**"**I accept what Mr Bloch submits that the Tribunal should be slow to make security for costs orders because the tendency that this would have to stifle the bringing of proceedings. Secondly, I should note that even although the practice in this List as to the award of costs following the event has been relatively unwavering, that practice has not escaped criticism from the wider community."

1. In Ian West Indoor and Outdoor Services Pty Ltd v Australian Posters Pty Ltd [2011] VCAT 2410, Judge O'Neill, VP said that the Tribunal:

"...should generally be slow to make an order for security for costs as to do so would have the capacity to stifle the abilities of companies of modest means to bring proceedings in the Tribunal in the reasonable expectation that those proceedings would be determined promptly, efficiently, at a more modest cost than may be the case in the County or Supreme Courts".

1. In applying the section to an application such as this it is the practice of the Tribunal to have regard to the principles developed in the authorities relating to s1335 of the Corporations Law (see C & J Mortgages Pty Ltd v. Neville [2009] VCAT 984). However it must not be overlooked that this is a Tribunal set up by the Parliament to provide an efficient and timely remedy in those areas of jurisdiction that have been conferred upon it. It cannot be assumed that in every case where a court would order security this Tribunal will necessarily order security also.
2. Mr Stuckey referred me to Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93) where the Court of Appeal considered the application of s.1335(1). The Court said (at p.382:

"The phrase 'reason to believe' is the touchstone of jurisdiction. It requires a rational basis for the belief - and no more.... The wording adopted may be contrasted with other familiar formulations such as 'If the court is satisfied that ... ' or 'If in the view of the court it is likely that ...'. The section requires the making of a judgment, a risk assessment: is there a risk that the corporation will be unable to pay? (It adds nothing, in our view, to say that it must be a "real risk".) A risk assessment is, of necessity, imprecise. The section calls for a practical, commonsense approach to the examination of the corporation's financial affairs."

1. As to the onus of proof of this threshold question, the Court said , (on p. 383):

"On ordinary principles, it is for the defendant-applicant to persuade the court that the discretion should be exercised in its favour."

1. The threshold question to be determined is whether there is reason to believe that the Builder will be unable to pay the Owner's costs if she should succeed in the proceeding and be awarded costs.
2. Mr Stuckey referred me to Arrow International Australia Ltd v. Indevelco [2004] VCAT as an example of a case in which security was ordered by the Tribunal. In Arrow, the security was ordered to be provided by a foreign company that had no assets in the jurisdiction. In C & J Mortgages (above) the Applicant company was an assignee of the original creditor and had a deficiency of assets over liabilities of $45,000. In Saranadis after some evidence was produced by the Respondent suggesting a lack of assets, no evidence was then produced by the Applicant as to its financial affairs. In each of these situations it is understandable why security was ordered.

