Background
Little Cashy Pty Ltd and Dunstall Pty Ltd operate the Landmark Tavern, a liquor and gaming venue with nightclub basement, from premises leased from Nesfall Pty Ltd and Challenger Life Nominees Pty Ltd (the landlords). Since 2018, the tenants have conducted the business through a partnership with a third entity. The lease, executed on 4 April 2018, included personal guarantees by Justin Coleman (director of Little Cashy) and Michael Coleman (director of Dunstall). Both tenant companies operate as trustees: Little Cashy for the Cashkalani and J Coleman Family Trusts; Dunstall for the Dunstall Family Trust.
The tenants commenced proceedings claiming the leased premises were unfit for purpose and defective, alleging sewage flooding, sanitation blockages, alarms, and temporary closures causing business loss. They sought rectification, damages under the Australian Consumer Law, common law damages (including exemplary and aggravated), interest, and costs. The landlords, as respondents, filed a cross-claim asserting the tenants breached the lease and sought to enforce the personal guarantees against the directors.
On 30 January 2026, the landlords filed an interlocutory application seeking an order that the tenants provide security for the landlords’ anticipated costs, estimated at approximately $2.3 million. The tenants resisted, arguing they had offered security through parental guarantees backed by unencumbered real property, and that the directors’ personal liability under the lease guarantees already sufficiently protected the landlords.
The Court’s Holding
McDonald J found reason to believe the tenants would be unable to pay an adverse costs order (estimated at $2–2.5 million). Although the Landmark Tavern business was valued at $6.5 million as a going concern, the court held this did not establish that the business, licences, or lease could be realised to satisfy a costs order. The tenant companies held negative net asset positions in their primary capacities as trustees, even when accounting for their partnership interest valued at over $9 million.
Critically, the court found that assets held by the Landmark Partnership might not be available to satisfy costs orders incurred by individual partners suing in their capacity as tenants. The tenants, as trustee companies, would depend on indemnification from their underlying trust assets—beneficiaries of which were not clearly identified in evidence. While the court acknowledged the directors’ personal guarantees under the lease as a relevant factor, it held these guarantees did not fully answer the security application, particularly because they secured the landlords’ rights in the underlying dispute, not the tenants’ litigation costs.
Exercising its discretion judicially, the court ordered the tenants to provide security in the amount of $1.25 million by unconditional bank guarantee from an Australian trading bank, due by 17 August 2026. Failure to provide security would result in the proceeding being stayed. The court noted this order was made on the basis that absent material change of circumstances, no further tranches of security should be expected.
Key Takeaways
- Trustee companies suing in their own capacity may face security for costs orders even when holding substantial assets in their trust capacity if those assets are not available to the company personally.
- A business’s going-concern valuation does not, without more, demonstrate the capacity to realise assets to satisfy an adverse costs order.
- Partnership assets held by a partnership may not be available to satisfy costs orders incurred by individual partners acting separately outside the partnership context.
- Personal guarantees given by company directors under a commercial lease, while a relevant discretionary factor, do not necessarily eliminate the court’s power to order security for costs in related litigation brought by the company.
Why It Matters
This decision clarifies the application of security for costs principles to trustee companies operating commercial businesses. Where a corporate trustee lacks substantial unencumbered assets in its own right—even if it holds or controls assets of significant value in its trust capacity—courts will scrutinise whether those assets are genuinely available to satisfy litigation costs orders. This has practical implications for trust-structured businesses pursuing litigation, as such entities may face substantial upfront security obligations before trial.
The judgment also addresses the weight accorded to offers of personal security from behind-the-scenes parties (directors, shareholders, or family members). While such offers are relevant and may “weigh heavily” against security orders in some circumstances, they do not automatically prevent courts from imposing security requirements, particularly where the structure is complex (multiple trusts, partnerships) and asset availability is unclear. Legal practitioners should note the court’s emphasis on documentary evidence of beneficiaries, trust deeds, and partnership arrangements when resisting security orders.