Security for Costs in Australia: What It Is and Whether It Can Stop Your Lawsuit

You’re three months into litigation. Your claim is solid. The evidence is stacking up. Then the defendant files an application for security for costs, asking the court to make you deposit $200,000 before you can continue.

Can they do that?

Yes. And if you can’t provide it, your case might get stayed or dismissed entirely.

Security for costs is one of the most powerful defensive tools in Australian litigation. It can force you to tie up significant capital, or worse, stop your case dead if you can’t meet the order. But it’s not automatic, it’s not always enforceable, and there are ways to manage it without draining your business.

Here’s what you need to know.

• Common grounds include being a company with limited assets, living overseas, having poor financial health, or bringing a weak claim, but the court’s discretion is broad and fact-specific
• Orders are not automatic for corporations or individuals, courts balance protecting defendants against shutting down meritorious claims, and will consider the strength of your case and your ability to pay
• Forms of security include cash deposits (capital-intensive), bank guarantees (requires banking relationship), or after-the-event (ATE) insurance (scalable and preserves cashflow), each has different cost and strategic implications
• Non-compliance can be fatal to your case, if you fail to provide security within the ordered timeframe, your proceedings may be stayed or dismissed, though you can apply to vary or appeal the order
• Strategic planning matters more than reacting late, assess your security risk before filing, gather financial evidence early, and explore insurance options to avoid being caught off-guard mid-litigation

What Security for Costs Actually Is

Security for costs is a court order that requires you, as the plaintiff, to provide a financial guarantee before your case can proceed. The purpose is straightforward: if you lose, the defendant can access that security to recover their legal costs without chasing an empty judgment.

It’s not a punishment. It’s a protective mechanism.

Courts use it when there’s a real risk that a defendant will win the case, be awarded costs, but never actually recover them because the plaintiff can’t pay. Think of it as the defendant’s insurance policy against an unenforceable costs order.

The order typically requires you to provide security in one of three forms: a cash deposit into court, a bank guarantee, or an insurance policy. The amount is usually a percentage of the defendant’s estimated legal costs to trial, often 50% to 70%, sometimes more.

And here’s the critical part: if you don’t provide the security within the timeframe set by the court, your case can be stayed or dismissed entirely.

That’s not theoretical. It happens.

When Can a Defendant Apply for Security for Costs?

A defendant can apply at any time during the proceedings, though it’s usually done early, often within the first few months after your claim is filed. The earlier they move, the more leverage they have.

There are several grounds that trigger these applications. Some are statutory, others fall under the court’s inherent jurisdiction.

Statutory Grounds (Corporations and Out-of-State Plaintiffs)

If you’re suing as a corporation, section 1335 of the Corporations Act gives the court power to order security if there’s reason to believe your company won’t be able to pay the defendant’s costs if you lose. This is the most common ground.

And no, being profitable doesn’t automatically protect you. The test is forward-looking: will your company be able to pay costs at the end of trial, potentially years from now? If your balance sheet is thin, your cash reserves are tight, or you’re burning through capital, you’re exposed.

If you’re an individual plaintiff living outside Australia (or outside the state where you’re suing), different rules apply under state procedural laws. Courts worry about enforcement, how does a defendant recover costs from someone in another jurisdiction? But this ground is less strictly applied to individuals than corporations, and courts rarely order security against a solvent individual plaintiff resident in Australia.

Discretionary Grounds (Impecuniosity, Weak Claims, Third-Party Funding)

Even without statutory triggers, courts have broad discretion to order security in other situations.

Poor financial position: If you’re an individual and your financials are shaky, unemployed, no assets, facing bankruptcy, a court might order security. But it’s not automatic. Courts are cautious about shutting individuals out of the justice system based purely on lack of wealth.

Weak or speculative claims: If your case looks thin and the defendant can show it’s likely to fail, the court is more inclined to order security. The logic: why should the defendant bear the cost of defending a case with little merit, with no prospect of recovering those costs later?

Third-party funding arrangements: If a litigation funder is backing your case, some courts treat that as a reason to order security. The funder profits if you win but isn’t liable for the defendant’s costs if you lose. Courts sometimes see that as unfair and order the funder (or you) to provide security.

Can you challenge the application?

Absolutely. And you should.

How Courts Decide Whether to Grant Security

Just because a defendant applies doesn’t mean the court will grant it. The court’s discretion is broad, and it weighs multiple factors.

Here’s what matters.

The Strength of Your Case

If your claim is strong, solid facts, clear legal basis, good prospects of success, courts are less likely to order security. The principle: don’t shut down meritorious claims just because the plaintiff’s finances are tight.

Conversely, if your case is speculative, poorly pleaded, or built on shaky evidence, the court is more inclined to protect the defendant with a security order.

