Supreme Court New South Wales Medium Neutral Citation: Metro Environmental Logistics Pty Ltd v Newcastle Port Corporation (No 5) [2024] NSWSC 714 Hearing dates: 20 and 28 May 2024; further evidence 23 May 2024 and 3 June 2024; further submissions 24 May & 4 June 2024 Decision date: 13 June 2024 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Defendant's application for further security for costs is refused Catchwords: COSTS – security for costs – where defendant seeks order that the plaintiff provide security for costs up to the conclusion of evidence – where plaintiff accepts that it will be unable to pay defendant's costs if ordered at final hearing – where plaintiff is a dormant operating company with sole purpose of prosecuting these proceedings – whether proceedings would be stultified if an order for security was made – where commercial litigation funding not available – where persons associated with directors and shareholders of plaintiff have entered litigation funding agreement pursuant to which they will share in any claims proceeds – whether such persons will or could reasonably be expected to provide any further funding – where individuals standing behind majority shareholders have proffered undertakings to pay defendant's costs in the event the plaintiff is ordered to pay defendant's costs – whether proffered undertakings have any value – whether proceedings involve a matter of public interest – whether application for security made promptly – security not ordered Legislation Cited: Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Anderson v Canaccord Genuity Financial Ltd [2020] NSWSC 1852 Brown v King [2022] NSWCA 75 CBX2 Pty Ltd v National Australia Bank (No 2) [2015] NSWSC 1969 Chapel Road Pty Limited v Australian Securities Investments Commission (No 6) [2012] NSWSC 511 Cornelius v Global Medical Solutions Australia Pty Ltd; Farag v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65 Equity Access Limited v Westpac Banking Corporation [1989] FCA 520 Flip Out Thornton Pty Ltd v Flip Out - Trampoline Arena Franchises Pty Ltd [2023] NSWSC 1094 Grocon Group Holdings Pty Limited v Infrastructure NSW [2020] NSWSC 1194 ILC Group v Sydney Water Corporation [2014] NSWSC 1407 In the matter of Australasian Hail Network Pty Ltd [2020] NSWSC 44 Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 142 FLR 71; (1997) 18 WAR 306 Jazabas Pty Ltd v Haddad [2007] NSWCA 291 Li v State of New South Wales [2013] NSWCA 165 Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 LRSM Enterprise Pty Ltd v Zurich Australian Insurance Limited [2014] NSWCA 88 Metro Environmental Logistics Pty Ltd v Newcastle Port Corporation (No 4) [2024] NSWSC 657 Smail v Burton; Re Insurance Associates Pty Ltd (in liquidation) [1975] VR 776 Wollongong City Council v Legal Business Centre Pty Limited [2012] NSWCA 245 Zenith Corporation Australia Pty Ltd v Optus Mobile Pty Ltd [2020] NSWSC 1110 Category: Procedural rulings Parties: Metro Environmental Logistics Pty Ltd (Plaintiff/Respondent) Newcastle Port Corporation trading as Port Authority of New South Wales (Defendant/Applicant) Representation: Counsel: S T White SC / D Tynan (Plaintiff/Respondent) J A Hogan-Doran SC / A A Cameron (Defendant/Applicant) Solicitors: McCullough Robertson Lawyers (Plaintiff/Respondent) HWL Ebsworth Lawyers (Defendant/Applicant) File Number(s): 2022/101288 JUDGMENT 1. The background to this matter set out in my judgment of 29 May 2024. [1] 2. To repeat, the plaintiff, Metro Environmental Logistics Pty Ltd ("MEL"), alleges that the defendant, Newcastle Port Corporation trading as Port Authority of New South Wales ("Port Authority"), engaged in unconscionable conduct in relation to the proposed development and use of a Multi-User Facility to be located at Glebe Island in Sydney. 3. MEL and Port Authority entered an Agreement for Lease in December 2018 pursuant to which Port Authority was to construct a Multi-User Facility at Glebe Island, and MEL was to have the exclusive use of a portion of that facility for the bulk importation and despatch of sand. 4. In March 2019, Port Authority terminated the Agreement for Lease on the grounds that MEL had failed to satisfy certain conditions precedent that, MEL contends, Port Authority was aware MEL could not meet when introduced into the Agreement for Lease. 5. MEL alleges that Port Authority thereby engaged in unconscionable conduct and claims reliance damages of more than $4 million and loss of profits of some $297 million from 2019 for a period of up to 20 years. 6. The proceedings have reached a stage where MEL has served its lay and expert evidence in chief and Port Authority has served some evidence. 7. Now, by Notice of Motion filed on 12 March 2024, Port Authority seeks an order that MEL provide security for Port Authority's costs up to the conclusion of its evidence in the sum of some $950,000. 