Zreika v Client Management Systems Australia Pty Ltd (in Liquidation) and Ors (No.2)

This matter concerned an application by the liquidator of Client Management Systems Australia Pty Ltd (in Liquidation) (CMS) and two other respondents for an order that the plaintiff, Mr Zreika, provide security for costs. The application was brought pursuant to section 561 of the Corporations Act 2001 (Cth) and rule 62.02 of the Supreme Court (Corporations) Rules 2015 (Vic). The plaintiff had commenced proceedings against the respondents seeking, among other things, declarations that certain transactions were voidable as against CMS and orders for the recovery of property.

The primary legal issue before the Court was whether the plaintiff, Mr Zreika, should be ordered to provide security for the costs of the proceedings. This required the Court to consider the circumstances under which security for costs may be ordered against a plaintiff, particularly in the context of insolvency and the potential for the plaintiff to be unable to pay the costs of the defendants should they be successful. The Court also had to assess the strength of the plaintiff's case and the potential prejudice to the plaintiff if security were ordered.

Judge Jones reasoned that an order for security for costs under section 561 of the Corporations Act required the Court to be satisfied that there was reason to believe the plaintiff would be unable to pay the costs of the defendants if unsuccessful. The Court considered the plaintiff's financial position and the fact that he was not a resident of Australia. While acknowledging the plaintiff's submissions regarding the merits of his case, the Court found that the potential for the plaintiff to be unable to satisfy a costs order, coupled with his non-residence, weighed in favour of granting security. The Court applied the principles that security for costs is a procedural matter aimed at ensuring a defendant is not left without recourse for their costs, and that the merits of the case are a relevant, though not determinative, factor.

The Court ordered that the plaintiff provide security for the costs of the proceeding in the sum of $100,000, to be paid into court within 28 days. The proceedings were stayed pending compliance with the order.