1. Mr Noble's first affidavit exhibits a company search showing the Builder to be a company with a paid up capital of $2. Mr Noble also deposes to having searched the real estate register and discovered no real estate registered in the name of the Builder. A search of the security interest register showed a security interest registered in favour of a company of a different name, the security interest having been created on 30 January 2012. The nature and extent of this security interest in not stated but an email address suggests that perhaps it relates to a leasing transaction.
2. The affidavit of the Director of the Builder, Mr Psaila, has exhibited to it a balance sheet of the Builder as at 31 March 2012. The document is difficult to understand. The principle point made by Mr Stuckey was that the main asset disclosed in the balance sheet, a property in Truganina, has since been sold. He said that there was no evidence as to whereabouts of the funds realized by that sale, if any. That is true, but there is nothing to suggest that the proceeds of sale have been dissipated.
3. The balance sheet shows that as at 31 March 2012 the Builder had net assets of $100,000 but if that includes the $173,000 that it is claiming in this proceeding then, if none of that were found to be owed, the liabilities would exceed the assets. How the present claim against the Owner has been treated in the balance sheet does not appear from the evidence. That leads to a consideration as to why the Owner claims it is not owed. In doing so, I look to see whether there appears to be a genuine dispute and the apparent strengths and weaknesses of the opposing cases.
4. In his first and second affidavits Mr Noble exhibits reports from a building consultant and a building surveyor as to the alleged defective and incomplete work. The Building consultant quantified the cost of rectifying and completing the items identified in her report at $261,407.10. In its Reply the Respondent deals in great detail with the items in this report. There has been no occasion for the Builder to prepare its own report as this application for security was issued not long after the commencement of these proceedings.
5. The Owner's report is necessarily based upon the instructions given to the expert by the Owner as to the scope of works and what work was done in the House by the Builder. It is apparent from reading the reports and the Builder's Reply that there is a great deal of dispute as to the factual bases underlying the reports.
6. The Owner has not gone on affidavit to verify those matters. On the other hand, Mr Psaila said in his affidavit that the work was supervised by the Owner's architect who, he said, approved the first 18 stage payments. There was no contrary evidence from the architect, nor is there any affidavit from either the architect or the Owner disputing this statement. By "approved" must mean that the Owner's architect was satisfied on each of the 18 occasions upon which he approved payment, that an additional value of 5% of the work had been done. On that basis, he must have been satisfied that altogether, 90% of the value of the contract work had been done. That sits uneasily with the assertion now by the Owner that there are defects and incomplete work to the value of $261,407.10.
7. It is also surprising that, if the Owner was genuinely of the opinion that she would be entitled to recover such a large amount of damages from the Builder, she has not issued a counterclaim.
8. Returning to the Balance Sheet, Mr Stuckey pointed to many matters that would require an explanation in order to be able to understand the various entries. I am not an accountant and although I can read what it says in the balance sheet I am not able to interpret it. The author of the document was not called.
9. I do not accept Mr Stuckey's submission that the balance sheet discloses powerful reasons for concluding that the Builder would be not be able to pay the Owner's costs if they were ordered in this proceeding. The balance sheet is almost 12 months old and discloses a substantial asset that has since been sold but, as Mr Cafari pointed out, if one sells an asset one has the proceeds of sale, either in the form of money or in the form of a reduction of a liability. There is nothing in the material to suggest that any of this money has been dissipated.
10. The balance sheet on its face indicates a surplus of assets over liabilities. To go into it any further I would need accounting evidence. In any case, the document is now out of date. I do not believe that the balance sheet is of any assistance in determining the threshold question.
11. Mr Stuckey criticized the Builder for not providing up to date records but it is ultimately for the Owner to prove the threshold question. After Mr Noble's first affidavit, the Builder led some contradictory evidence. It is for the Owner now to establish at least a prima facie basis for the belief that her solicitor claims she has. To prepare a reliable set of accounts might be a costly business.
12. In his affidavit, Mr Psaila acknowledged that the non payment of the amount claimed in this proceeding has put a substantial strain on the cash flow of the Builder's "relatively small business". Nonetheless, he says that the Builder can and does pay its bills as and when they fall due and that it is presently carrying out work on eight projects, most of which involve the construction of a new dwelling.
13. The statement that the Builder is able to pay its debts as and when they fall due is a statement of a conclusion rather than evidence of the facts upon which such a conclusion is based. The statement that it does pay its bills is a statement of fact, albeit of a general nature. The fact that it is carrying on eight building projects at the moment would suggest that it is possessed of sufficient resources to carry on a business involving the expenditure and receipt of a great deal of money.
14. In his affidavit Mr Psaila says that the "business" was commenced in 2009 and has traded successively since that time with the size and quality of the work increasing steadily. He says that the Builder has never been sued for not paying its debts. Mr Psaila says that it has expended $525,094.28 on this job, including an air conditioner valued at $11,660 which has been installed but not paid for by the Owner.

1. It is notorious that a great many companies trading profitably have a paid up capital of only two dollars. That in itself is of no consequence. The absence of real estate is also not conclusive although in Saranadis similar evidence seems to have been thought sufficient to throw the evidentiary burden onto the Applicant. The statement by Mr Psaila in his affidavit that the Builder can and does pay its bills as and when they fall due is, as Mr Stuckey submitted, an assertion but the fact that it is carrying on eight building projects would suggest that it least has the cash flow to do so.
2. Ultimately, the evidence is that the company has a paid up capital of $2.00 and no real estate but it is trading profitably, is paying its debts, apparently has a substantial cash flow and has not been sued for any unpaid debts. That state of the evidence is insufficient to demonstrate that the Builder will be unable to pay the Owner's costs if an order for costs should be made.
3. Mr Stuckey criticised the Builder for not providing more recent accounts but it is not incumbent upon the respondent to an application of this kind to go to the expense of having accounts prepared specifically to meet the application. The onus is upon the party applying for security for costs to show a rational basis for the belief that the person bringing the proceeding against him will be unable to pay his costs.

1. Mr Psaila said in his affidavit that the ordering of security would have the effect of stifling the proceedings. I accept Mr Stuckey's submission that it is for the Builder to prove that the proceeding would be stifled.
2. Certainly, the amount withheld by the Owner is substantial and has, Mr Psaila says, put significant strain on the Builder's "small business". It is credible that providing an additional $110,000 as security for the Owner's costs would put a further strain on it and may well stifle the proceedings.
3. However it is unnecessary to deal further with the question because the application for security falls at the first hurdle.

1. The application for security for costs will therefore be dismissed. Costs are reserved for further argument.
2. I will direct that the matter be listed for directions as to its future conduct.