8. MEL has already provided $363,000 security for earlier stages in the proceedings. [2] 9. MEL accepts that it will be unable to pay Port Authority's costs of defending the claim were it ordered to do so. MEL has not been an operating company since the termination of the Agreement for Lease by Port Authority. It has no assets. Its sole purpose is to prosecute these proceedings. 10. There is thus not only reason to believe that MEL will be unable to pay Port Authority's costs if Port Authority is successful; [3] it is certain that MEL will be unable to do so. Thus, the evidentiary onus shifts to MEL to show why, as a matter of discretion, security should not be granted. [4] 11. There is no dispute that: 1. I should determine this application on the basis that MEL's claims are bona fide, have reasonably arguable prospects and that there are real issues to be tried; and 2. $950,000 is a reasonable estimate of the quantum of security that should be provided to the conclusion of Port Authority's evidence, if the provision of security is otherwise appropriate. 1. MEL opposes orders being made for further security because: 1. an order for the provision of further security will, it is alleged, stultify the proceedings; 2. two of its ultimate shareholders, Mr Tony Ellis and Mr Luke Deane, have agreed to provide undertakings to the Court to pay any adverse costs order made against MEL and to not take any steps to dissipate their assets; 3. the proceedings involve matters of public importance; 4. the nature of the parties is such that security ought not be ordered; and 5. the application for security has not been made promptly. Stultification? 1. A factor relevant to whether it is appropriate to make an order that a plaintiff give security for costs is whether such an order would stultify or stifle the proceedings. [5] Although the word "would" is used in the relevant rule, the question is customarily addressed by reference to whether it is "likely" that an order for security would bring the proceedings to an end. [6] 2. The potential stultification of proceedings is recognised to be a powerful factor to be taken into account when considering whether an order for security is appropriate, but does not automatically lead to refusal to make an order. [7] 3. MEL bears the onus of proving stultification. [8] 4. MEL accepts that an argument that proceedings are likely to be stultified requires a party in its position to provide evidence to enable the Court to evaluate the extent to which it, and those who stand behind it, could reasonably be expected to make funds available to satisfy any order for security which is made. [9] 5. MEL itself cannot provide security. 6. As to those standing behind MEL, the following table sets out the detail of MEL's shareholders: Beneficial Owner Shareholder Name Shareholding Percentage Tony Ellis A W Ellis Engineering Pty Ltd; Cereo Pty Ltd 43.9 Luke Deane Jetset Properties Pty Ltd 36.1 Sue Snape Davies Nominees Pty Ltd 11.2 John Kearsley JPAJ Pty Ltd 5.1 Ian Arthur Stainton Ian Arthur Stainton 2.2 John Joseph Kinsela John Joseph Kinsela 1.4 1. As can be seen, Mr Ellis and Mr Deane, through their corporate entities, together hold 80% of the shares in MEL. Litigation funding to date 1. Through an associated corporate entity, Jetset Properties Pty Ltd, Mr Deane has been funding the litigation to date. 2. Thus, on 29 July 2020, Jetset entered a "Litigation Funding Deed" with MEL pursuant to which it agreed, relevantly, to "advance to MEL the funds required for the litigation costs to conduct [these] proceedings, including any amount for security for the defendants' legal costs". [10] 3. Clause 5.5 of the 2020 Litigation Funding Deed provided: "Each amount advanced by Jetset under this agreement is a debt due from MEL from the time of the advance, and repayment takes priority over the repayment of all other debts due by MEL to its other shareholders. MEL must repay the aggregate of these advances: (a) from the claim proceeds under clause 6; or (b) on demand from Jetset if: (i) MEL determines not to start or to discontinue the main proceedings without reaching any settlement or compromise with the defendants; (ii) MEL determines to start or to continue with the main proceedings without Jetset's approval under subclause 4.3; (iii) MEL breaches this agreement and, if the breach is capable of remedy, MEL does not remedy the breach within the period Jetset notifies to MEL." (Emphasis in original.) 1. Although that clause stated that the amounts advanced by Jetset were "a debt due by MEL", absent any one of the events in sub cl (b) occurring, Jetset's only recourse for recovery appears to be the "claim proceeds". 