Attacking the straw man: security for costs in class action proceedings

Key Points:

The Full Federal Court's decision to order security for costs should give respondents in representative proceedings some comfort.

Class action proceedings are unique in many ways. One of the characteristics peculiar to class actions is that a successful respondent can only recover costs against the lead applicant, as group members are immune from having costs orders awarded against them.

This immunity is underpinned by important policy considerations, including affordable access to justice, as class actions allow group members to bring actions in circumstances where they individually could not afford to do so. However, it means that respondents will often be forced to defend an action at considerable costs with no ability to recover those costs if they are successful. That dynamic can impact many aspects of the proceedings including settlement negotiations. It shifts the balance of power in favour of applicants, who know that there will likely be an element of "wasted cost" even if a proceeding is successfully defended.

Usually in litigation, where a respondent does not expect to be able recover costs from a plaintiff, it has an option to make an application for a security for costs. A security for costs order restores the balance, as having to put up money upfront to potentially cover the respondent's costs forces an applicant to consider whether there is merit in pursuing the action, and avoids frivolous litigation.

While security for costs applications are not without their difficulties, they have had a chequered...