CIP Group Pty Ltd v So (No 10)

CIP Group Pty Ltd v So (No 10) [2025] FCA 1240 is a Federal Court decision about increasing security for costs shortly before trial. The Court was not deciding who should ultimately win the underlying commercial dispute. It was deciding whether the applicants should be required to put up more money to protect certain respondents if the proceeding failed and costs orders were later made against the applicants.

The Court granted both applications. It ordered additional security of $251,000 for the first and fourteenth to twentieth respondents, and $916,000 for the twenty-second and twenty-third respondents. It also varied an earlier order so that the existing $175,000, with accretions, would be held as security for the costs of each of the twenty-second and twenty-third respondents.

This is a litigation procedure case. It is not a decision that explains franchise law rules, despite the topic tags attached to the record.

The proceeding began on 25 March 2022. Later that year, Derrington J granted derivative leave under the Corporations Act so the Clancy parties could bring claims in the name of the Carver entities against certain respondents. That leave came with costs-related conditions, including undertakings to indemnify the Carver entities against adverse costs orders and to maintain funds to support that indemnity.

Over time, the case grew substantially. The Court recorded that there had been many amendments to the originating process and statement of claim. By late August 2025, the applicants were relying on a Second Further Amended Statement of Claim. The proceeding had also expanded to include additional respondents, including Mr Paul Wong and his firm Thynne & Macartney. The Court described the claims and defences as factually dense and in part legally complex.

The hearing timetable had also expanded. The trial was listed for four weeks from 24 November 2025 and then a further two weeks from 9 February 2026. Existing security was already significant, at about $1.67 million, but it was allocated across different purposes. Part supported the indemnity for the derivative claims, part secured Mr Wong’s costs, and part secured the So parties’ costs only up to the first day of trial.

The So parties and the TM parties each applied in September 2025 for the security arrangements to be varied and increased. The applicants resisted. They argued that the existing security was enough when looked at globally, that any fresh amount should be heavily discounted, that a material change in circumstances was needed before the Court could revisit earlier orders, and that delay should count against the applications, especially the TM parties’ application.

The Court made clear that this judgment does not tell the full commercial story behind the substantive dispute. McElwaine J expressly said the detail of the disputes between the parties is set out in earlier judgments, particularly CIP Group Pty Ltd v So (No 4), (No 5) and (No 8). So the present decision is best understood as a late-stage funding and costs protection ruling in a large commercial case, not as the main judgment on the underlying claims.

The central issue was whether the Court should increase existing security for costs shortly before trial, and if so by how much. That raised several practical and legal questions.

First, the Court had to decide whether the threshold for ordering more security was met. That was relatively straightforward because it was not disputed that the Clancy parties were impecunious in the relevant sense and there was a risk they would not be able to satisfy an adverse costs order.

Second, the Court had to decide how to measure the likely recoverable costs of the respondents. The applicants argued for a broad discount of about 50% from the figures identified by the independent costs expert, Ms Sharon Drew. The respondents argued that the Court should use those figures as the proper estimate of party-and-party costs.

Third, the Court had to deal with the applicants’ argument that an earlier contested security order should only be varied if there had been a material change in circumstances or new evidence. The applicants accepted at least one change, namely that the trial estimate had increased by two weeks, but argued against a broader variation.

Fourth, the Court had to consider delay. The applicants said delay was especially significant for the TM parties because they had known for some time about concerns regarding the adequacy of Mr Clancy’s personal undertaking and had not earlier insisted on further security as a condition of joinder.

Finally, the Court had to consider how the existing security should be treated. The applicants argued that if all existing funds were viewed globally, there was enough money already available. The Court had to decide whether that was a sufficient answer to the respondents’ applications.

A major feature of the decision was the evidence about costs. Ms Sharon Drew, an experienced costs consultant and solicitor, was engaged as an independent expert to assess the reasonableness of the respondents’ cost estimates and to estimate the amounts likely to be allowed as between party and party. The Court found her evidence useful and largely preferred it.

That preference mattered because the Court was not simply accepting whatever the respondents’ solicitors said they expected to spend. McElwaine J noted that estimating recoverable party-and-party costs is necessarily uncertain and requires a broad-brush approach. But the Court still preferred independent analysis over less detailed solicitor estimates. For the So parties, the Court noted that the solicitor evidence lacked supporting detail and that the supplementary evidence did not really engage with Ms Drew’s analysis. For the TM parties, the solicitor evidence was more detailed, but it was still not independent expert evidence.

The Court accepted Ms Drew’s estimate that the So parties’ likely recoverable party-and-party costs from the second day of trial to the conclusion of the hearing were about $775,000. It also accepted her estimate that the TM parties’ likely recoverable party-and-party costs for the entire proceeding were about $1.7 million before allowing credit for the existing $175,000 security.

The applicants also relied on the existence of the larger security pool already held to support the indemnity for the derivative claims, and on Mr Clancy’s personal undertaking. But the Court noted that earlier doubts about the worth of that personal undertaking had not been dispelled. The applicants also did not adduce evidence showing that they could not provide the additional security or that requiring it would stultify the proceeding. That absence of evidence was important.