2. Clause 6 of the 2020 Litigation Funding Deed provided that Jetset and MEL would divide the "claim proceeds" on the basis that Jetset would be paid the amount it advanced, or 50% of the claim proceeds, whichever was greater, and that the balance would be paid to MEL. 3. Mr Deane has provided $4.1 million on account of MEL's legal costs. Mr Deane has also paid $314,731 for MEL's costs of its application for preliminary discovery, $80,000 MEL was ordered to pay Port Authority on the application for preliminary discovery and the $363,000 security that MEL has already given in these proceedings: a total of $4,857,731. [11] 4. MEL currently owes its legal advisers some $1 million. 5. MEL anticipates receiving $195,944 from a third party in relation to a dispute concerning a subpoena. No commercial litigation funding available 1. MEL has endeavoured to arrange commercial litigation funding but has not been successful. 2. In around October 2023, through its Chief Executive Officer, Mr Arthur Psaltis, MEL approached seven named commercial litigation funders to seek to obtain commercial litigation funding for its claim against Port Authority. 3. MEL was not able to obtain funding from any of those commercial litigation funders. The "private funding" 1. On this application, MEL's solicitor, Mr Jason Munstermann, deposed on 21 March 2024: "At present, MEL is seeking to raise further funds to meet its current and future fees and disbursements expected to be incurred in prosecuting these proceedings. I am informed by Arthur Psaltis (MEL's Chief Financial Officer) and believe that he expects to raise $1.5 million from private funders. About $1 million of those funds will be used to meet MEL's currently outstanding cost and disbursements." 1. During the hearing before me on 20 May 2024, that evidence remained unqualified until I had this exchange with Mr White, SC, who appeared with Mr Tynan for MEL: "HIS HONOUR: --I have to ask myself the question, now that it's been raised, the question is how is this plaintiff going to continue to fund its own costs, let alone those of the defendant, but for possibly raising private funds, as Mr Munstermann sets outs in paragraph 83? Anyway, we'll take a short break while you ponder that. Say 20 minutes? SHORT ADJOURNMENT HIS HONOUR: Yes, Mr White. WHITE: Thank you, your Honour. Your Honour, during the adjournment I received instructions in relation to the issue about the $1.5 million that your Honour and I were discussing before the break. I was in fact informed of this during my discourse with your Honour, but I didn't hear my junior, so I put it to one side, not thinking it was terribly relevant. But in fact it is relevant. The $1.5 million has been secured, and we will want an opportunity to put before your Honour some evidence in relation to that. The reason why it wasn't put on earlier was for the reason I indicated earlier that we didn't understand that my friend was putting a position that the proceedings would be stifled anyway because the plaintiff could not pay its own costs. Had that been put before us by way of an affidavit or a submission before today, we would have put that evidence on." 1. Several days later, Mr Munstermann made a further affidavit exhibiting a redacted copy of a "Litigation Funding Deed" made between MEL and Mr Deane's company, Jetset, and of a "Loan Deed" made between Jetset and six individuals, to whom I will return. Each of these documents was dated 9 February 2024. 2. I heard submissions as to whether Port Authority should see an unredacted copy of these document and determined that it should not. [12] The belated revelation of the terms of the private funding 1. As I set out in my earlier judgment, on 28 May 2024 I made a direction that Mr Munstermann and an officer of MEL provide an affidavit explaining why the 2024 Litigation Funding Deed and Loan Deed were not disclosed prior to the hearing on 20 May 2024. [13] 2. Mr Munstermann and Mr Deane made affidavits on 3 June 2024 in compliance with that direction. 3. Mr Deane deposed that although the 2024 Litigation Funding Deed and Loan Deed are dated 9 February 2024, he did not execute them until late March or early April 2024. 4. Mr Munstermann deposed that he was not aware that the funding referred to in his 21 March 2024 affidavit had become available until he was told this by Mr Psaltis on 5 April 2024 and that he did not understand that "MEL was required to adduce evidence confirming that $1.5 million funding expected to be obtained from the Private Funders had been obtained". 