Can you articulate, in plain terms, why your case will succeed? If your lawyers can’t give the court a sharp, compelling summary of your claim’s strength, you’re in trouble.

Your Financial Position (and Transparency)

Courts want to see your financials. Bank statements, balance sheets, tax returns, director affidavits. If you’re a company, the court will examine your ability to pay a costs order at the conclusion of trial, not just today.

If you’re evasive or don’t provide clear financial evidence, the court will assume the worst. Transparency matters. If you’re solvent and can prove it, say so loudly.

But if your finances are genuinely weak, hiding that fact won’t help. The court will find out, and your credibility will take a hit.

Prejudice and Delay

Will ordering security effectively kill your case? If you’re a small business or individual who genuinely can’t provide $200,000 in security, the court considers that. Shutting down a legitimate claim purely because the plaintiff lacks capital is a serious step, and courts don’t take it lightly.

But this cuts both ways. If the defendant can show they’ll suffer real prejudice defending a case against an insolvent plaintiff, burning through legal fees with no prospect of recovery, that weighs heavily too.

Timing of the Application

If the defendant waits until deep into the case to apply for security, after discovery, after witness statements, after significant costs have been incurred, courts are less sympathetic. The logic: you’ve already spent the money defending, so what’s the point of security now?

Early applications are stronger. If a defendant moves within the first few months, they’re in a better position.

How Much Security Will You Have to Provide?

If the court orders security, how much will it be?

There’s no fixed formula, but the usual approach is this: the court estimates the defendant’s likely costs to trial (or to the next major milestone), then orders security for a percentage of that amount, typically 50% to 70%, sometimes higher.

In a straightforward commercial dispute in the Federal Court or Supreme Court, defendant costs to trial might range from $150,000 to $500,000 or more, depending on complexity. Security orders in those cases often fall in the $100,000 to $350,000 range.

For larger, more complex litigation, class actions, shareholder disputes, construction claims, security orders can hit $1 million, $5 million, even higher. In 2025, the Victorian Supreme Court approved a $6 million security for costs order satisfied entirely by an after-the-event (ATE) insurance policy. That case shows how scalable these orders can be when alternative funding mechanisms are in play.

The court won’t automatically order security for the defendant’s full projected costs. It’s a balancing exercise. Enough to provide real protection, but not so much that it becomes an insurmountable barrier.

What Costs Are Covered?

Security typically covers the defendant’s future legal costs from the date of the order to trial. It doesn’t cover costs already incurred, and it doesn’t cover your own costs (obviously).

Courts may also factor in the likelihood of success. If the defendant has a strong defence and you’re likely to lose, the court might order security closer to 100% of estimated costs. If your claim is strong, the percentage drops.

Can you negotiate the amount?

Sometimes. If the figure proposed by the defendant is excessive or speculative, your lawyers can challenge it. But you’ll need credible evidence, detailed cost estimates, comparable cases, expert affidavits. Vague objections won’t move the needle.

What Forms of Security Can You Provide?

If the court orders security, you have options. Three main ones, each with different cost and strategic implications.

Cash Deposit

The most straightforward option: you pay the ordered amount into court, where it sits until the case concludes.

Pros: Simple, no ongoing premiums, court holds it securely.

Cons: Ties up significant capital. If you’re ordered to provide $200,000 in cash and your business operates on tight cashflow, that’s a major problem. That cash sits frozen for months, potentially years, until trial.

For many businesses, this isn’t viable. It’s one thing to budget for legal fees as the case progresses; it’s another to park a six-figure sum in court upfront.

Bank Guarantee

A bank guarantee is a promise from your bank that they’ll pay the defendant’s costs (up to the guaranteed amount) if you lose and don’t pay the costs order yourself.

Pros: Doesn’t require upfront cash. The bank provides the guarantee, and you pay a fee (usually 1% to 3% per year of the guaranteed amount).

Cons: Requires a strong banking relationship and often security over your assets, property, cash reserves, or other collateral. If your business doesn’t have significant assets or a solid balance sheet, the bank won’t issue the guarantee.

For established businesses with good banking relationships, this can be a viable option. For smaller operators or startups, it’s often out of reach.

After-the-Event (ATE) Insurance

This is the option that’s gaining traction, particularly for larger claims.

ATE insurance is a policy that covers the defendant’s costs if you lose. You pay a premium (often structured as a percentage of the insured amount, payable upfront or over time), and the insurer provides the security.

Pros: Preserves cashflow. You’re not tying up capital or providing collateral to a bank. Scalable, policies can cover $30 million or more if needed. Courts increasingly accept ATE policies as valid security.