The Court held that additional security should be provided to both respondent groups. McElwaine J said the threshold for the exercise of the discretion was met because the Clancy parties were impecunious and would be unable to satisfy an adverse costs order. The Court emphasised the protective purpose of security for costs. It is meant to strike an appropriate balance between allowing an impecunious applicant to continue litigation and protecting a successful respondent from the frustration of a later costs order.

For the So parties, the Court accepted that the existing security only covered costs up to the first day of trial. The risk of non-recovery for costs from the second day of trial onward was therefore real. The Court accepted Ms Drew’s estimate of about $775,000 as a reasonable estimate of recoverable party-and-party costs for that period.

The Court rejected the applicants’ submission that a broad discount of around 50% should be applied. It explained that in some cases a discount is used to move from actual or indemnity costs to a reasonable estimate of recoverable party-and-party costs. But here, Ms Drew’s figures already represented estimated recoverable party-and-party costs. The Court said a discount for contingencies might sometimes be appropriate, for example if a trial may take less time than expected, but it declined to apply one here, particularly because the applicants had not shown they could not provide the extra security.

For the TM parties, the Court accepted Ms Drew’s estimate of about $1.7 million for the entire proceeding, before crediting the existing $175,000 security. Again, the Court rejected a broad discount. However, it accepted that there had been identifiable delay in the TM parties seeking further security and applied a modest 5% discount on a broad-brush basis to carve out part of the costs incurred during the delay period.

On the argument about changed circumstances, the Court said that even if a material change were required, it was present here. The trial estimate had increased by two weeks, and the claims had been considerably expanded when leave to amend was granted on 25 August 2025, including new claims of fraud and dishonesty against Mr So. More broadly, the Court said the discretion under s 56(3) of the Federal Court of Australia Act to reduce or increase security is unfettered and turns on the facts and circumstances of the case.

The Court also rejected the applicants’ global submission that the total existing security pool was enough. It said the extent to which the unallocated amount of the existing security might later be applied in satisfaction of costs orders was a separate issue and did not answer the need for additional protective orders now.

For a business bringing a claim, the main message is that litigation funding risk can increase as the case develops. If your company has limited assets, the other side may seek security for costs early, and may come back for more if the case becomes larger, the pleadings are widened, or the trial estimate grows. That can create a serious cash-flow issue even if you believe strongly in the merits of the claim.

This case also shows that the Court may place significant weight on independent costs evidence. If you want to resist a security application or an increase, broad submissions may not be enough. Evidence about your financial position, your ability to provide security, and whether the order would effectively stop the case from continuing can be critical. Here, the applicants did not put on evidence that they could not provide the extra security or that the proceeding would be stultified, and that mattered.

For a business defending a claim, the decision confirms that an earlier security order is not necessarily the end of the issue. If the applicant is impecunious and the case changes materially, a further application may be worthwhile. The Court was willing to revisit security because the trial had become longer and the claims had expanded.

The case also contains a practical warning about relying on personal undertakings from owners or directors. A promise to stand behind a company’s costs exposure may carry limited weight if there is not persuasive evidence of means. If you want the Court to treat a personal undertaking as meaningful protection, you should expect close scrutiny.

Is this a franchise case? Not in any practical sense for this judgment. The decision is about security for costs in Federal Court litigation. It does not set out franchise law rules or decide a franchise law issue on the material discussed in these reasons.

Does an earlier security order lock the amount in place? No. This case shows the Court can revisit security later if the proceeding changes, including where the trial becomes longer or the claims are expanded.

Can a respondent ask for security very late in the case? Yes, although delay can matter. Here, the Court still ordered more security shortly before trial, but it applied a modest 5% discount to the TM parties’ amount because of delay.

Will the Court automatically reduce estimated costs by 50%? No. The Court rejected that approach here because the accepted expert evidence already estimated recoverable party-and-party costs rather than full indemnity costs.

What if the applicant says the order will stop the case? Evidence is critical. In this matter, the applicants did not adduce evidence that they could not provide the additional security or that the proceeding would be stultified, and that was an important factor.

The judgment was delivered on 10 October 2025. The Court ordered the additional security to be provided by 4 pm on 31 October 2025. It also gave the applicants liberty to apply by 30 October 2025 to vary that time if supported by affidavit evidence from a person with direct knowledge of the facts.

The Court further granted liberty to the relevant respondents to apply for orders to stay or dismiss the proceeding if the additional security was not provided. The costs of the interlocutory applications were reserved.

The underlying substantive dispute was not determined by this judgment. The reasons make clear that the fuller detail of the disputes appears in earlier decisions in the same proceeding.

This page is based on the Federal Court judgment in CIP Group Pty Ltd v So (No 10) [2025] FCA 1240, delivered by McElwaine J on 10 October 2025. The judgment itself refers readers to earlier decisions for the detailed background to the underlying dispute, especially CIP Group Pty Ltd v So (No 4) [2024] FCA 1372, CIP Group Pty Ltd v So (No 5) [2024] FCA 1373 and CIP Group Pty Ltd v So (No 8) [2025] FCA 482.

Because this decision is focused on security for costs, it should be read as a procedural explainer about litigation risk, costs protection and case management rather than a full summary of the substantive commercial allegations.