888 Projects Pty Ltd (Receivers and Managers Appointed) (ACN 121 369 793) v Bank of Western Australia Ltd

REASONS FOR JUDGMENT 1 On 3 March 2010, the defendants gave undertakings to the Court in lieu of an interlocutory injunction as follows: 1. On the plaintiff by its counsel giving the usual undertaking as to damages to the Court, and conditional upon compliance by the plaintiff with any further orders made in respect of (i) security in respect of the plaintiff's undertaking as to damages, and (ii) security for costs, the second and third defendants undertake to the plaintiff until 5pm on 14 April 2010: (a) not to carry out any construction works at 4-6 Walton Crescent, Abbotsford ("the Property"); and (b) not to market for sale, sell or transfer or assign the legal interest in the Property. 2 Yesterday I heard argument on the defendants' motion that the plaintiff provide: · Further security for costs in an amount of $60,000 ($20,000 having previously been provided); and · Security for the plaintiff's undertaking as to damages in the amount of $250,000. 3 The proceedings arise out of a loan facility and certain deeds of variation thereto under which the Bank of Western Australia extended loan facilities to the plaintiff in an amount of approximately $25 million for the purchase and development of 13 luxury apartments at Abbotsford. 4 The date for repayment was extended by deeds of variation to 30 June 2009, but the loan has not been repaid. The bank gave notices of default to the plaintiff relying upon the failure to meet the repayment date and certain other events of default. On 11 February 2010, the bank appointed the second and third defendants as receivers of the plaintiff's property. 5 The plaintiff contends that the appointment was invalid. It alleges that the repayment date was extended to the date of completion of the development and that no proper demand was served upon it prior to the appointment. 6 It is unnecessary for me to express any view as to the plaintiff's prospects of success on the hearing because in my view the plaintiff's parlous financial state is abundantly clear from the evidence and is more than sufficient to justify orders for further security for costs and security for the undertaking as to damages. 7 The conclusion which inevitably follows from the evidence is that there is a prima facie case that the plaintiff is insolvent. It has failed to meet a statutory demand from the Commissioner of State Revenue for nearly $250,000 in land tax. It is true that the plaintiff has made part payment and that the due date has been extended to mid April, but it is sufficiently clear that the plaintiff cannot pay its debts as and when they fall due. 8 There is other evidence of the plaintiff's inability to pay its debts including its failure to pay contractors in the sum of over $1.4 million. In addition, one of the principals standing behind the plaintiff has entered into an arrangement under Part X of the Bankruptcy Act 1966 (Cth). 9 Matters are made worse rather than better by the unfortunate fact that the builder has very recently appointed a voluntary administrator so that there must be real doubt as to when the project will be completed. 10 The defendants seek security calculated by reference to the additional holding costs they say they will incur. The amount of $250,000 has been calculated by reference to additional interest and payment of security guards at the site. 11 Mr Hancock, who appears for the plaintiff, submits the amount to be ordered must be limited by reference to the loss likely to be caused to the defendants by their undertaking in the event that the plaintiff fails at the final hearing. He made an open offer on his client's behalf to pay $50,000 to give "some worth" to the undertaking. 12 I reject Mr Hancock's submission. The High Court has recently referred to the nature of the undertaking as to damages in European Bank Ltd v Robb Evans of Robb Evans and Associates [2010] HCA 6. In that case the Court observed at [14] to [18] that the undertaking as to damages is given to the Court for the enforcement by the Court. It is not a contract between the parties or some other cause of action upon which one party can sue the other. The origins of the undertaking were referred to and its application to varied circumstances in particular cases cannot, as their Honours observed, be constrained by a rigid formulation. The test is one of what is just and equitable or fair and reasonable in all the circumstances. 13 In my view, it follows from what was said by the High Court that in considering what is just and equitable in the present case, I ought to have regard to the ordinary vicissitudes and uncertainties associated with development projects so that it is likely that if the bank is delayed in realising its security it will suffer losses which are presently difficult to quantify. In my view, the amount of $250,000 is not an unreasonable amount to order. Given the plaintiff's financial position any such security would have to be provided by a third party. 14 As to security for costs there is credible evidence that there is reason to believe that the plaintiff would be unable to meet a costs order. This is clear from the plaintiff's financial position. There is no reason why further security should not be given. The amount sought is open to some level of debate. In my view, a fair and reasonable amount to order is an additional $50,000. 15 For these reasons I will make orders: 1. The plaintiff to provide the following: (a) Further security for costs of the first, second and third defendants in a sum of $50,000, such security to be provided either by payment into Court or bank guarantee, or other form of security acceptable to the defendants; and (b) Security for the plaintiff's undertaking as to damages in the sum of $250,000, such security to be provided in the same manner as referred to in order 1(a) above. 2. The security is to be provided in terms of orders 1(a) and 1(b) within seven days of today's date. 3. Pursuant to Order 28 rule 5 of the Federal Court Rules 1976 (Cth), the proceedings be stayed in the event that security is not given in accordance with orders 1 and 2 above. 4. The plaintiff to pay the defendants' costs of the notice of motion filed on 8 March 2010. I certify that the preceding fourteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.