Supreme Court New South Wales Medium Neutral Citation: In the matter of Skytraders Pty Ltd [2024] NSWSC 984 Hearing dates: 5 August 2024 Date of orders: 9 August 2024 Decision date: 09 August 2024 Jurisdiction: Equity - Corporations List Before: Black J Decision: On the basis of certain undertakings, application for security for costs is dismissed with costs. The parties to bring in short minutes of order to document those undertakings and give effect to this judgment. Catchwords: COSTS — security for costs — whether order should be made for security for costs. Legislation Cited: - Civil Procedure Act 2010 (Vic), s 26 - Corporations Act 2001 (Cth), s 1335 - Uniform Civil Procedure Rules 2005 (NSW), r 42.21 Cases Cited: - All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Ltd [2020] FCA 840 - Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301; [2014] NSWCA 65 - Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) 7 ATPR 40-584 - Narradine Pty Ltd v Mascot Steel and Tools Pty Ltd [2012] NSWSC 385 - Polstead Pty Ltd (in liq) v Shah [2009] NSWSC 560 - Re Australian Style Holdings Pty Ltd as trustee of the Australian Style Investments Unit Trust [2018] NSWSC 1368 - Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 - Re Felan's Fisheries Pty Ltd [2016] NSWSC 1351 Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 - Szanto v Bainton [2011] NSWSC 985 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 563 - Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 Category: Procedural rulings Parties: Thenford Consulting Pty Ltd (Plaintiff) Norman Farquhar Mackay (First Defendant/First Defendant to Cross-Claim/Applicant) Scarp Nominees Pty Ltd (Second Defendant/Second Defendant to Cross-Claim/Applicant) Premier Aviation Holdings Pty Ltd (Third Defendant/Cross-Claimant) Hielands Investments Pty Ltd (Fourth Defendant/Third Defendant to Cross-Claim/Applicant) Skytraders Pty Ltd (Fifth Defendant/Fourth Defendant to Cross-Claim) Representation: Counsel: M R Hodge KC/N Oreb (Plaintiff/Respondent) S Robertson/J Anderson (First, Second and Fourth Defendants/Applicants) K Fraser (Third Defendant/Cross-Claimant) Solicitors: Arnold Bloch Leibler (Plaintiff/Respondent) Johnson Winter Slattery (First, Second and Fourth Defendants/Applicants) Clayton Utz (Third Defendant/Cross-Claimant) File Number(s): 2024/184124 (003) Judgment 1. By Interlocutory Process filed on 19 June 2024, several Defendants in these proceedings, Mr Mackay, Scarp Nominees Pty Ltd ("Scarp"), Hielands Investments Pty Ltd ("Hielands") and Skytraders Pty Ltd ("Skytraders") sought an order that the Plaintiff, Thenford Consulting Pty Ltd ("Thenford"), provide security for their costs of the proceedings in an amount of nearly $1.6 million (now reduced to about $1.4 million), or such other amount as the Court thought fit, within 14 days, and that the proceedings be stayed in default of provision of that security. 2. By way of background, Thenford owns 34 of the 195 ordinary shares on issue in Skytraders, which constitutes a 17.44% minority interest in the issued share capital in Skytraders. Thenford alleges that the affairs of Skytraders have been conducted in an oppressive manner, in several respects. The First Defendant, Mr Mackay, is the chair and chief executive officer of Skytraders, and the Second Defendant, Scarp, is trustee of the Mackay Family Trust. Mr Mackay and Scarp together own 101 of the 195 ordinary shares in issue in Skytraders, being nearly 52% of the issued ordinary share capital of Skytraders, and plainly control Skytraders. The Third Defendant, Premier Aviation Holdings Pty Ltd, owns 60 of the 195 ordinary shares in issue in Skytraders and did not take an active role in this application. The Fourth Defendant, Hielands, is a shareholder in Skytraders and its sole director and shareholder is Mr Mackay's son, who is an executive of Skytraders. The Fifth Defendant, Skytraders, is engaged in the business of providing specialist air charter services, primarily to government entities. 3. These proceedings were commenced by Thenford in the Supreme Court of Victoria and subsequently transferred to this Court. The proceedings have since been amended so that Thenford no longer seeks relief against Skytraders, the company which is the subject of these proceedings; Skytraders has now filed a submitting appearance, except as to costs; and it no longer presses its application for security for costs. Affidavit evidence 1. I will first refer to the affidavit evidence read in the proceedings. The Applicants relied on the affidavit dated 14 June 2024 of their solicitor, Mr Easton. Mr Easton refers to an application for security for costs made in the Supreme Court of Victoria, prior to the transfer of the proceedings to this Court, and to the Supreme Court's requirement that conferral take place in respect of that application, which did not resolve the application. Mr Easton also addresses inquiries which his firm has made as to the financial position of Thenford and voluminous correspondence between his firm and Thenford's solicitor concerning that matter. Mr Easton rightly recognises that Thenford's principal asset is its holding of shares in Skytraders, and he refers to cl 127 of the constitution of Skytraders, which is a common provision in the constitution of a proprietary company and provides that Skytraders may refuse to register any transfer of shares without giving any reason for that refusal. I will return to any significance of that provision below. 