Federal Court of Australia

Probis Financial Services Pty Ltd (in liq) v Kong (No 3) [2026] FCA 1409

ORDERS

THE COURT ORDERS THAT:

1.    The respondent’s interlocutory application filed on 6 July 2026 be dismissed.

2.    The respondent pay the applicants’ costs of that application, as agreed or assessed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GOODMAN J:

A.    Introduction

1    These reasons for judgment address an application by the respondent, Mr Kong, for an order that the first applicant (Probis Financial Services Pty Ltd (in liquidation)) and the second applicants (being the joint liquidators of Probis), provide security for Mr Kong’s future costs of the proceeding, together with ancillary orders.

2    For the reasons developed below, the application must be dismissed.

B.    Background

3    On 17 July 2023, Probis was placed into administration and the second applicants were appointed as its administrators.

4    On 13 September 2023, the applicants commenced this proceeding.

5    On 14 September 2023 and following an ex parte hearing, Justice Yates made an interim world-wide freezing order against the assets of Mr Kong, together with ancillary orders.

6    On 14 November 2023 and following a contested hearing, I made an order extending the freezing order until further order of the Court: see Probis Financial Services Pty Ltd (administrators appointed) v Kong [2023] FCA 1398 (Probis (No 1)).

7    On 22 November 2023, the applicants filed a statement of claim.

8    On 22 December 2023, Mr Kong filed a defence to the statement of claim.

9    On or about 20 February 2024, Probis entered into liquidation. The second applicants were appointed as the liquidators of Probis.

10    On 20 May 2024, the liquidators filed with the Australian Securities and Investments Commission (ASIC) a statutory report to creditors. That report stated that Probis had cash at bank of $597,651.90 as at 20 May 2024.

11    On 16 July 2024, orders were made for the parties to file any further evidence upon which they intended to rely at the final hearing.

12    On 27 August 2024, the liquidators issued a report to the creditors of Probis, which included a proposed dividend totalling $1,750,000 to priority and ordinary unsecured creditors of Probis. That dividend was paid.

13    Between 5 March 2025 and 30 September 2025, the parties exchanged discovery categories, conferred on and agreed the scope of discovery, discovered documents and filed affidavits verifying their discovery.

14    On 15 May 2025, the liquidators lodged with ASIC an annual administration return for the period ending 19 February 2025. That return recorded that Probis had cash at bank of $262,315.88 as at 19 February 2025.

15    In December 2025, the parties participated in an unsuccessful mediation.

16    On 4 February 2026, the proceeding was set down for final hearing to commence on 14 December 2026.

17    On 12 February 2026 and pursuant to leave granted on that day, the applicants filed an amended statement of claim.

18    On 17 March 2026, Mr Kong filed a defence to the amended statement of claim.

19    On 18 May 2026, the liquidators lodged with ASIC an annual administration return for the period ending 19 February 2026. That return recorded that Probis had cash at bank of $6,449.44 as at 19 February 2026.

20    On 15 June 2026, the solicitors for Mr Kong wrote to the solicitors for the applicants concerning security for costs (15 June 2026 letter). That letter was in the following terms:

1.     Security for costs

1.1    We note that:

(a)     having regard to the claims made, and relief sought, in the Proceedings, the substantive applicant is Probis Financial Services Pty Ltd (in liquidation) (the First Applicant) (Probis);

(b)     the Liquidators of Probis (Second Applicants) are causing Probis to prosecute the Proceedings; and

(c)     since commencement of the Proceedings, Probis’ creditors resolved to place Probis into insolvent liquidation, which liquidation is continuing.

1.2     Our client has a genuine, and reasonable, concern that Probis has insufficient assets to pay an adverse costs order, if our client is successful in defending the Proceeding. The basis for that concern is as follows.

1.3     First, we understand that the annual administration return lodged by the Liquidators on 18 May 2026 (included as Annexure A to this letter) is the most recent published return regarding Probis’ winding up. That return indicates that, as at 19 February 2026:

(a)     The Liquidators had “cash at bank” of $6,449.44. This represents a substantial decline from:

(i)     $262,315.88 cash at bank as at 19 February 2025, as set out in the annual administration return lodged by the Liquidators on 15 May 2025 (included as Annexure B to this letter); and

(ii)     $597,651.90 cash at bank as at 20 May 2024, as set out in the Liquidators’ statutory report to creditors dated 20 May 2024 (included as Annexure C to this letter).

