Lincoln v Pathik [2026] VCC 141

1. The threshold for ordering security for costs is reached in this case: Lincoln is an overseas company and holds no assets in Australia.
2. Lincoln has not said it cannot pay security, or that it would be prejudiced in providing it.
3. However, Lincoln submits that in the unusual circumstances of this case, it should not have to pay security. I agree.
4. This proceeding commenced on 8 April 2025. The current pleadings are:
   • Further amended statement of claim dated 15 August 2025;
   • Further and better particulars of the defence dated 24 August 2025;
   • Amended defence dated 12 September 2025;
   • Reply dated 25 September 2025; and
   • Further and better particulars of both the further amended statement of claim, and the reply, dated 10 November 2025.
5. By the further amended statement of claim, Lincoln claims Pathik owes it over $500,000, relying on a loan agreement dated 26 January 2020 (which it has called the Loan Dispute Agreement). The amount claimed as owing under the Loan Dispute Agreement consists of both principal and interest. Pathik admits to signing the Loan Dispute Agreement.
6. The amended defence is confusing, somewhat contradictory, and poorly pleaded. It includes, relevantly, the following allegations:

(a) in or around January 2018, Lincoln's director (Mr Geoffrey Slater) offered to advance $160,000 for 12 months at an interest rate of 8% per annum (Development Funds);

(b) the Development Funds were advanced from around 15 January 2018;

(c) before Pathik signed the Loan Dispute Agreement, Slater made various oral representations to him, including (effectively) that Slater did not require him to pay interest, and that 'formal documentation in the form of the Loan Dispute Agreement would enable [Pathik] to claim the interest as a tax deduction'.

(d) In reliance on the representations, Pathik executed the Loan Dispute Agreement, did not repay the Development Funds, and did not seek alternative forms of finance. He pleads that by reason of this, and Lincoln now seeking to enforce the Loan Dispute Agreement, he has 'acted to his detriment.' (However, he does not plead what actions he took that were to his detriment.) He says Lincoln is therefore estopped from enforcing the Loan Dispute Agreement.

1. The amended defence also raises a set-off claim, for more than $300,000. That set-off claim is for loss and damage for legal costs Pathik claims he incurred as plaintiff in an earlier County Court proceeding No. CI-22-01834 (the VCC proceeding). No particulars of how this set-off claim is quantified are given, other than to say the defendant will rely on a costs consultant to give evidence about it. Pathik claims that:
   1. In or about August 2021, the plaintiff by its director Mr Slater represented that he would act as the defendant's litigation manager in the VCC Proceeding to ensure it [sic] conducted in the most cost effective and time efficient manner so that the defendant could recover sufficient funds to repay the principal and interest in accordance with the Loan Dispute Agreement (Litigation Strategy Representation).
2. Pathik claims he relied on the Litigation Strategy Representation, that it constituted a representation that if Pathik permitted Slater to manage the VCC proceeding for him it would be managed efficiently and in a cost effective manner; he therefore let Slater provide instructions to his (Pathik's) external lawyers; the representation was misleading; and he has suffered loss and damage as the VCC proceeding was not managed in a cost effective and time efficient manner.
3. In its reply, Lincoln alleges:

(a) Pathik has previously claimed some of the interest that Lincoln claims is owing under the Loan Dispute Agreement, as a deduction in a tax return;

(b) in the VCC proceeding, Pathik provided a witness statement in which he asserted that that he owed Lincoln $460,279.98 (including interest) under the Loan Dispute Agreement as at 10 October 2024;

(c) Pathik was awarded $1,910,596.47, and costs to be taxed in the VCC proceeding. The sum awarded included the amounts Pathik had said in his witness statement that he owed under the Loan Dispute Agreement;

(d) Pathik is estopped from denying he is liable to pay the 'outstanding amount plus interest due under the Loan Dispute Agreement as this issue was previously determined' in the VCC proceeding; and

(e) further or alternatively, it is an abuse of process for Pathik to deny he is liable to pay these amounts.

1. Pathik defends Lincoln's claims on two principal bases:

(a) first, that he does not have to pay the interest claimed at all; and

(b) second, that he has a set-off of more than $300,000 to be applied against any sum he is liable to Lincoln for.