2. Mr Easton also provides an estimate of the costs of the proceedings, comprising costs incurred to date by the firm that previously represented Skytraders and anticipated costs of his firm. Mr Easton refers to the scope of lay and expert evidence which is likely to be required and assumes that some discovery will be ordered in the proceedings, which is a reasonable assumption although he does not recognise the potential application of Supreme Court Equity Practice Note 11 in narrowing the scope of discovery in that respect. He assumes that a contested interlocutory application in respect of confidentiality will be required, where the sole director and shareholder of Thenford is associated with another participant in the airline industry, and a dispute as to confidentiality has already arisen and has been listed for determination before another Judge of the Court. 3. Mr Easton then sets out, without any substantial underlying reasoning, his estimate of the costs of the proceedings, apparently only up to the point of a mediation and not to the point of a hearing, in excess of $1.865 million, and applies a discount to solicitors' costs on the basis that not all of those costs will be recoverable. I am not persuaded that Mr Easton's estimate of costs likely to be incurred in the proceedings is consistent with their conduct in an efficient and cost-effective manner, proportionate to the issues in dispute, and I will return to that matter below. Mr Easton also addresses the assets of Mr Sharp, the sole director and shareholder of Thenford, but it is not necessary to address this matter further where Thenford does not contend that an order for security for costs would stultify the proceedings. 4. The Applicants also read the second affidavit dated 2 August 2024 of Mr Easton which referred, first, to the involvement of directors and shareholders of Thenford in the aviation industry. That evidence appears to have been directed to a confidentiality claim which it is not necessary to address in this application. Mr Easton also addressed the position in respect of the Defendants' then partial compliance with their obligation as to disclosure under s 26 of the Civil Procedure Act 2010 (Vic), which has now been remedied by the production of further documents, subject to claims for confidentiality which will be determined by another Judge and which are also not necessary to address in this application. Mr Easton updated his estimate of costs in his first affidavit, noting that Thenford had deleted claims for relief directly against Skytraders, by its Amended Originating Process and Amended Statement of Claim, and that Skytraders had now filed a submitting appearance in the proceedings other than as to costs. Mr Easton amended the amount of security claimed to an amount of $1.4m, after excluding a claim for Skytraders' past costs, and expressed the view that the removal of claims against Skytraders was not likely to have a material effect on the future costs estimated in his earlier affidavit. I am also not persuaded that this revised estimate of costs likely to be incurred in the proceedings, which does not moderate the estimate of future costs in them, is consistent with their conduct in an efficient and cost-effective manner, proportionate to the issues in dispute. 5. The Applicants also tendered exhibits to Mr Easton's first and second affidavits. The exhibit to Mr Easton's first affidavit includes correspondence between the parties' solicitors by which Mr Sharp offered undertakings to preserve the assets of the Sharp Family Trust ("SFT") and to subordinate the loans owed by the SFT to him and his related entities to the payment of any costs order against Thenford in the proceedings (Ex A1, CB 314). The Applicants did not accept those undertakings, but I determine this application on the basis that they are offered. It appears that Thenford has made several other open proposals, without admissions, as to security for costs, all of which have been rejected by the Applicants. 