(b)     The Liquidators had approved remuneration of $957,748.55, of which $719,788.30 had been paid. Assuming the “cash at bank” was applied towards the shortfall, this would leave a cash shortfall of $231,510.81.

(c)     Future realisations for the liquidation are estimated as being $22,958.01.

1.4     Our client anticipates that substantial further liabilities will be incurred, both in the Liquidation and in the Proceedings (including legal fees).

1.5     Secondly, our client is not aware that your clients have any litigation funding agreement, or other indemnity (or insurance), from a third party, including any creditor in the Probis liquidation. Please advise if any litigation funding agreement or indemnity (or insurance) is held by your clients.

1.6     Thirdly, your clients have recently commenced proceedings in the High Court of Hong Kong against our client (Proceedings HCMP 2334 of 2025). As addressed in separate correspondence, the freezing order sought in those proceedings are a breach of an undertaking provided by your clients to the Federal Court, and in respect of which your clients have foreshadowed bringing an application in the Federal Court for leave. This will require further fees be incurred, which will dissipate Probis’ limited assets.

1. 7     Accordingly, our client’s present conclusion is that Probis has had most (if not all) of its available cash dissipated during the Proceedings, and presently has insufficient assets to satisfy any adverse costs order made in the Proceedings.

1.8     Having regard to the above matters, our client’s position is that Probis should provide security for our client’s future costs of the Proceedings.

2.     Amount of security

2.1     In light of the significant decline in the Liquidators’ cash at bank, our client considers he would be entitled to security for costs.

2.2     Our client will only press for security to be provided for his anticipated costs on and from the date of this letter, up to and including the conclusion of trial.

2.3     We estimate our client’s actual costs for that period to be in the order of $876,333.04 (including GST), as explained in the Schedules to this letter. For the purposes of conferral, and having regard to the discretion available to the Court, our client is prepared to offer a compromise in the form of a discount on our fees in the order of 35%, and on disbursements in the order of 10%. Accordingly, our client requests that your clients provide security in the amount of $646,508.24 (including GST).

…

(bold and italic emphasis in original; footnotes omitted)

21    This was the first time that the applicants became aware of Mr Kong’s intention to seek security for costs. As at that date, the applicants’ legal costs and disbursements were in the order of $720,000.00.

22    On 22 June 2026, the solicitors for the applicants replied, indicating that the applicants would not provide security for costs voluntarily.

23    On 6 July 2026, the solicitors for Mr Kong filed the present application. It is supported by an affidavit of Mr Kong’s solicitor, Mr David Jenaway. The applicants resist the application and rely upon an affidavit of their solicitor, Mr Jonathan O’Loughlin.

24    The costs in respect of which security is sought are future costs. In this regard, Mr Jenaway has provided evidence that the remaining steps to be taken in the proceeding are, in broad terms:

(1)    reviewing documents produced by the liquidators of Mars Cap Limited (in liquidation) (MCL) in response to a subpoena;

(2)    considering, and if appropriate, preparing and filing further evidence following a review of the documents referred to in (1);

(3)    administrative trial preparation including conferral on any electronic hearing protocol, consideration of the eCourtbook and usual preparations for trial;

(4)    substantive trial preparation, including proofing of lay and expert witnesses and the preparation of written and oral submissions;

(5)    preparing for and attending further case management hearings;

(6)    other miscellaneous activities including legal research, drafting chronologies and general care and conduct of the proceeding (including correspondence with the applicants); and

(7)    attending the hearing.

25    Mr Jenaway has provided an estimate of recoverable costs involved in taking those steps in the order of $646,000.00. Mr O’Loughlin has provided a counter-estimate in the order of $387,700.00.

