Background
Wilnet Pty Ltd became the registered proprietor of a commercial property in North Boambee Valley, near Coffs Harbour, NSW, on 18 August 2025. Smart Laundry Manager Pty Ltd (Smart Laundry) held leases over units 3 and 4 of the property, both of which had expired and converted to periodic tenancies by the time of Wilnet’s purchase. After notifying Smart Laundry of rental arrears, Wilnet terminated the periodic tenancy in November 2025 and commenced proceedings in January 2026 seeking possession of the property and payment of unpaid rent and outgoings totalling $18,222.43.
Smart Laundry filed a Cross-Claim on 8 April 2026 — without first obtaining leave — seeking damages and equitable compensation. The Cross-Claim alleged that the previous registered proprietor had agreed to grant a new lease to Smart Laundry, that Smart Laundry had notified Wilnet of this interest before settlement, and that Wilnet took the property with actual or constructive knowledge of that interest. On that basis Smart Laundry asserted an equitable lease, proprietary estoppel, unjust enrichment, unconscionable conduct, and various heads of loss including wasted expenditure, lost lease opportunities, and loss of profits.
Evidence adduced on the security-for-costs motion revealed that Smart Laundry had a paid-up share capital of $100, a bank balance of $0.64 as at 31 March 2026, a credit-risk rating of “high” default, and no apparent assets. The evidence also strongly indicated that the commercial laundry business operating from the property was actually carried on by a related entity, Yoweri Laundries Pty Ltd, whose name appeared on signage at the premises and which was the addressee of third-party invoices — not Smart Laundry.
The Court’s Holding
Sirtes J granted Wilnet’s application for security for costs. The Court first granted leave nunc pro tunc for the Cross-Claim to be filed, as the filing fee had been paid and a Defence to the Cross-Claim had already been served. On the substance of the motion, the Court found that the threshold requirement under r 42.21(1)(d) of the Uniform Civil Procedure Rules 2005 (NSW) and s 1335 of the Corporations Act 2001 (Cth) was satisfied: Smart Laundry was plainly indigent and there was reason to believe it would be unable to pay a future costs order.
The Court rejected the argument that the Cross-Claim was “defensive” in character — a finding that would have precluded a security order. While the Cross-Claim had some logical relationship to the main claim, the Court held there was minimal true overlap: the FASOC concerned a straightforward landlord’s claim for possession and arrears, whereas the Cross-Claim sought to impose liability on Wilnet for alleged representations made by the previous registered proprietor and to establish an equitable interest binding on Wilnet. The Court also found the Cross-Claim had limited prospects of success because the losses pleaded appeared to belong to Yoweri, not to Smart Laundry, such that the Cross-Claim failed properly to disclose a cause of action against Wilnet.
The Court was unpersuaded that a Deed of Indemnity tendered by Yoweri Laundries on the day of the hearing adequately mitigated the risk of non-payment. Little was known about Yoweri’s financial capacity, it had given no undertaking to the Court, and the Court was concerned that if Wilnet succeeded in the main proceedings and both entities were forced to relocate, one or both might cease to be viable. The Court ordered Smart Laundry to pay $35,932.75 into Court as security, with the Cross-Claim stayed until payment and dismissed if payment was not made within 28 days.
Key Takeaways
- A cross-claim filed without leave but with the filing fee paid may be regularised by nunc pro tunc leave, particularly where the opposing party has already filed a Defence to it.
- A cross-claim is “offensive,” not “defensive,” for security-for-costs purposes where its subject matter goes beyond resisting the plaintiff’s claim — here, seeking to establish a new equitable interest in land and damages from an incoming purchaser based on dealings with the previous owner.
- An impecunious corporate cross-claimant whose pleaded losses are attributable to a related operating entity faces a compounded risk: the court may find both that the cross-claim lacks a proper cause of action and that any third-party indemnity from that related entity is insufficient, justifying a security order.
- A deed of indemnity tendered by a related company will not automatically forestall a security order; the court must be satisfied the indemnifying party has the capacity to honour the obligation at the future time a costs order would fall due, and an undertaking to the court is a stronger form of protection.
Why It Matters
This decision illustrates the practical limits of using a thinly capitalised corporate vehicle as a cross-claimant when the underlying commercial activity — and therefore the real economic interest in the litigation — sits in a related but separate entity. Courts will look through the corporate structure to assess whether pleaded losses are actually those of the named party, and where they are not, both the merits and the security-for-costs analysis will be affected. Practitioners advising clients in similar situations should ensure the correct entity brings the claim and that any third-party indemnity arrangement is supported by candid financial evidence.
The case is also a reminder of the procedural risk of filing a cross-claim without leave. Although leave was granted here on benign facts, the failure to seek prior leave exposed the cross-claimant to a separate vulnerability and added to the overall impression of a claim being pursued without proper procedural foundations.