6. The Applicants also tender the trust deed establishing the SFT, of which Thenford is now trustee (Ex A3); and the financial statements for the SFT for the year ended 30 June 2023 (Ex A4), which are of substantial significance in the application. Note 1 to those financial statements of the trust sets out a statement of significant accounting policies including, relevantly: "The directors of [Thenford] have determined that the trust is not a reporting entity and accordingly, this financial report is a special purpose report prepared for the sole purpose of distributing a financial report to beneficiaries and must not be used for any other purpose. The directors have determined that the accounting policies are appropriate to meet the needs of the beneficiaries. The financial report has been prepared on an accrual basis and under the historical cost convention, except for certain assets, which, as noted, have been written down to fair value as a result of impairment. Unless otherwise stated, the accounting policies adopted are consistent with those of the prior year … Financial assets Investments held are originally recognised at cost, which includes transaction costs. They are subsequently measured at fair value which is equivalent to their market bid price at the end of the reporting period. Movements in fair value are recognised through an equity reserve." As I will note below, it is plain that shares that Thenford holds as trustee for the SFT in Skytraders have not been measured at market value in those financial statements, possibly because they were acquired in the relevant period and are therefore "originally recognised at cost" in accordance with this accounting policy. 1. The financial statements of SFT record a modest trading profit for the SFT, largely from livestock trading, in the financial year ended 30 June 2023, by contrast with a modest trading loss in the 2022 financial; and a larger (implicitly, non-trading or partly non-trading) loss in excess of $787,000 for the 2023 financial year, reduced from a loss of $2.1 million in the 2022 financial year. That position partly reflects the cessation of dividend payments in Skytraders, a matter which will be in issue in the substantive proceedings and which it has not been necessary to address in this application. 2. The balance sheet for the SFT records financial assets in the amount of $350,000 and Note 6 of the financial statements records an investment in Skytraders in the year ended 30 June 2023 in an amount of $350,000, which had not been held by SFT in the previous year. It appears to be common ground (and if it not common ground, then it is plain enough) that this figure reflects the cost price of SFT's acquisition of the interest in about 17.44% of Skytraders shares in a related party transaction in that period. I will refer below to the value of the equity in Skytraders, as disclosed by its accounts. Even allowing a substantial discount for a minority holding, it is apparent that the cost price of those shares provides no useful information as to their market value. This has the consequence that the Applicants cannot establish that Thenford's overall asset position, which they recognise depends to a significant extent on the value of Thenford's holding in Skytraders, is such that there is reason to believe that it will be unable to meet the Defendants costs if successful in their defence. I return to that matter below. 3. The balance sheet for the SFT records negative net assets for the year ended 30 June 2022 and 30 June 2023, with the substantial part of the asset deficit reflecting debts owed by SFT to related parties, and that negative position at least partly results from the value there attributed to the shares in Skytraders. The liabilities of SFT are in turn set out in Note 8 to the financial statements, and include substantial loans to SFT from Mr Sharp, other members of the Sharp family and their associated entities. I have referred above to an offer made by Mr Sharp to subordinate those loans to any order for costs made against Thenford in the proceedings. 4. A trustee declaration in respect of the financial statements, signed by Mr Sharp, records that these financial statements fairly reflect Thenford's financial position as at 30 June 2023 and its performance for the year ended on that date in accordance with the accounting policies described in Note 1 of the financial statements and that, in the directors' opinion, there are reasonable grounds to believe that Thenford will be able to pay its debts as and when they become due and payable. That declaration does not take the Applicants further where, as I noted above, it is plain that these financial statements record the value of the shares in Skytraders at cost, not at market value. 5. Thenford read an affidavit dated 9 July 2024 of Mr Duignan, who is a chartered accountant, but that affidavit does not advance its position where a statement of financial position prepared by Mr Duignan was not admitted in evidence over the Applicants' objection, given the difficulties which emerged identifying the underlying documentation on which Mr Duignan relied. 6. Thenford also read the affidavit of dated 10 July 2024 of its solicitor, Mr Vaastra, which also addressed the scope of the proceedings. Mr Vaastra's evidence, by way of submission, was that Thenford opposed the security for costs application, on the grounds, inter alia, that Thenford was not impecunious and would be able to meet any adverse costs orders; that there were discretionary reasons against an order for security; and that the amount of security sought was excessive and included unjustifiable past costs. Mr Vaastra addressed issues relating to the Defendants' then non-compliance (or partial non-compliance) with their obligations under s 26 of the Civil Procedure Act 2010 (Vic), which it appears have now been rectified and which I need not further address. He also referred to issues in respect of the production of documents which I also need not address. 