5. Mr Munstermann also deposed, and I accept, that at the hearing on 20 May 2024, as soon as it occurred to him that the question was relevant to a submission then being made on behalf of Port Authority, he informed Mr White that the funding had in fact been obtained. [14] 6. Mr Munstermann concluded: "There was no intention on my part to 'conceal' or prevent disclosure of the Matters to the Court and Port Authority. I certainly had no instructions to that effect from MEL's directors or shareholders. In the event and to the extent that MEL ought to have adduced evidence of the Matters in response to the Security for Costs Motion, in my view responsibility for that failure must ultimately rest with me as the solicitor on the record for MEL and I sincerely apologise to the Court and Port Authority for that failure." 1. Mr Deane also deposed: "There was no intention on my part to 'conceal' or prevent disclosure of the Old Litigation Funding Deed, the New Funding Deed or the Loan Deed to the Court. I was not concerned by any of those documents being disclosed to the Court. At no point in time did I give instructions to McCullough Robertson that the existence of these documents should be concealed from the Court. I relied on my lawyers to disclose the necessary documents to the Court in response to the Security for Costs Motion." 1. I accept this evidence. 2. It would, however, have been preferable for Mr Munstermann to have earlier revealed in his affidavit evidence that the funding that in his affidavit of 21 March 2024 he deposed MEL was seeking to raise, evidently a matter he then thought to be relevant, had in fact been raised. The nature of the private funding 1. The 2024 Litigation Funding Deed and Loan Deed were, as I have said, dated 9 February 2024 but, evidently, not executed until late March or early April 2024. 2. The 2024 Litigation Funding Deed recited: "Under an agreement dated 29 July 2020 [the 2020 Litigation Funding Deed] Jetset has lent MEL approximately $4.15 million to assist MEL with the proceedings. The parties wish to update the arrangements between them." (Emphasis in original.) 1. The 2024 Litigation Funding Deed was expressed to supersede, and bring to an end, the 2020 Litigation Funding Deed and, in cl 7(b) contained a mutual release from "all claims either [party] may have against the other under the [2020 Litigation Funding Deed]". This provision appears to have the effect that Jetset released MEL from its liability to repay the $4.15 million advanced under the 29 July 2020 Litigation Funding Deed. That conclusion would, however, appear to be inconsistent with the recitation set out above at [45] and may not have been the parties' intention. I do not need to express any final view about this. 2. Clause 5 of the 2024 Litigation Funding Deed dealt with "Funding" and provided, relevantly: "5.1 Jetset will advance to MEL funds required for MEL's litigation costs.. … 5.3 Jetset's liability under this agreement is limited to the amounts required to pay MEL's litigation costs, including any related security for the defendant's legal costs as ordered by the court. Jetset has no obligation to advance to MEL to pay any amounts MEL must pay to the defendant for the defendant's legal costs under any order of the court against MEL or agreed between MEL and the defendant, unless Jetset is ordered to do so by order of the court. … 5.5. MEL must repay the funded costs: (a) from the claim proceeds under clause 6; or (b) on demand from Jetset if: (i) MEL determines to discontinue the proceedings without reaching any settlement or compromise with the defendant, or MEL determines to continue with the proceedings, in either case without Jetset's approval … (ii) MEL breaches this agreement and, if the breach is capable of remedy, MEL does not remedy the breach within the period Jetset notifies to MEL." (Emphasis in original.) 1. Clause 6 dealt with "Claim Proceeds" and set out how "MEL and Jetset will divide the claim proceeds between them". 2. For the reasons set out in my earlier judgment, I declined to require MEL to reveal to Port Authority those details. [15] 3. The effect of cl 5.5 was that, unless it discontinued the proceedings without Jetset's consent or acted in breach of the 2024 Litigation Funding Deed, its only obligation to repay the "funded costs" was from the "claim proceeds". 4. The Loan Deed referred to "Initial Lenders" and "Additional Lenders" and referred to these, together, as the "Lenders". The Loan Deed provided in cl 6.1: "The Lenders agree to advance to Jetset up to $1.5 million for use to fund MEL's litigation costs." 1. The Loan Deed was made between Jetset and six "Initial Lenders" who agreed to advance to Jetset a total of $950,000 as follows: 1. PsaltGroup Pty Ltd – $250,000; 2. Sally Prudence Psaltis – $250,000; 3. Virginia Lindsey Heath – $125,000; 4. Sally Psaltis and Virginia Heath as trustee for the Rosemead Staff Superannuation Fund – $125.000; 5. John Kearsley – $100,000; 6. Dunscroft Pty Ltd as trustee for the Aston Family Retirement Fund – $100,000. 