commercial Litigation, Australia practice area resources and the GLE lawyer directory, Commercial Litigation, Australia.

Sources

1. Federal Register of Legislation, Corporations Act 2001 (Cth) and Federal Court Rules 2011
2. Federal Court of Australia, Practice Documents and Practice Notes
3. Uniform Civil Procedure Rules 2005 (NSW), NSW Legislation
4. Law Council of Australia, litigation funding policy and reports
5. AustLII, Federal and Supreme Court security-for-costs judgments