7. Mr Vaastra also noted, and it is common ground, that Thenford holds assets and carries on its businesses as trustee of the SFT (Vaastra 10.7.24 [72]). He referred to undertakings offered by Mr Sharp to subordinate certain claims against Thenford, to which I have referred above, and to an indicative offer previously made by a third party to acquire Skytraders' business, on which Thenford relies to seek to establish the value of its shares in Skytraders. An exhibit to Mr Vaastra's second affidavit contains correspondence concerning the offer to acquire Skytraders' shares (Ex R2, CB 765), and Thenford also tendered a further bundle of correspondence in that regard (Ex R3). That offer will be in issue in the substantive proceedings and I need not address it further for the purposes of this application. Mr Vaastra also addressed the discretionary matters on which Thenford relies to oppose the security for costs application and the quantum of security claimed, and he takes issue with aspects of Mr Easton's estimate of those costs. By a second affidavit dated 30 July 2024, Mr Vaastra referred to further correspondence in respect of the security for costs application. 8. Thenford also tendered two financial reports for Skytraders for the years ended 30 June 2020, 30 June 2021 and 30 June 2023. The latest of those reports indicated that Skytraders had net assets and total equity of nearly $24 million, including retained earnings of much the same amount as at 30 June 2023, and the Applicants led no evidence that its financial position has declined since that date. I also note that Thenford had requested production of Skytraders' management accounts as at 31 May 2024, for the purposes of the application (Ex R1, CB 706ff), but those management accounts were not produced by the Applicants. It is not necessary to draw any inference that those management accounts would not have assisted the Applicants in the security for costs application, given the conclusions that I reach from the available evidence as to the value of Skytraders' equity. It seems to me that I can readily infer, and I do infer, that Thenford's holding of approximately 17.44% of the shares in Skytraders (which, as I noted above, has net assets, total equity and retained earnings of nearly $24 million) has substantial value even after allowing a minority discount. On any reasonable view, that value well exceeds the cost price of those shares recorded in the financial statements of the SFT. Thenford also tendered the financial statements for the Thenford Farm Unit Trust for the year ended 30 June 2023 (Ex R5), but the parties did not place any significant weight on that document in the application. Whether the Court's jurisdiction to order security for costs is enlivened 1. Section 1335 of the Corporations Act 2001 (Cth) ("Act") allows the court to make an order for security for costs if it appears by credible testimony that there is reason to believe that a corporation will be unable to meet a defendant's costs if successful in his or her defence. Rule 42.21(1)(d) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") provides that if, in any proceedings, it appears to the court, on the application of a defendant, that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the defendant's costs if ordered to do so, the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and the proceedings be stayed until the security is given. Rule 42.21(1A) of the UCPR in turn identifies matters to which the court may have regard in determining whether it is appropriate to make an order for security for costs, in an inclusive manner, including the prospects of success or merit of the proceedings, the genuineness of the proceedings, whether the plaintiff's impecuniosity is attributable to the defendant's conduct, whether the plaintiff is effectively in the position of a defendant, whether an order for security for costs would stifle the proceedings, whether the proceedings involve a matter of public importance, whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant, the costs of the proceedings, whether the security sought is proportionate to the importance and complexity of the subject matter in dispute and the timing of the application for security for costs. 2. The issues arising in an application of this kind are generally whether there is jurisdiction to make the order, in this case because there is reason to believe that Thenford will be unable to pay the costs of the Defendants if ordered to do so; whether an order should be made as a matter of discretion; and the quantum of such an order: Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 at [5]; Polstead Pty Ltd (in liq) v Shah [2009] NSWSC 560 at [6]. It will ultimately only be necessary to address the first of those issues in order to determine this application. 