26    Mr O’Loughlin also provided evidence on information and belief from, Mr Richard Albarran one of the liquidators, that:

(1)    when the proceeding was commenced in September 2023, he had expected that, if Mr Kong were to seek security for costs this would occur at a relatively early stage of the proceedings;

(2)    at least by the time that orders were first made for service of the parties’ lay evidence on 16 July 2024, he had assumed that security for costs was not sought;

(3)    the substantial majority of the costs incurred by the applicants were incurred on the assumption that Mr Kong did not seek security for costs;

(4)    the applicants sought to raise third party litigation funding on a commercial basis, but were unable to obtain any offers of funding;

(5)    he does not consider third party litigation funding is likely to become available in respect of the applicants’ prosecution of the proceeding having regard to the level of Mr Kong’s assets that are available for enforcement in Australia;

(6)    if Mr Kong had successfully sought security for costs at or near the commencement of the proceeding or in early to mid-2024 then the liquidators would not have declared the dividend to creditors and would instead have utilised those funds for security for costs had that been ordered or agreed;

(7)    the applicants are not funded by an external or third party litigation funder;

(8)    the applicants were initially funded from Probis’s cash at bank and recoveries made in the administration or liquidation of Probis;

(9)    the applicants are now being funded by the liquidators’ firm, Hall Chadwick (NSW) Pty Ltd;

(10)    Hall Chadwick expects to reimburse itself for amounts funded or incurred in respect of the proceeding from any recoveries made in the proceeding;

(11)    Hall Chadwick is not charging a commercial funding return or uplift; and

(12)    if security were ordered, then Hall Chadwick would need to consider whether it was able to provide security having regard to the amount of security ordered, the applicants’ prospects of success, the likelihood of recovering any judgment sum (including any amount payable under an adverse costs order) against Mr Kong, and the amounts already expended in progressing the proceeding.

C.    consideration

C.1    Relevant principles

27    The application is brought pursuant to s 1335 of the Corporations Act 2001 (Cth), s 56 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and r 19.01(1) of the Federal Court Rules 2011 (Cth).

28    The applicable principles are well-established and were conveniently summarised by Allsop CJ in All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840 at [40] to [42]:

40    Where the applicant is a corporation, the Court is empowered to order security for costs pursuant to s 1335 of the Corporations Act if “it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant”. Once this threshold is met, the Court will turn to the matters relevant to the exercise of its discretion to order security for costs: Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; 98 ACSR 301.

41    Section 56 of the Federal Court of Australia Act does not expressly impose any threshold to be met before the Court considers the various discretionary matters. However, the applicant’s inability to pay the costs of the respondent remains an important consideration in the exercise of the Court’s discretion.

42    The Court’s discretion to require the provision of security for costs is broad and the factors informing the exercise of that discretion cannot be stated exhaustively. The only limitation is that the discretion be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCAFC 29; 2 FCR 1 at 3. The matter which lies at the heart of the discretion is one of fairness, both in terms of whether security should be granted, and if so, in what amount: Madgwick v Kelly [2013] FCAFC 61; 212 FCR 1 at 21 [92]. The Court aims to achieve a “balance between ensuring that adequate and fair protection is provided to the defendants, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings”: Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470 (Giles J).

(italic emphasis in original)

29    The Court’s discretion should be exercised having regard to all of the circumstances of the case (see Merribee Pastoral Industries Pty Limited v Australia and New Zealand Banking Group Limited [1998] HCA 41; (1998) 193 CLR 502 at 513 [26] (Kirby J)).

C.2    Enlivenment of the discretion

30    It is common ground that Probis is impecunious. Thus, in so far as the application is based upon s 1335 of the Act, the discretion conferred by that section is enlivened. The discretion, in so far as it is conferred by s 56 of the FCA Act or r 19.01(1) of the Rules, is not subject to such a threshold requirement.

C.3    Exercise of the discretion

31    The following matters are salient to the exercise of the discretion.

32    First, the impecuniosity of Probis is a matter relevant not only to the enlivenment of the discretion under s 1335 of the Act, but also to the exercise of the discretion generally to require an applicant to provide security for costs. It follows from the impecuniosity of Probis that it is unlikely that Mr Wong would be able to enforce a costs order in his favour in the absence of an order for security.

33    Secondly, there has been considerable delay in making the present application. It is a principle of long standing that applications for the provision of security for costs are to be brought promptly: see, e.g., Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114 at 123 (Waddell J); Devenish v Jewel Food Stores Pty Ltd [1990] HCA 35; (1990) 64 ALJR 533 at 534 (Mason CJ); KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189 at 197 (Beazley J); Li v State of New South Wales [2013] NSWCA 165 at [37] to [39] (Ward JA); and Moubarak by his tutor Coorey v Holt (No 2) [2019] NSWCA 188 at [13] (Bell P).

