Background
GI 320 Pty Ltd sued Simon and Gillian Raftery under guarantees connected to a December 2021 loan facility agreement. The Rafterys defended the claim by alleging a July 2024 agreement involving mutual releases, including Remie Pty Ltd releasing GEMI Investments Pty Ltd from obligations under a separate “Remie Agreement” (a $3 million subordinated investment), and alternatively claimed equitable set-off based on amounts owed under that Remie Agreement.
Remie, as third cross-claimant, brought a cross-claim against GEMI Investments (third cross-defendant) seeking repayment of the $3 million plus interest under the Remie Agreement, but only if the Rafterys’ defences of release or set-off failed. GEMI Investments sought security for costs of $474,432 against Remie, arguing the cross-claim was not defensive. Remie opposed, contending the cross-claim was purely defensive as it involved the same agreement and facts as the defence.
The Court’s Holding
Justice Pike dismissed the motion for security for costs. The Court held that Remie’s cross-claim was properly characterised as defensive in substance. The Remie Agreement was pleaded in identical terms in both the Rafterys’ defence (as part of the alleged mutual releases and equitable set-off) and Remie’s cross-claim. The cross-claim would only arise for consideration if the defences failed, making it an alternative to the defensive case rather than an independent offensive claim.
The Court rejected GEMI Investments’ argument that the presence of natural person cross-claimants (the Rafterys) provided a discretionary reason to order security, noting their claims were different from Remie’s claim against GEMI Investments. The Court also found that the current lack of association between GI 320 and GEMI Investments (they became unrelated in November 2025) did not weigh heavily in favour of security, given the historical interrelationship when the relevant agreements were made.
Although not strictly necessary given the dismissal, the Court observed that had security been ordered, the appropriate amount would have been approximately $150,000 (including senior counsel allowance), significantly less than the $474,432 sought, based on the narrow issues and estimated 1-2 day hearing for the cross-claim.
Key Takeaways
- A cross-claim that arises from the same facts as the defence and is contingent on the defence failing is properly characterised as defensive, not offensive, and will not attract security for costs.
- The presence of natural person cross-claimants does not provide a discretionary reason to order security against a corporate cross-claimant where their claims are distinct.
- Historical relationships between parties at the time of the relevant transactions are more significant than current ownership structures when assessing whether a cross-claim is defensive.
- Security for costs quantum should reflect the narrow scope of issues actually in dispute between the specific parties, not the broader proceeding.
Why It Matters
This decision clarifies the application of the “defensive cross-claim” exception to security for costs in New South Wales. It confirms that where a cross-claim is essentially an alternative plea that only becomes relevant if the defence fails, and relies on the same factual matrix as the defence, it will be treated as defensive in substance. This protects defendants who are forced to bring related claims to protect their position without facing the additional burden of security for costs.
The judgment also provides practical guidance on quantum assessment, emphasising that security should be tailored to the specific issues between the parties rather than the overall complexity of the proceedings. Practitioners should note the Court’s focus on the historical context of relationships rather than current corporate structures when evaluating the defensive nature of a claim.