3. The threshold requirement for an order for security for costs is that there is "reason to believe" that a corporation will be unable to pay a defendant's costs of the proceedings if ordered to do so: Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301; [2014] NSWCA 65 ("Cornelius") at [15]–[17], [56]–[60]. In Re Felan's Fisheries Pty Ltd [2016] NSWSC 1351 at [10], to which Mr Hodge refers, I observed that: "This question requires consideration whether there is a rational basis for the belief or a real risk of inability to pay the defendant's costs, and that test has been described as setting a "low threshold" and as being an "undemanding test": Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 at [15]–[16]; Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; (2014) 98 ACSR 301 at [57]–[60]. This requirement will generally be satisfied if there is a real chance, in events that are reasonably possible, that the relevant corporation will be unable to pay those costs: Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 205; Deangrove Pty Ltd v Buckby [2002] FCA 1544 at [4]; ACN 105 921 962 Pty Ltd v Wiggett [2012] NSWSC 1526 at [4]. A relevant inability may be established even if a defendant has a surplus of assets over liabilities, which would be sufficient to meet the relevant costs, if it could only pay those costs if allowed an extended time to realise its assets: Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 at [16]; Livingspring Pty Ltd v Kliger Partners above at [43]. Mr Kidd, who appears for the Directors, also refers to the summary of the relevant principles by Beazley JA in Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [28]–[33], where Beazley JA (with whom Meagher and Barrett JJA agreed) observed that the court should adopt a "practical commonsense approach" to the examination of a plaintiff's financial affairs (at [28]) and noted that the defendant bears the onus of establishing that there is reason to believe that the plaintiff will be unable to pay those costs if unsuccessful and, if that is established, the onus shifts to the plaintiff to establish a reason why security should not be granted (at [29]–[30])." 1. Security may more readily be ordered where the only assets of a company are held as trustee, unless the trustee company establishes that recourse to property held by it on trust will be available to the defendant: Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) 7 ATPR 40-584; Narradine Pty Ltd v Mascot Steel and Tools Pty Ltd [2012] NSWSC 385. I have here also drawn on my summary of the relevant principles in Re Australian Style Holdings Pty Ltd as trustee of the Australian Style Investments Unit Trust [2018] NSWSC 1368. In All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Ltd [2020] FCA 840 at [40]-[44] ("All Class Insurance Brokers"), Allsop CJ observed that: "Where the applicant is a corporation, the Court is empowered to order security for costs pursuant to s 1335 of the [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 ... 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). The Court's discretion should be exercised having regard to all of the circumstances of the case (see Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] HCA 41; 193 CLR 502 at 513 [26] (Kirby J)). There are a number of well established factors relevant to the Court's exercise. These include (see KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; 56 FCR 189 at 197–198 per Beazley J): whether the application for security for costs has been brought promptly; the strength and bona fides of the applicant's case; whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim; whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate; and whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security. An additional factor to add to this list is whether there are aspects of public interest which weigh in the balance against the making of an order (see Equity Access Ltd v Westpac Banking Corporation [1989] FCA 520; ATPR 40-972 at 50,635 per Hill J)." 1. Mr Robertson, with whom Mr Anderson appears for the Applicants, refers to the Court's power to order security for costs under s 1335 of the Act and UCPR r 42.21. He rightly accepts that the Applicants bear the onus of establishing that there is reason to believe that the other party to the litigation will be unable to pay the costs of the litigation if unsuccessful. Mr Robertson also refers to Allsop CJ's summary of the applicable principles in All Class Insurance Brokers, to which I referred above. 2. Mr Robertson submits that there is reason to believe that Thenford will be unable to pay the costs of the Applicants in the event of an adverse costs order. He refers to and criticises a statement of financial position of Thenford and the SFT prepared by Mr Duignan; it is not necessary to address that statement further, because Mr Robertson objected to its tender and it was rejected. In oral submissions, Mr Robertson also addressed the financial statements for the SFT for the year ended 30 June 2023 (Ex A4), to which I have referred above. As I noted above, those financial statements plainly record Thenford's interest in Skytraders at cost rather than at market value. Mr Robertson submits, and I accept, that the value of all of the shares in Skytraders cannot be equated to the value of minority shares in Skytraders, which would be valued with a minority discount, just as the Applicants' shares in Skytraders would likely have a premium for control. Nonetheless, the market value of Thenford's value of shares in Skytraders likely significantly exceeds the value of those shares as recorded in those financial statements. 