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Central Queensland Development Corporation Pty Ltd (formerly Bluechip Development Corporation Gladstone) Pty Ltd v BMT & Assoc Pty Ltd - [2017] NSWSC 992 - NSWSC 2017 case summary — Zoe
HIS HONOUR: By an amended statement of claim filed on 6 April 2017, the plaintiffs claim damages against the defendant arising out of the construction of an apartment building known as "Harbour Lights" at 66 Oka Lane, Gladstone in Queensland. Doing the best I can having regard to the form of that document, it appears that construction of this development took place between November 2007 and May 2009, that the first plaintiff was the developer and that the defendant was the plaintiffs' quantity surveyor and building consultant. The plaintiffs appear to allege that by reason of the defendant's breach of contract and/or misleading and deceptive conduct, the project could not be completed on budget but instead suffered a substantial costs blowout amounting to more than $1.65M. More particularly, the plaintiffs allege that the defendant provided erroneous reports that overstated how much work had been completed, thereby unintentionally disguising large costs overruns. This is said to have caused the plaintiffs' bank to advance more than it would otherwise have provided because the project had not in fact reached the stage represented by the defendant. Further, the plaintiffs allege in those circumstances that they became liable to repay the extra moneys advanced by the bank and, somewhat curiously, that their obligation to do so somehow gives rise to a cause of action against the defendant.
By its notice of motion filed on 14 June 2017, the defendant sought an order for security for costs pursuant to UCPR 42.21 or alternatively s 1335(1) of the Corporations Act 2001. That application is supported by an affidavit of James Berg sworn on 14 June 2017. Mr Berg was not required for cross-examination.
The material to which Mr Berg deposes suggests that neither plaintiff would be able to pay the defendant's costs of the proceedings if the defendant successfully defended the plaintiffs' claims. The companies have what might be described as a nominal share capital. Neither company has any assets. Neither plaintiff has provided any documentary or other evidence to suggest that it has the ability or capacity to meet an adverse costs order, despite the defendant's request that it do so.
For example, by letter dated 22 March 2017, Mr Berg, a partner of DLA Piper Australia, the defendant's solicitor, wrote to Mr Michael Baumann, the solicitor for the plaintiffs, foreshadowing the present application and asking for information in the following relevant terms:
"3. In the event our client succeeds in its defence of the allegations made by your clients, our client will be entitled to an order for payment of its legal costs. Our client is currently considering your client's ability to meet payment of any costs order that may be made against it and is considering an application…for orders concerning security for costs. In this regard, your client appears to not have any interest as the registered proprietor of land and its asset and liability position is incapable of being ascertained by our client.
4. In order to allow our client the opportunity to consider whether it should apply for security for costs, please ensure your client provides copies of the following documents to us by close of business on 31 March 2017:
4.1 statements of all bank accounts, term deposit accounts and investment accounts containing money held for the benefit of your client at any time from 1 July 2013 to date;
4.2 all documents demonstrating your client's assets and liabilities (including but not limited to asset registers) at any time from 1 July 2013 to date;
4.3 evidence of any property or assets owned by your client and information on whether any such assets are the subject of an encumbrance, mortgage or charge; and
4.4 any other document that evidences your clients' ability to meet payment of our client's costs if so ordered.
5. If your client is unwilling or unable to provide the above documents within the timeframe specified above:
5.1 our client will take this as evidence of your clients inability or incapacity to meet any costs order in our client's favour; and
5.2 we will take instructions with respect to a notice of motion seeking orders for security for costs against your clients."
The information requested was never provided. The plaintiffs have not filed evidence in response to the defendant's application that contains any information of the type sought.
The plaintiffs have filed two affidavits sworn by Mr Baumann on 21 July 2017 and 24 July 2017. Paragraph 3 of the earlier of those affidavits says this:
"3. In order to avoid the delay, time, effort and costs involved in these proceedings for security for costs, although the plaintiffs do not accept that there is any liability to provide the same, the plaintiffs have already made an open offer to provide security which is intended to be by way of cash deposit to the trust account of the defendant's solicitors in the sum of $50,000 as well as offer to proceed by way of arbitration, at the election of the defendant, with the same amount as security."
It remains unclear to me whether that offer, or Mr Baumann's evidence about it, is intended to convey the fact or the suggestion that the plaintiffs have between them the sum of $50,000 of their own at this time, or whether they are able to procure the provision of that sum by way of security for costs from someone or some entity standing behind them. Mr O'Hair of counsel for the plaintiffs was unable to clarify that question.
It is my understanding that the plaintiffs do not contend in response to the present application that they are, or would be, in a position from their own resources to meet any adverse costs order that might be made against them. Nor do they suggest that their present financial position is the result of the alleged conduct of the defendant in the principal proceedings. The plaintiffs' response to the present application is to say only that the application has been brought late and that Mr Berg's calculation of anticipated costs is excessive.
With respect to the question of delay, the defendant says that there has been none, for the reasons explained in a DLA Piper Australia letter dated 12 April 2017 in the following relevant terms:
"Application is well in time
7 We set out the following relevant history of these proceedings:
7.1 November 2013 - your clients filed a writ in the Supreme Court of Western Australia;
7.2 November 2014 - your clients served the writ on our client;
7.3 May 2015 - Justice Martin decided, on the papers, to grant the order to transfer the proceedings to New South Wales;
7.4 May 2015 to November 2016 - we heard nothing from your clients;
7.5 10 November 2016 - you sent us an email indicating you 'now act for the plaintiff' and sent a separate email to Justice Martin's associate seeking extraction of Justice Martin's orders. It was confirmed the matter would be transferred to the Supreme Court of New South Wales; and
7.6 19 February 2017 - we received an email from Dr Bob O'Hair of counsel enclosing a draft Statement of Claim and indicating there was a directions hearing on 9am the following day. In that email Dr O'Hair noted: 'Since there are no pleadings, beyond an endorsement on a writ, at this point, this is difficult [for the parties' legal representatives to have narrowed issues and identified any matters of agreement].'
