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Category: Principal judgment

Parties: Alliance Living Pty Ltd ( Plaintiff/Respondent)
Arch-System Fabrication Pty Ltd (Defendant/Applicant)

Representation: Counsel:
G Gerges (Solicitor) ( Plaintiff/Respondent)
D Byrne (Defendant/Applicant)
Solicitors:
Gerges Law Group ( Plaintiff/Respondent)
Moray & Agnew (Defendant/Applicant)

File Number(s): 2025/276178

Publication restriction: Nil

JUDGMENT; ex tempore (REVISED)

1. By motion dated 9 February 2006, the Defendant seeks an order that the Plaintiff provide security for the Defendant's costs in the proceedings in an amount of $166,000.

2. The quantum of that claim is consistent with evidence given by the Defendant's solicitor, Mr Kaluski, which evidence includes his assessment as to the potential costs of the litigation, followed by a 20% discount to take off the amount that in his experience, he would expect to not recover on an assessment.

3. No submission has been made on behalf of the Defendant taking issue with the amount claimed. Rather, the debate before me has been whether the threshold for the exercise of power has been satisfied either by route of r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) or s 1335 of the Corporations Act 2001 (Cth), which for present purposes I do not think are any different, that being either there is reason to believe that a corporation will be unable to pay the costs of the Defendant if ordered to do so, or if it appears on credible testimony, that there is reason to believe that the corporation will be unable to pay costs of the Defendant if successful.

4. Mr Gerges, solicitor who has appeared for the Plaintiff, has put his opposition to a finding on that threshold issue upon a simple and at least, on a surface level, attractive basis. He submits that a proper analysis of such financials that have been put before the Court (which I should say are incomplete and not up to date) that I should find, firstly, that his client has approximately 1 million dollars cash in term deposits, which can be accessed within 7 days without penalty, and that the balance of the evidence demonstrates that there is a line of credit or overdraft with a bank drawn down to about $900,000, with no evidence as to the limit on that facility.

5. He submits that, notwithstanding tax losses in the last two financial years, I should be satisfied that his client is operating on a cash positive basis, is not insolvent and that there is no reason to think that at any point in the future it will become insolvent.

6. That submission needs to be judged against the context in which the parties find themselves, and that is this. The Plaintiff is a builder, and the Defendant is a subcontractor, they entered into a contract to do some building work. There was a dispute as to an amount claimed by the Defendant as owed to it by the Plaintiff, which was adjudicated pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW), which adjudication was in favour of the Defendant in an amount of $112,029.65, which has now been registered with this Court and stands as a judgment of this Court in that amount.

7. The Defendant since obtaining that adjudication in August last year has sought to enforce that judgment by seeking to garnishee from such bank accounts of the Plaintiff that it knew about, issuing Examination Summons for the production of documents, to no avail. The judgment remains unpaid.

8. The Plaintiff sought a stay of that judgment which application was dismissed by Andronos SC DCJ of this Court on 21 November 2025. Since then, various enforcement actions by way of examination summons either to ask questions of directors of the Plaintiff or to obtain documents have borne some, but not particularly a great amount of fruit, including most of the documents which I have just referred to.

9. From all that, it can be seen that part of the Plaintiff's financial position as of today is that it has, as a liability, an unpaid and unsatisfied judgment debt in an amount of well over $110,000, which has not been paid. The question then becomes what is the reason for that non-payment. Mr Gerges submits that, based on the totality of the evidence, I should infer that the non-payment of that debt is not demonstrative of any inability to pay the debt, rather it is the result of a decision not to pay the debt by his client and in no way therefore has any relevance to the question before me, which is that is reason to believe that at some future date there might be an inability to pay a costs order.

10. He relies on cases such as Idoport Pty Limited & Anor v National Australia Bank Limited & 8 Ors; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus; Idoport Pty Limited "JMG" v National Australia Bank Limited [35] [2001] NSWSC 744 for the proposition that the question on security for costs is not whether a party will be unwilling to pay a debt, but the question is whether it will be unable to pay a debt.