3. Mr Robertson also submits that an order that allows Thenford the benefit of the value of the Skytraders shares in determining whether security for costs should be granted would give it the benefit of the buyout order which it seeks in the proceedings, even if it was unsuccessful in the proceedings. I do not accept that submission. First, a sale of Thenford's shares does not require that Skytraders buy them out, where they could be sold to a third party, with the consent of Skytraders' directors acting in accordance with their directors' duties; and, second, Thenford's sale of its shares to raise funds to pay an adverse costs order hardly equates to the relief that Thenford seeks, if it is successful in the proceedings. 4. Mr Hodge, with whom Ms Oreb appears for Thenford, in turn submits that the relevant jurisdictional trigger for an order for security for costs is not satisfied because the evidence does not demonstrate that Thenford is unable to pay the costs of the Applicants if ordered to do so. I recognise that that submission likely sets the jurisdictional threshold for an order for security for costs at too high a level, but nothing turns on that where the Applicants have not satisfied the relatively undemanding test which is properly applicable. Mr Hodge also refers to a balance sheet prepared by Mr Duignan which, as I noted above, was not admitted over objection by the Applicants. He submits, and I accept, that the assets which would be available to allow Thenford to raise funds to meet an adverse order for costs include its shares in Skytraders, and he refers to the value of those shares as indicated in Mr Duignan's balance sheet (which was not admitted) and the higher value of those shares implied by a third party offer to acquire the Skytraders' business made on 2023. Mr Hodge also submits that there can be no serious concern about Thenford having liabilities that preclude it from meeting any adverse costs orders, where its two most material liabilities are related party loans and a loan to Mr Sharp who has offered to subordinate the value of those loans so that any costs orders were paid in priority to those loans. As I have noted above, I have had regard to Mr Sharp's offer of undertakings in that regard in determining this application. Mr Hodge also responds to the Applicants' criticisms of the balance sheet prepared by Mr Duignan, but it is not necessary to address those criticisms where that balance sheet was not admitted over the Applicants' objections. 5. As I have noted above, the Applicants have not established the market value of Thenford's Skytraders shares, and Thenford had no obligation to do so, where it was a matter for the Plaintiffs to establish the factual and jurisdictional basis of their application for security for costs. Absent a satisfactory factual basis for a market valuation of the Skytraders shares, the Applicants cannot and have not established that there is reason to believe that Thenford, as trustee of the SFT, will be unable to pay the costs of the litigation if unsuccessful. To the contrary, there is every prospect that, in that situation, Thenford could realise its shares in Skytraders by a sale of those shares; there is no reason to doubt that Skytraders, under the control of the Applicants, would cooperate in its doing so; and there is no basis to think that the amount realised on a sale of those shares would not be sufficient to meet an order for costs. Where the market value of Thenford's Skytraders shares has not been established in the application and the costs that would properly be incurred by the Defendants in conducting the proceedings in a cost-effective and proportionate way have also not been established, and taking into account the subordination and other undertakings to which I have referred above, any risk that Thenford would not have the capacity to meet those costs is simply speculative. 6. For completeness, I do not consider that cl 127 of the constitution of Skytraders, to which I referred above, undermines this conclusion or advances the Applicants' position. That clause is a common provision in the constitution of a proprietary company, and provides that Skytraders may refuse to register any transfer of shares without giving any reason for that refusal. Obviously, the exercise of that power is subject to directors' general law and statutory duties. If Thenford in future seeks to sell its Skytraders shares to realise funds to meet an adverse costs order in the proceedings (including as to costs incurred by Skytraders itself before it filed a submitting appearance), there is no reason to think that Skytraders would unreasonably refuse to register such