1. Pathik first defends Lincoln's claims on the basis that he says that representations were made that he would not have to pay interest. As a result, he says that he only owes about $23,091.38 under the Loan Dispute Agreement.
2. The strength of a plaintiff's case (or conversely, the weakness of a defence) is a matter relevant to take into account in the exercise of the discretion as to whether to issue security for costs. This is discussed by Kennedy J, in the context of an appeal, in Morag Atwell v Dennis Anthony Turner & Ors [2017] VSC 212 at [19].
3. In the present case, the defendant, Pathik, has reversed his position as to whether he needs to pay interest on the Loan Dispute Agreement. He defends Lincoln's claim now, on the basis he says he does not need to pay interest to Lincoln (as a result of alleged representations). Where, previously, he had claimed a deduction representing some of that interest in a tax return he lodged; he had claimed he owed interest to Lincoln (in the VCC proceeding); he had given evidence to that effect in his witness statement in the VCC proceeding; and he had been awarded damages on that claim. See the decisions of Burchell J in the VCC proceeding: Pathik v Bata [2025] VCC 43, and Pathik v Bata (No. 2) [2025] VCC 333.
4. I consider that the statements Pathik made in his witness statement in the VCC proceeding amount to an admission by Pathik that he owed the interest Lincoln now claims in this proceeding. A court may take into account in a security for costs application whether there is an admission on the pleadings or elsewhere that the moneys claimed by the plaintiff are in fact due: G E Dal Pont, Law of Costs (LexisNexis Butterworths, 5th ed, 2021) at [29.88], citing, amongst other cases, Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] 1 QB 609 at 626 (per Lord Denning MR). Of course, Pathik may give different evidence when this case is heard, and may seek to explain the previous admission made. (He has not yet given any explanation about it.) However, for the purposes of this application, Pathik's previous admission is relevant.
5. I note too that the representations Pathik pleads in his amended defence are said to have been made to him long before the VCC proceeding, yet were not raised by him in that proceeding.
6. Pathik submits that he does not need to put on affidavit evidence as to the merits of his defence in relation to this application. That is true. However, that means there is nothing to counter the Court's present view (on the basis of the matters explained above) that the plaintiff has a particularly strong claim. And that is relevant to the security for costs application.
7. Secondly, Pathik's amended defence include a set-off claim for more than $300,000. This set off-claim (summarised above) is difficult to understand. It constitutes the great majority of Pathik's defence to Lincoln's claims (in dollar terms), and it does not arise out of Lincoln's claim. It arises out of completely different allegations.
8. A set-off claim arises under Rule 13.14 of the County Court Civil Procedure Rules 2018:

Where a defendant has a claim against the plaintiff for the recovery of a debt or damages, the claim may be relied on as a defence to the whole or part of a claim made by the plaintiff for the recovery of a debt or damages and may be included in the defence and set off against the plaintiff's claim, whether or not the defendant also counterclaims for that debt or damages.

9. The set-off raised by Pathik is in the nature of a separate claim: see discussion in Grace Christian Capital v Canaan Holdings Pty Ltd (Security for Costs) [2019] VSC 5 [31] - [37]. In particular:

1. Counsel for the parties were able to identify only a small number of cases where the issue of security for costs against a plaintiff was considered in the context of a defence which was akin to a set-off and a counterclaim

10. In Sydmar, Smart J took the view that certain matters alleged in the defence also substantially comprised the defendant's cross-claim, which he said was large and would involve the determination of issues of fact and law not directly arising in defence to the plaintiff's allegations. According to his Honour, the relevant paragraphs of the defence, forming a set-off, were in the nature of a separate proceeding or claim and formed the basis of a substantial part of the defendant's cross-claim, such that by looking at the substantial position of the parties, the defendant was in substance a plaintiff with respect to those paragraphs of the defence. For this reason, along with some other reasons as set out in the judgment, Smart J declined to order the plaintiff to provide security for the defendant's costs.

11. It is the substance of proceedings, rather than their form, which is critical in determining whether a party is an attacker or defender for the purposes of security for costs: see Australian Mud Co Pty Ltd v Coretell Pty Ltd (No 6) [2013] FCA 1025 at [20].
12. Where a set-off is independent of the plaintiff's claim, it may be treated as a separate claim, effectively making the defendant a "plaintiff" in substance for that portion of the proceedings.
13. This weighs against granting security for costs, as a defendant would not be entitled to security for costs for a claim they are effectively pursuing as a plaintiff.
14. That is the case with Pathik's set-off claim in this case.
15. In all the circumstances, I will not give security in this case.

1. Pathik has been unsuccessful in his application for security for costs. With a view to keeping down further costs, I indicate that my preliminary view is that costs should follow the event.
2. I propose to order (unless objection is received):
   1. The summons is dismissed.
   2. The defendant pay the plaintiff's costs of the application on the standard basis to be taxed in default of agreement.
3. If either party seeks a different order, they must file and serve submissions by 4 pm on 30 March 2026, limited to 3 pages.
4. Any reply submissions must be filed and served by 4 pm on 8 April 2026, limited to 2 pages.
5. Copies of any legal authorities relied on must be filed and served at the same time as the submissions.

I certify that these 9 pages are a true copy of the reasons for ruling of Her Honour Judge Marks, delivered on 23 March 2026.