11. I am very familiar with that case and other cases to the same effect, but to my mind, the proposition as just stated overstates things. If a court is satisfied that a corporation has demonstrated an unwillingness to pay debts of a particular creditor, as is the case here, then I consider that to be relevant to the question of fact as to whether at some point in the future it will be unable to pay that creditor a debt. That is because a demonstrable unwillingness to pay a particular creditor debts by a corporation can support an inference that those in control of the corporation might have a propensity to organise the corporations affairs at some point in the future, so as to put it into a position where it is unable to pay a particular debt. I am not saying it would be determinative, but in my opinion it is relevant and in this case, has relevance.

12. When I then turn to what evidence there is of an actual ability to pay a debt, it is to my mind important to notice that the Plaintiff has chosen not to put on comprehensive and up to date financial material, rather it is put on non-complete and non-up-to-date material, and importantly on the question of unwillingness or inability, no person in control of the Plaintiff has put on any evidence to the effect that the reason the Defendant's judgment debt remains unpaid is because of a choice and has nothing to do with the commercial ability of the Plaintiff to pay the debts. In circumstances where only the Plaintiff could prove that subtle distinction, I do not consider it appropriate to infer that the reason is unwillingness when the inference of inability is equally open.

13. On a balance sheet basis, the Plaintiff certainly appears to have more liabilities than assets, but of course, that is not the test. The test is whether on a cashflow basis in the ordinary run of the operation of the Plaintiff's business there is reason to believe that it might be unable to pay a costs order at some point in the future.

14. When I take all of the evidence into account, including the history of non-payment of the judgment debt, but also the very wide swings between positive cash balances and negative cash balances experienced by the Plaintiff which perhaps are not unusual in a building company, I am satisfied as to the threshold test which I remind myself has been described in cases as “undemanding”, see for example Treloar Constructions Pty Ltd v McMillan [2016] NSWCA 302 at [11]. That is, I think there is reason to believe that the Plaintiff will be unable to pay any costs order at some point in the future.

15. That then brings me to the question of discretion, having satisfied myself that the power or the jurisdiction is available. At this point, Mr Gerges found himself walking a forensic tight rope. As I have said, he emphatically submitted to me that I should be satisfied that his client was not just cashflow positive, but cashflow rich, and could pay the judgment debt whenever it liked but was simply choosing not to. He then submitted when dealing with discretionary considerations that I should find that if I was to order security for costs, that might have an adverse impact on his client's ability to conduct their business and/or might stultify his client's ability to conduct the litigation.

16. There is no evidence of that at all, there is a million dollars as of today in a term deposit, which as I read the evidence, can be released to the Plaintiff without penalty on seven days’ notice. That is the submission that was made on behalf of the Plaintiff. There is no suggestion that money is held as security for anything. It might be security for the $900,000 liability on the credit facility, but that is not Mr Gerges’ submission. There is no evidence of any pressing other need for that money to be used to pay other creditors, and quite frankly, if a company with this turnover was to be put at jeopardy because of payment of an amount of around $150,000, I would be extremely concerned as to its solvency.

17. For all those reasons, I am satisfied that I have power to order the security sought and as a matter of discretion, that I should make that order, and I will make that order. The orders I make are as follows:

18. The Plaintiff is to provide security within 14 days for the Defendant's costs in the proceedings, in the sum of $166,000, either by payment into Court or such other basis in which the parties agree.

19. Liberty to the Defendant to apply on short notice if Order 1 is not complied with.

20. Give the Defendant liberty to apply for the provision of further security for costs if, in preparation for hearing, it becomes apparent that $166,000 may prove inadequate.

21. The Plaintiff is to pay the Defendant's costs of, and incidental to, the Notice of Motion as agreed or assessed.

22. Such liberty can be exercised in the first instance by emailing the associate of Newlinds SC DCJ, whereby arrangements will be made to relist the matter.

23. Vacate the directions hearing listed for 9:30am 26 February 2026, and in lieu thereof, relist the matter before the Registrar for directions at 9:30am 12 March 2026

…

[Discussion re: issue of Garnishee Order]

7. Order that the money in the Bank Account be garnished so as to satisfy the outstanding judgment debt.

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