Cons: Premiums can be significant, depending on the risk profile of your case (typically 10% to 30% of the insured amount for high-risk litigation, lower for strong cases). And not all insurers offer ATE in Australia yet, though the market is growing.

The Victorian Supreme Court case approving $6 million in ATE insurance is a strong signal that courts are comfortable with this mechanism, particularly for large commercial disputes where cash or bank guarantees would be prohibitively expensive.

Which option is right for you?

It depends on your financial position, the size of the security order, and your access to banking or insurance markets. If you’re a well-capitalised business, a bank guarantee might be simple. If you’re cash-constrained but have a strong case, ATE insurance could be the smarter play.

What Happens If You Don’t Provide Security?

If the court orders security and you fail to provide it within the specified timeframe, the consequences are serious.

The most common outcome: your proceedings are stayed. That means your case is effectively paused. You can’t take any further steps, no discovery, no evidence, no trial, until you provide the security.

In some cases, the court will go further and dismiss your claim entirely. This is less common, but it happens, particularly if the court has given you multiple opportunities to comply and you haven’t.

Can you apply to have the stay lifted or the order varied?

Yes, but you’ll need compelling reasons. A change in your financial circumstances, new evidence of solvency, or a genuine inability to provide security despite best efforts might persuade the court to reconsider. But if you’re simply stalling or hoping the problem goes away, the court won’t be sympathetic.

Can you appeal the security order itself?

You can, but appeals are difficult. The original decision to order security is discretionary, and appellate courts are reluctant to interfere with discretionary decisions unless there’s clear legal error. You’ll need to show the judge misapplied the law or failed to consider critical evidence.

Practically, if you’re facing a security order you can’t meet, your options are:

One thing you can’t do: ignore it. If you do nothing, your case will be stayed or dismissed, and you’ll have wasted months of time and legal fees for no outcome.

How to Avoid or Minimise Security Risks Before Filing

The best time to deal with security for costs is before you file your claim.

Here’s how.

Audit Your Financial Position

If you’re a company, look at your balance sheet through the eyes of a defendant’s lawyer. Do you have sufficient reserves to meet a potential costs order at the end of trial? If the answer is no, or even maybe, you’re exposed to a security application.

Get your financials in order. If you’re planning major litigation, consider quarantining funds or arranging credit facilities to demonstrate solvency.

If you’re an individual, assess whether your assets and income can support a costs order. Courts are less aggressive with individuals, but if you’re unemployed, asset-poor, and bringing a speculative claim, you’re a target.

Strengthen Your Claim Before Filing

A strong, well-pleaded claim with clear evidence is your best defence against security applications. Courts are far less likely to order security if your case has genuine merit and good prospects of success.

Before you file, ask yourself: Can I summarise, in 30 seconds, why I should win this case? If you can’t, your lawyers can’t, and the judge won’t be convinced either.

Gather your key evidence early. Witness statements, documents, expert reports, whatever underpins your claim. If you can show the court a solid evidentiary foundation, the defendant’s security application loses force.

Explore ATE Insurance or Funding Early

Don’t wait until you’re served with a security application to start thinking about insurance. Get indicative quotes before you file.

ATE insurers assess the risk profile of your case. If they’re willing to provide cover, that’s a strong signal your claim has merit. If they won’t touch it, that’s a warning sign.

Litigation funders operate similarly. If a funder is willing to back your case, they’ve done due diligence and believe in your prospects. That credibility helps resist security applications.

Even if you don’t ultimately take out insurance or funding, having the option lined up gives you flexibility if a security order is made.

Consider Offering Undertakings

In some cases, you can head off a security application by offering an undertaking, a legally binding promise to the court that you (or your directors, if you’re a company) will personally meet any adverse costs order.

Courts don’t always accept undertakings in lieu of security, but they can be persuasive, particularly if given by individuals with assets and credibility.

If you’re a director of the plaintiff company, offering a personal undertaking shows you’re confident in your case and willing to back it financially. That can be enough to convince a court that formal security isn’t necessary.

File in the Right Jurisdiction

Security for costs rules vary slightly between jurisdictions. Federal Court, NSW Supreme Court, Queensland Supreme Court, they all have discretion, but the thresholds and approaches differ.

If you have a choice of where to file (for example, if your claim involves parties in multiple states), consider where security applications are less common or less aggressively pursued. Your lawyers should be able to advise on the strategic differences.

Recent Developments and What They Mean for Your Case

Security for costs law isn’t static. Courts continue to refine how they apply discretion, and new mechanisms like ATE insurance are reshaping the landscape.

ATE Insurance Gaining Judicial Acceptance

The 2025 Victorian Supreme Court decision approving a $6 million ATE policy as security is a significant shift. Historically, some judges were sceptical of insurance-based security, preferring cash or bank guarantees. But as the ATE market matures in Australia, courts are becoming more comfortable with it.