34    More recently, in Big Review TV Ltd (in liq) v FC Securities Pty Ltd [2025] FCA 222, Moore J explained at [30] to [32]:

30    There is a general principle that applications for security must be made promptly: Devenish v Jewel Food Stores Pty Ltd [1990] HCA 35; (1990) 94 ALR 664 (Devenish) at 666 per Mason CJ; Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 (Bryan E Fencott) at 514 per French J. There are sound reasons for this. If a plaintiff is going to have to put up funds for the potential cost exposure of the defendant, it is important to know this in advance before legal costs are expended. In Buckley v Bennell Design and Constructions Pty Limited (1974) 1 ACLR 301 (Buckley) at 309, Moffitt P made the following observations:

The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money towards litigating its claims.

31    As was observed in Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 (Christou) at [20] per Newnes JA (Murphy JA agreeing), “[s]ecurity for costs is not a card that a defendant can keep up its sleeve and play at its convenience”.

32    In Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 (Green), the Court was dealing with a situation involving, inter alia, a multi-year delay in the bringing of an application for security. Hodgson JA, with whom Campbell JA agreed, made the following observations at [57]:

In my opinion, it is not necessary, in order for a plaintiff to show prejudice from delay, that the plaintiff prove what the plaintiff would have done if the application had been made earlier … In my opinion, where substantial costs have been incurred since the time when an application for security should have been brought, it would be unreasonable to deny the existence of prejudice unless the plaintiff can prove exactly what the plaintiff would have done if the application had been brought earlier.

(bold and italic emphasis in original)

35    However, in view of the breadth of the discretion, such delay is not of itself necessarily fatal to the application. As Bell P and Simpson AJA explained in PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48 at [11], delay will invariably be a relevant discretionary factor in any application for security for costs, but the degree and extent of its relevance will vary according to the circumstances of the particular case, along a spectrum from the slight to the extreme. Similarly, in All Class Insurance Brokers, Allsop CJ explained at [58]:

Applications for security for costs ought to be brought promptly. Precisely how any delay in applying for security for costs will impact on the exercise of the Court’s discretion will depend on the prejudice likely to be suffered by the respondent to the application and the reasons, if any, for the delay in applying for security: see Jianshe Southern Pty Ltd v Get Motor Cycles Pty Ltd (No 3) [2007] FCA 1078 at [30] (Besanko J).

(italic emphasis in original)

36    In the present case, there has been significant delay in the bringing of the application. In particular, the application was first foreshadowed in June 2026:

(1)    despite Probis having been in administration at the date of the commencement of the proceeding in September 2023, and placed into liquidation shortly thereafter;

(2)    despite the existence of publicly available information as at 20 May 2024 indicating that Probis had cash at bank of less than $600,000.00 (i.e. a figure that must have been less than Mr Kong’s estimated future costs as at that date, given that the estimate of his future costs more than two years later as at June 2026, is in the order of $650,000.00);

(3)    about three years after the proceeding had commenced in September 2023; and when the hearing was six months away;

(4)    at a time when the applicants had incurred costs in the order of $720,000.00; and

(5)    almost two years after the dividend referred to at [12] above had been paid.

37    The delay is not explained in Mr Jenaway’s affidavit. That affidavit does refer to various cash at bank figures over time. However, there is no evidence, on information and belief or otherwise, that these figures were taken into account by Mr Kong or his advisors as a reason not to seek security at any time prior to the 15 June 2026 letter. Indeed, there is no satisfactory explanation provided as to why the present application was not foreshadowed until June 2026.

38    Further, there is evidence of actual prejudice to the applicants. In particular, Probis paid a dividend that it would not have paid if the present application had been brought promptly. Such funds could have been used to provide security, but are no longer available.

39    There is further potential prejudice, given the evidence that if security were to be ordered, then Hall Chadwick would need to consider whether it was able to provide security having regard to the amount of security ordered, the applicants’ prospects of success, the likelihood of recovering any judgment sum against Mr Kong, and the amounts already expended in progressing the proceeding.

40    Thus, I consider the delay in seeking an order for security and its consequences, particularly in a context in which no satisfactory explanation has been provided to be of considerable moment in the exercise of the discretion.

