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Its Eco Pty Ltd v BPS Financial Limited [2022] FCA 842[1]

Security for costs (SFC) orders cannot usually be made against individuals, unlike corporations, in class actions in the Federal Court of Australia (the general rule).[2]

However, builders and/or their insurers should be relieved as the Federal Court of Australia (FCA) has recently confirmed that SFC can be ordered against lead applicants in class actions who are individuals. This overcomes the problem created by the general rule: that previously, respondents could not seek SFC from lead applicants of class actions if they were individual owners of residential complexes.

The general rule revised

In Eco v BPS, Justice Derrington held that in class actions, SFC can be ordered against lead applicants who are individuals because under the general rule it is unfair that:

  • if successful, the respondents can only recover from the lead applicants, not the members of the “class” for whom the action is brought; in particular, class members intentionally appoint an impecunious individual to be the lead applicant, so that respondents effectively have no recourse to costs even if they successfully defend the claim; while,
  • if unsuccessful, the respondents are liable for the costs of all class members (i.e., not just the lead applicants), which may be substantial.[3]

This unfairness is specific to class actions over other types of litigation because in class actions, only the lead applicant(s) is liable for any costs, even if they may be impecunious. It justifies departing from the general rule in class actions.

Key Takeaways

In FCA class actions brought by strata lot owners, builders can now seek SFC from the lead applicants because their status as an individual will no longer shield them from a SFC order.

If you would like to discuss this article with us further, please contact, Brett Vincent, partner, or Angie Kim, graduate lawyer on (02) 9261 5900.

[1] (Eco v BPS).

[2] Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523. Please note that Federal Court of Australia Act 1976 (Cth) (FCAA) s43(1A) renders individuals in class actions immune from costs orders. However, Eco v BPS held that FCAA s43(1A) does not inhibit SFC in class actions.

[3] See esp, Eco v BPS at [58].