1. Of these "Initial Lenders": 1. PsaltGroup Pty Ltd trades as VMG Capital and is a company associated with Mr Psaltis that provides capital raising, corporate and accounting related advice, and was associated with MEL's attempts to obtain commercial litigation funding; 2. Ms Sally Psaltis is Mr Psaltis's wife; 3. Ms Virginia Heath has named Ms Sally Psaltis as a "contact person" for the purposes of the Loan Deed; 4. The Rosemead Staff Superannuation Fund, of which Ms Psaltis and Ms Heath are said to be trustees, also identified Ms Psaltis as their "contact person"; 5. Mr Kearsley, as I have set out, through his associated company, is a 5.1% shareholder in MEL; and 6. Dunscroft Pty Ltd nominated Mr Nicholas Aston as its "contact person", who is from Brentnalls Accountants, into which firm's trust account funds advanced under the Loan Deed were to be placed. 1. The Loan Deed provided that to be an "Additional Lender" it was necessary that a person who is not a "Initial Lender join the group of Lenders" by providing an "Accession Deed". 2. On 10 May 2024, Mr Duncan Macintyre signed such an Accession Deed and agreed to a "Funds Commitment" of $500,000. 3. Mr Munstermann deposed: "I am informed by Arthur Psaltis and believe that John Kearsley has agreed to provide a further $50,000 in funding so that the $1.5 million in funding provided for under the Loan Deed could be raised and that Mr Kearsley is in the process of executing a further accession deed for that funding". 1. Mr Munstermann also gave evidence, on information and belief from Mr Psaltis and Mr Aston, that these Lenders were "friends or family of MEL's directors and shareholders". 2. Clause 6.8 of the Loan Deed provided: "Jetset must repay the Lenders' advances: (a) from the claim proceeds under clause 7; or (b) on demand if Jetset breaches this agreement and, if the breach is capable of remedy, Jetset does not remedy the breach within the period the Lenders' representative notifies to Jetset; but otherwise, Jetset has no obligation to repay the Lenders' advances." (Emphasis in original.) 1. Thus, unless Jetset is in breach of its obligations under the Loan Deed, its only obligation to repay the amounts advanced by the Initial Lenders and the Additional Lenders was "from the claim proceeds". 2. Details of the "claim proceeds" are set out in cl 7 of the Loan Deed and have been redacted. However, as I have set out in my earlier judgment, there is no dispute that cl 7 sets out "information about the manner in which any amounts received by MEL from Port Authority in connection with the proceedings are to be distributed to MEL, Jetset and the [Lenders]" and that the "specified percentages of the distribution of the claim proceeds that MEL, Jetset and the [Lenders] may be entitled to in particular contingencies are indicated". [16] 3. Nor is there any issue "that the Private Funders stand to gain a share of the claim proceeds in these proceedings". [17] 4. Thus, the 2024 Litigation Funding Deed and the Loan Deed comprise, together, what appears to be a carefully negotiated and documented litigation funding agreement pursuant to which the Initial Lenders and the Additional Lenders will or have advanced $1.5 million to MEL to fund these proceedings in consideration for an agreed share of the any proceeds of the litigation. The amount MEL needs to fund the proceedings 1. Leaving aside the question of provision of further security, MEL requires some $270,000 beyond the amount currently available to fund its own costs of the proceedings. That takes into account the $1.5 million to be advanced under the 2024 Litigation Funding Deed and Loan Deed and the amount MEL expects to receive from the third party referred to at [27] above, less the amount currently owing for fees and the anticipated legal costs to the conclusion of the hearing. [18] 2. I do not think it follows from this that the proceedings will be stultified in any event, that is, whether or not the further order for security for costs is made. As Mr White and Mr Tynan have submitted, there is no evidence that the proceedings may in that sense be stultified. MEL continues to be represented and to be actively involved in the proceedings. The ability of the private funders to provide further funding 1. There is no evidence that Jetset nor the Lenders do not have the financial capacity to provide further funding to MEL. 2. For present purposes, I will assume that some or all of them have such capacity. 