a transfer so as to allow Thenford to realise the value of those shares and pay costs. If Skytraders did, reasonably or unreasonably, refuse consent to such a transfer, it would likely still be open to Thenford to realise their value by, for example, entering an arrangement by which it held them on bare trust for a third party and accounted for the return on those shares to that third party. Other discretionary factors 1. If the Applicants had established the jurisdictional basis for an order for security for costs, an evidentiary onus would shift to Thenford to establish why security should not be granted: Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [30]; Cornelius at [18]–[20]. Mr Robertson addressed relevant discretionary considerations and Mr Hodge also made submissions as to discretionary reasons against an order for security. Where the Applicants have not established the jurisdictional basis for an order for security for costs, no question of the exercise of any discretion as to whether to make an order for security arises. Quantum of security for costs 1. As I noted above, the Applicants seek security for both past and future costs in the proceedings. An order for security for costs may extend beyond future costs to costs already incurred, where an application for security for costs was made promptly: Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 563 at [35]ff; Szanto v Bainton [2011] NSWSC 985 at [50]ff; Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 at [69]. Mr Robertson also addressed the quantum of costs for which security is sought now in an amount of $1.4 million up to a mediation and not including the hearing of the proceedings. Mr Hodge submitted that, if security for costs was ordered, then the proper quantum of that security would be $346,361, in accordance with an alternative calculation performed by Thenford. 2. Where the Applicants have not established the jurisdictional basis for an order for security for costs, and no issue as to the quantum or terms on which security should be ordered arises, I need not determine the question whether security should extend to past costs. However, I should note that, even if the Applicants had established the jurisdictional basis of the application, I would still not have made the order for security for costs sought. I am not persuaded by the evidence to which I referred above that the Applicants' estimate of the costs incurred in the proceedings, now (as I noted above) in an amount of $1.4 million up to a mediation and not including the hearing, is a realistic estimate of the costs likely to be incurred by parties who seek to conduct the proceedings in a just, quick and cheap way, and proportionately to the value of the amount in dispute. The discrepancy is here very stark, where the Plaintiffs here point to the value of the Skytraders shares held by Thenford recorded in the financial statements of SFT at their cost price of $350,000, and emphasise the minority discount applicable to those shares, but propose to spend four times that amount in their defence of the proceedings, before they even reach a hearing. I am also not persuaded that the likely costs of the proceedings are as low as Mr Vaastra contends. In these circumstances, I would not have ordered security in the amounts for which either party contends and there is not a sufficient evidentiary basis for me to order security for costs in some other amount. Determination and orders 1. As I have noted above, in dealing with the parties' submissions, the Applicants have not established the value of Thenford's shares in Skytraders, which is a necessary integer in valuing the assets of Thenford and the SFT, and have not established that there would be any particular difficulty in Thenford realising those shares, with the consent of Skytraders, in order to meet an order for costs against it. They have also not established the amount of costs that they would reasonably incur in defending the proceedings in a proportionate way. In these circumstances, they have not established that there is a real chance in events that are reasonably possible that Thenford will be unable to meet a costs order against it, or that it would not be able to realise shares in Skytraders within a relatively short time in order to meet such a costs order. The Applicants have therefore not established the factual basis for an order for security for costs. 2. For these reasons, and on the basis of the undertakings offered by Mr Sharp, the Applicants' Interlocutory Process dated 14 June 2024 should be dismissed, and they must pay the costs of and incidental to the Interlocutory Process, as agreed or as assessed. It will be necessary to document the relevant undertakings, and I direct the parties to bring in agreed short minutes of order that do so and otherwise give effect to this judgment within 7 days, or otherwise their respective short minutes of order and submissions not exceeding 4 pages in Arial font 12, one and a half spacing, as to the differences between them. ********** 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: 12 August 2024