8 Our client was unable to understand the subject matter of the proceedings, let alone know the precise identity of the plaintiffs, until we were provided with your clients' draft statement of claim on 19 February 2017 (at the earliest). Indeed the Indorsement of Claim attached to the Writ is a much briefer document than the draft Statement of Claim and the plaintiffs were ultimately reduced from five to two.
9 The proposition our clients ought to have foreshadowed the abovementioned matters in May 2015, or prior, as suggested in your Email is rejected. As soon as our client was in a position to appreciate the matters outlined in paragraph 2.1 to 2.3 above, our client acted promptly and issued the Letter.
10 An application for security for costs would therefore be brought at an appropriate time."
These matters were not put in contest before me. The relevant date in these circumstances for gauging or estimating relevant delay is 19 February 2017. Having regard to the terms of Mr Berg's letter of 22 March 2017, I am unable to accept that there has been any delay in making the present application that presently assists the plaintiffs. The plaintiffs have quite properly conceded that no identifiable prejudice has been caused by any delay of which they complain.
Mr Berg assessed the anticipated costs. As I have already indicated, he was not required for cross-examination, so his assessment that the anticipated costs of defending the proceedings was approximately $220,000 remains unchallenged. However, Mr Baumann's affidavit provides an alternative assessment of what might be the defendant's reasonable costs of successfully defending the claim. Mr Baumann was also not required for cross-examination.
Mr Baumann described himself as a solicitor of 42 years standing, with many years of experience in civil litigation. He described Mr Berg's calculation of the likely or anticipated costs as "based on the widest scope of the case as pleaded, within the imagination." He went on to say this at paragraph 19 of his earlier affidavit:
"19 …If the case is conducted, as cases normally are, with a paring of peripheral and exiguous issues, then the scope of the case is likely only three quarters of what is estimated and even those estimates are liable to drastic reduction."
Mr Catsanos, who appeared for the defendant, objected to a series of paragraphs in Mr Baumann's affidavit, including paragraph 19. However, as the succeeding paragraphs appear to indicate, Mr Baumann proceeded to describe and explain, admittedly in somewhat general terms, how the projected costs might be expected to be less than Mr Berg has predicted. I consider that Mr Baumann's evidence about that is admissible.
Mr Baumann's calculations suggest that something in the order of $100,000 would be a proper estimate of the likely costs, but that the figure should be further reduced or discounted having regard to his perception that Mr Berg has inappropriately expanded the true nature and scope of the proceedings.
In my opinion, Mr Berg's assessment is not unreasonable. I am prepared to accept, however, that there may be some factors that limit or reduce the scope of the proceedings. For example, Mr Baumann suggests that the matter may be mediated or that it may settle before proceeding as far as a contested hearing lasting a number of days. These concerns are not unreasonable.
Mr O'Hair drew my attention to what was said by Beazley ACJ at [29] in Treloar Constructions Pty Limited v McMillan [2016] NSWCA 302:
"[29] In my opinion, Mr McMillan has satisfied the threshold requirements of s 1335. As the evidence established, Treloar Constructions is a company with no real estate and a limited share capital. It is a project management and building services company and as such would not be expected to have any stock. Prior to the bringing of the application, it was asked to provide proof that it could meet an order for costs but chose not to do so. Although Mr McMillan would have been in a stronger forensic position had a notice to produce been issued, I am, as I have said, nonetheless satisfied that Mr McMillan has established by credible evidence that there is reason to believe that Treloar Constructions would be unable to pay an order for costs if unsuccessful on the appeal."
I take Mr O'Hair's specific reference to this decision and to [19] in particular as counsel's proper concession that the defendant has arguably satisfied the criterion of the plaintiffs' impecuniosity that must be established before an order for security for costs would be made. I reiterate as well that the plaintiffs have chosen to provide no material from which any different picture of their financial position might be available. I am not assisted by the fact, if it is a fact, that the plaintiffs appear upon the material referred to by Mr Baumann in his later affidavit, not to have been the subject of any adverse credit reference reports or notifications. While that information may say much about the existence or otherwise of competing creditors, it says nothing at all about the plaintiffs' ability from their current assets or their access to loan funds to meet an adverse costs order against them.
In my opinion, the defendant has established that the plaintiffs should provide security for their costs. However, having regard to the competing opinions of Mr Berg and Mr Baumann, I consider that the security to be provided at this stage of the proceedings should be reduced from the amount proposed by the defendant.
I make the following orders:
1. Order pursuant to UCPR 42.21 that the plaintiffs give security for the costs of the defendant by providing it with a bank guarantee in the sum of $120,000.
2. Order that the proceedings against the defendant be stayed until order (1) has been complied with.
3. Order the plaintiffs to pay the defendant's costs of the motion for security for costs.
[2]
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Decision last updated: 27 July 2017
Parties
Applicant/Plaintiff:
Central Queensland Development Corporation Pty Ltd (formerly Bluechip Development Corporation Gladstone) Pty Ltd