What if an adverse costs insurance policy cannot secure defence costs?

Introduction

The Federal Court of Australia recently heard argument about whether an insurance policy offering protection against an adverse costs liability could be proffered as sufficient security for costs.

This week, the Court handed down its decision rejecting the sufficiency of the particular policy and requiring the plaintiff to provide bank guarantees (or such other security as the parties might agree upon) failing which the proceedings would be stayed.

This decision may significantly undermine the benefits of this type of policy in Australia.

Background

The proceedings are representative proceedings brought pursuant to the provisions of the Federal Court of Australia Act.