What this means for you: if you’re facing a large security order, ATE insurance is now a credible, court-accepted option. It’s no longer experimental.

Courts Weighing Strength of Claim More Heavily

Recent cases show courts are increasingly reluctant to order security against plaintiffs with genuinely strong claims, even if their financial position is weak. The principle: access to justice matters, and a meritorious claim shouldn’t be shut down purely because the plaintiff lacks capital.

If your case is solid and well-evidenced, that’s your strongest defence. Courts will balance the defendant’s risk against the injustice of preventing a legitimate claim from being heard.

Scrutiny of Third-Party Funding

As litigation funding becomes more common, defendants are targeting funders with security applications. Some courts have ordered funders themselves to provide security, on the basis that they stand to profit from the case but bear no cost risk if the plaintiff loses.

If you’re using a funder, expect the defendant to explore this angle. Make sure your funding agreement contemplates security orders and allocates responsibility clearly.

Timing and Delay Becoming Critical

Courts are cracking down on late security applications. If a defendant waits months into the case before applying, they risk being told they’ve waived the right or that the application is oppressive.

For plaintiffs, this is good news. If you’re deep into a case and suddenly face a security application, challenge it on timing grounds. The longer the defendant has waited, the weaker their position.

What to Do If You’re Served with a Security Application

You open an email. The defendant has filed an application for security for costs. They’re asking for $250,000.

What now?

Step 1: Instruct Your Lawyers Immediately

Time is critical. You typically have a short window to file responding evidence, often measured in days, not weeks. Your lawyers need to move fast.

Don’t assume the application will fail. Even if you think the defendant’s case is weak or your financials are solid, you need to respond properly and on time.

Step 2: Gather Financial Evidence

The court will want to see your financial position. If you’re a company, pull together:

• Recent financial statements (ideally audited)
• Bank statements showing cash reserves
• Evidence of ongoing revenue and trading
• Director affidavits addressing solvency and ability to meet a costs order

If you’re an individual, provide:

• Details of employment and income
• Asset schedules (property, savings, investments)
• Evidence of financial stability

Be transparent. If your finances are weak, hiding that fact won’t help. The court will assume the worst if you’re evasive.

Step 3: File Evidence on the Strength of Your Claim

Your best defence is showing the court that your case has merit. File affidavits or submissions that clearly set out:

• The key facts supporting your claim
• The legal basis (without legalese, clear, plain explanation)
• Why you’re likely to succeed

If you have strong documentary evidence, expert reports, or witness statements, put them before the court. The stronger your case looks, the less likely the court is to order security.

Step 4: Explore Your Options for Providing Security

Even as you’re fighting the application, start exploring how you’d provide security if the order is made.

Get indicative quotes from ATE insurers. Talk to your bank about guarantee facilities. Assess whether you can access cash if needed.

If you can show the court you’re prepared to provide security (even if you’re arguing you shouldn’t have to), that demonstrates good faith and can influence the court’s decision on the amount.

Step 5: Consider Settlement or Offers

Sometimes a security application is a wake-up call. If the defendant is confident enough to apply for security, they clearly think you’re exposed. That might be a good time to reassess your case.

Is settlement worth exploring? Can you make an offer that resolves the dispute without the cost and risk of providing security and continuing to trial?

You don’t have to capitulate. But a security application changes the cost-benefit calculus, and it’s worth considering your options.

Conclusion: Security for Costs Is Serious, But Manageable

Security for costs can feel like a brick wall dropped in front of your case. It’s designed to protect defendants from unrecoverable costs, but if you’re on the receiving end, it can be intimidating, expensive, and potentially case-ending.

But it’s not automatic. Courts have broad discretion, and they weigh multiple factors, your financial position, the strength of your claim, the timing of the application, the prejudice to both sides. A strong, well-evidenced case brought by a reasonably solvent plaintiff is unlikely to be stopped by a security order.

If you are ordered to provide security, you have options. Cash, bank guarantees, and ATE insurance all work, depending on your circumstances. The key is planning early, exploring alternatives, and not waiting until the order is made to start thinking about solutions.

And if you’re considering litigation and worried about security risk, the time to deal with it is now. Audit your finances, strengthen your evidence, get insurance quotes, and structure your case to minimise exposure. The worst time to discover you can’t provide security is after the court has ordered it.

Litigation is complex, yes. But the pathway through security for costs doesn’t have to be.

Disclaimer: This article provides general information only and does not constitute legal advice. Security for costs applications are fact-specific and require tailored legal advice based on your circumstances, jurisdiction, and the nature of your claim. If you are facing a security for costs application or are concerned about the risk of one being made, contact Aptum Legal or another qualified litigation lawyer immediately.