3. Their position is, however, that they are not prepared to advance further funds, whether to fund the provision of further security, or at all. 4. Thus, Mr Munstermann has deposed that: "I am informed by each of the [Lenders] and believe that: a. each of the [Lenders] is not prepared to risk losing any further funds by providing more funding for these proceedings; b. none of the [Lenders] has obtained any independent legal advice in relation to MEL's prospects of success in the proceedings; and c. none of the [Lenders]: i. has previously provided funding for court proceedings brought by a third party; or ii. is or has ever been in the business of providing litigation funding." 1. Jetset and the Lenders are presently at risk in relation to the funds they have advanced. 2. MEL has no capacity to repay Jetset otherwise than from any claim proceeds, and would have no obligation to do so unless it discontinues the proceedings without Jetset's consent or acts in breach of its obligations under the Litigation Funding Deed. [19] 3. Jetset has no obligation to repay the Lenders the $1.5 million they have advanced under the Loan Deed otherwise than from the "claim proceeds" unless it acts in breach of the Loan Deed. [20] 4. These matters may, in due course, provide Jetset and the Lenders with an incentive to provide further funds to ensure that MEL remains in a position to pursue its claim against Port Authority, and thus obtain access to the "claim proceeds". 5. But that possible financial imperative does not cause me to doubt that the current position is that neither Jetset nor the Lenders are prepared to risk making further funds available. 6. In Flip Out Thornton Pty Ltd v Flip Out - Trampoline Arena Franchises Pty Ltd, I held that a factor to be taken into account when exercising the discretion to order security for costs was that the party that stood to benefit from the litigation had a rationally and practically reasonable unwillingness to provide further support for the litigation. [21] 7. Jetset, as a significant shareholder in MEL, and Mr Kearsley, through his company, as a minority shareholder, stand to benefit from the litigation, as indeed do the Lenders, as they stand to share in the "claim proceeds" were MEL to be successful. 8. These parties are therefore not in the same position as individual family members giving unqualified and open-ended support to another family member. 9. Nonetheless, I do not see them as being in the same position as commercial litigation funders. 10. None has previously funded proceedings brought by a third party or been in the business of providing litigation funding. Under the Loan Deed, the Lenders do not have control of the conduct of the proceedings. Their rights are limited to being kept informed about the progress of proceedings. 11. It does appear that Mr Psaltis has a closer connection to MEL's conduct of the proceedings than do the other Lenders. He may well have some involvement in the venture capital market but, like the other Lenders, is very much at risk for the funds already advanced by his related entities. 12. I am satisfied, in these circumstances, that Jetset and the Lenders are reasonably unwilling to provide further funds and that, were I to order the security that Port Authority seek, it is likely that Jetset and the Lenders would decline to advance the necessary funds, and that the proceedings would be stultified. Matters not pressed by Port Authority 1. In written submissions, Mr Hogan-Doran SC and Ms Cameron, who appeared for Port Authority, submitted that Mr Ellis and Mr Deane had not disclosed their full financial position and, with others, had "chosen to pursue the same business opportunities as MEL through a different entity, the existence of which [was] conspicuously absent from its evidence". Mr White and Mr Tyan provided a detailed response to these submissions in their written submissions. Mr Hogan-Doran made no mention of these matters in his oral argument. I take them not to be pressed. The undertakings 1. Mr Ellis and Mr Deane offer to give a personal undertaking to the Court in the following terms: "1. I will pay to [Port Authority] the amount of any costs in the proceedings which [MEL] is ordered to pay to [Port Authority], following assessment and allowing for any offset in respect of costs payable by [Port Authority] to [MEL]. 2. I will not take any step to dissipate my assets outside of my ordinary business activities, customary expenditure and existing liabilities and commitments until the later of either the conclusion of these Proceedings or the fulfilment of my obligations under the undertaking given in paragraph (1) above (if those obligations fall for fulfilment)." 1. MEL has informed Port Authority that Mr Ellis and Mr Deane would entertain any reasonable amendment to the form of the proposed undertaking. During oral argument, Mr White informed me that the corporate entities through which Mr Ellis and Mr Deane hold shares in MEL, being Jetset Properties Pty Ltd and Cereo Pty Ltd, will also give undertakings to the same effect. 