41    Thirdly, the extent to which the making of an order that the applicants provide security for Mr Kong’s costs would stultify the proceeding.

42    As noted above, the evidence establishes that if an order were to be made requiring the applicants to provide security for costs, then Hall Chadwick would need to consider whether it was able to provide security.

43    From this evidence, the Court cannot be satisfied that if the applicants were required to provide security for costs, then the proceeding would be stultified. Indeed, counsel for the applicants indicated that he did not invite the Court to make a finding that the proceeding would be stultified, but that the Court should find that there is a real risk that this could occur and that the presence of such a risk is itself a factor to be weighed in the balance.

44    I am satisfied that there is a risk of stultification but the state of the evidence does not allow any assessment of the likelihood of that risk. As such, I treat the risk of stultification as a neutral factor in the exercise of the discretion.

45    Fourthly, the position of Hall Chadwick in providing support to Probis for the proceeding. This consideration is, as counsel for Mr Kong submitted, related to the issue of stultification because the Court should be less inclined to accept that a proceeding is likely to be stultified by an order requiring the provision of security for costs where those who stand to benefit from the proceeding are able to provide security.

46    As I regard the risk of stultification as a neutral factor in the exercise of the discretion it is unnecessary to consider the position of Hall Chadwick as a potential provider of security in any detail. It is sufficient to note that I do not accept the submission made on behalf of Mr Kong that: (1) Probis has secured funding from Hall Chadwick; (2) Hall Chadwick stands to obtain a commercial benefit from the pursuit of the proceeding; and (3) as a result, Hall Chadwick ought not be allowed to rely upon the impecuniosity of Probis to shield itself from an adverse costs order.

47    The evidence establishes that: (1) the applicants are being funded by Hall Chadwick; (2) Hall Chadwick expects to reimburse itself for amounts funded or incurred in respect of the proceeding from any recoveries made in the proceeding; and (3) Hall Chadwick is not charging a commercial funding return or uplift. As such, the position of Hall Chadwick is analogous to that of a solicitor who has agreed to act on a conditional or “no-win/no fee” basis. As Allsop CJ and Middleton J observed in Madgwick v Kelly [2013] FCAFC 61; (2013) 212 FCR 1 at 11 to 14 ([41] to [47]), a lawyer acting on a conditional costs basis is not to be regarded as a person standing behind litigation or seeking to benefit from the litigation in the relevant sense so as to be taken into account as a person who can reasonably be required to contribute to a fund to service the costs of a respondent. Further, as Derrington J observed in General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited (No 2) [2023] FCA 556 at [142] to [152]:

(1)    a liquidator who is charging on a time basis is not thereby a person who “benefits” from the proceeding in the sense that the liquidator’s assets should be taken into account in determining whether the making of an order for the provision of security for costs would stultify the proceeding; and

(2)    requiring such a liquidator to provide security for costs may place the liquidator in a position of conflict between the liquidator’s duty to act in the interests of the company and its creditors on the one hand and the liquidator’s financial interest on the other.

48    Finally, the extent to which Mr Kong might be considered to be the cause of Probis’s impecuniosity.

49    Probis contends in this proceeding, in broad terms, that: (1) it placed significant funds with MCL, which MCL was to hold on trust for it; (2) Mr Kong, the sole shareholder and director of MCL, has admitted that he caused the payment of those funds to be paid to third parties; and (3) the reason that Probis is unable to meet an adverse costs order is Mr Kong’s conduct in disbursing those funds.

50    Again, in circumstances where the risk of stultification is a neutral factor, this issue is of less significance. Nevertheless, I note that in Probis (No.1) the Court held that, for the purposes of the application for the freezing order, there was a sufficiently arguable case that: (1) MCL owed fiduciary obligations with respect to the funds provided by Probis to MCL; (2) MCL, qua fiduciary, engaged in a dishonest and fraudulent design; and (3) Mr Kong had the requisite knowledge of MCL’s dishonest and fraudulent design.

51    Taking all of the above matters into account – and in particular the delay in seeking an order for the provision of security and the consequences of that delay – the appropriate exercise of the discretion in the present case is not to require the applicants to provide security for Mr Kong’s costs.

D.    Conclusion

52    For the foregoing reasons, the application must be dismissed. Costs should follow the event. I will make orders accordingly.

Associate:

Dated:    24 September 2026