2. The proffering of these undertakings by Mr Ellis and Mr Deane is an important, albeit not decisive, factor to be taken into account in the exercise of discretion to order security. [22] 3. The willingness of persons standing behind a company to offer up their own assets in response to an application for security for costs is a factor closely related to the prospect of the provision of security stifling the proceedings. [23] 4. It is, however, hard to understand the likely value of the proposed undertaking. 5. Mr Ellis's only asset, apart from his shares in MEL itself, is an indirect interest in North Scottsdale Resources Pty Ltd ("NSR"). Mr Ellis holds that interest through his company, Cereo Pty Ltd. 6. On 13 October 2021, NSR applied to Mineral Resources Tasmania for a mining lease to mine sand on land in Tasmania owned by a third party. No lease has yet been granted. 7. One of the conditions specified in the Mining Lease Application is the requirement of NSR to provide "proof of ability to fund the mining activity". The evidence adduced before me, on a confidential basis, shows that the level of funding that would be required is substantial. Mr Ellis's evidence is that no steps have yet been taken to raise the necessary funds. Thus, Mr Ellis deposed: "If NSR obtains the necessary approvals for the Sand Mine Opportunity, NSR would need to raise further capital funds (by way of equity or debt funding, or both). At present, it is not clear when this will need to occur. At the time, NSR will need to prepare updated financial information for any prospective funder." 1. Another condition of approval from Mineral Resources Tasmania will be the completion of a mine plan. There is no evidence that any mine plan has been prepared. Another condition of approval is the entering into a compensation agreement with the owner of land from which the sand is to be mined. There is in evidence an agreement dated 1 June 2020, almost four years ago, between NSR and the landowner, providing for "access arrangements" and stating a mutual promise to do all things necessary to in due course reach agreement as to compensation. There is no evidence that any of this has been done. 2. Mr Deane also has an indirect 50% interest in NSR. That interest is through his company, Jetset. Jetset is trustee for the Focus Developments Trust, a discretionary trust of which Mr Deane, and his school-aged daughter, are the sole beneficiaries. Although Mr Deane appears to control the Focus Developments Trust, the fact that his school-aged daughter is one of the discretionary beneficiaries may give rise to complications were Port Authority obliged to enforce the proposed undertaking so far as it concerns Jetset's shares in NSR. 3. Although in their affidavits Mr Ellis and Mr Deane have both expressed optimism concerning NSR's prospects of obtaining the necessary approvals to enable sand mining to commence, these matters appear to me to be most uncertain. 4. In order to demonstrate the value of the proposed undertakings, MEL adduced evidence from Mr Samuel Lackey, a mining consultant who annexed to his affidavits documents purporting to be valuations of the net present value of NSR. As Mr Lackey did not express adherence to the Expert Witness Code of Conduct, [24] indeed, he did not refer to the Code at all, I allowed his reports as evidence only of the fact that he had produced a report expressing an opinion as to NSR's net present value, and not as evidence of value. There is thus no evidence before me as to what would be the value of NSR's contingent interest in what Mr Ellis described as the "Sand Mine Opportunity". 5. There is also evidence that Mr Deane is a director and 50% shareholder in a property development company, Telmen Holdings Pty Ltd. However, Mr Deane's evidence is that such income as that company may generate will be used by him to meet his tax liabilities, costs incurred by NSR associated with obtaining the mining lease, and to pay living expenses and school fees. 6. There is also evidence that Mr Deane has an interest in companies which own shares in other companies which have invested in the development of a calcium carbonate mine in Thailand. It is not yet operational and is awaiting approval. Mr Deane has expressed an optimistic view as to what those shares might be worth if that mine becomes operational. 7. Overall, this evidence leads me to conclude that the value of the undertakings that Mr Ellis and Mr Deane propose to give are at best uncertain. 8. However, their willingness to give such an undertaking is a factor to be taken into account when exercising the discretion to order security. Do the proceedings involve a matter of public importance? 1. Mr White and Mr Tynan submitted that the proceedings involve a matter of public importance in that MEL's case involves serious allegations of unconscionable conduct by a state-owned corporation and that if that claim is made out there is a public interest in holding Port Authority accountable for its conduct. 2. Obviously, I express no view about whether MEL will establish its case of unconscionable conduct. 3. I accept, however, that that is a factor weighing against the discretion to order security. [25] The identity of the parties 1. The nature of the defendant is at times relevant to the exercise of discretion in relation to security for costs. 2. It has been said that "the courts are reluctant to make an order which would have the effect of shutting out a small company from making a genuine claim against a large well-resourced and amply funded body such as the State, a council or major corporation." [26] 3. MEL is a relatively small company with no assets and, as I have said, its sole purpose now is to prosecute these proceedings against Port Authority. 4. On the other hand, Port Authority's most recent financial statement shows that in the financial year ended 30 June 2023, it made a net profit of $22.48 million and held cash or cash equivalent of $24.93 million. Port Authority's Financial Statement of Corporate Intent for FY24 discloses that it projects it will earn profits of $21.12 million for FY24, $24.56 million for FY25 and $31.46 million for FY 26. As Mr White and Mr Tynan submitted, it is apparent that Port Authority has the resources to absorb the costs of these proceedings. 5. I accept MEL's submission that having regard to the relative financial positions of the parties, and the fact that an order for security will likely prevent MEL from continuing these proceedings, these matters weigh in favour of me exercising the discretion to refuse Port Authority's application. Delay 1. Applications for security for costs should be brought promptly. [27] 2. MEL has, as I have said, already provided security in the form of $363,000 in instalments made on 6 July 2022, 6 January 2023, and 26 September 2023. 3. Port Authority gave MEL notice of the present application in August and September 2023, but only made the application by Notice of Motion filed on 12 March 2024. 4. Mr Hogan-Doran told me that the reason for the delay was so that Port Authority could consider the expert evidence served by MEL and assess its likely costs of responding to that evidence. So much may be accepted. 5. However, MEL has in the meantime incurred legal costs and disbursements in the order of $1.385 million which, if security were ordered now, and the proceedings stultified, would be wasted. 6. I find this to be a factor weighing against an order for provision of security. Balancing these factors 1. This case provides a vivid example of the difficulty often encountered in applications for security for costs. The Court must balance the need to provide adequate and fair protection to a party in the position of Port Authority so far as concerns recovery of its costs in the event that it is successful, and the need to avoid injustice to an impecunious plaintiff, such as MEL, by preventing it from prosecuting a significant claim, involving a large amount of money, which may well succeed. 2. The task of the Court is to endeavour to weigh up the competing considerations and arrive at a conclusion which is overall likely to promote the interests of justice. 3. Here, a number of factors are at play. 4. It is not clear, on the evidence before me, how MEL will continue to fund its own costs of the proceedings. On the other hand, I am satisfied that if MEL is ordered to pay security in the sum proposed, some $950,000, that will likely bring the proceedings to an end. The two men standing behind the majority shareholders of MEL will undertake to pay Port Authority's costs of the proceedings in the event that Port Authority is successful. They will thereby unconditionally expose themselves to that contingent liability, but in circumstances where it is unclear what value this would, at the end of the day, be to Port Authority. A matter of some public importance is involved in the proceedings. There is a sharp disparity between the financial positions of the parties. Port Authority could absorb the costs of these proceedings. Finally, the decision taken by Port Authority to delay making this application for security has had the effect of causing MEL to incur considerable expense that it would otherwise not have incurred had the application been made earlier. 5. Overall, I am persuaded that this is a case where, despite MEL's financial position, further security should not be ordered. 6. Port Authority's application for security should be dismissed. I will hear the parties as to costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 June 2024