Gilridge Investments Pty Ltd v Diamond Builders Pty Ltd & Anor

1. On or about 16 September 2020, Diamond Builders Pty Ltd (Diamond) and Gilridge Investments Pty Ltd (Gilridge) entered into an amended AS4300-1995 design and construct contract whereby Diamond would design and construct the EON Project, being a multistorey apartment complex with a basement carpark (the Works) in Altona for an agreed Contract Sum of $5,355,547.00 (including GST) (the Contract). Diamond commenced the Works on or about 21 December 2020.
2. During the course of the Works, multiple disputes and pieces of litigation arose between the parties. Costs orders were made in two other proceedings against Gilridge in favour of Diamond, and Gilridge concedes these have not been paid.
3. The parties' obligations under the Contract were substantially brought to an end on or about 17 November 2022 when Gilridge took the Works out of the hands of Diamond. Gilridge alleges this was validly done, in accordance with the provisions of the Contract. Diamond denies these allegations.
4. On or about 2 May 2023, Diamond commenced proceeding CI-23-02167 against Gilridge for orders under s 16(2) of the Building and Construction Industry (Security of Payment) Act 2002 (Vic) (the SOP Act).
5. On or about 5 June 2023, Gilridge commenced this proceeding by Writ and Statement of Claim. Gilridge says that although the full extent of loss and damage suffered by Gilridge had not yet crystalised, it commenced this proceeding not only to enforce the contractual rights it had accrued against Diamond but also to commence a defensive action in light of the rights sought to be exercised by Diamond under the SOP Act.
6. From the Court's point of view, little substantive progress has been made to advance this proceeding since June 2023. First timetabling orders were made in July 2023. Many of these were not complied with and in June 2024 the Court asked the parties for an update. The parties filed proposed orders by consent on 19 June 2024, extending the dates for pleadings, discovery, expert evidence, witness statements, mediation, and adjourning the trial date from 16 September 2024 to 16 June 2025.
7. On or around 29 July 2024, Korda Mentha was appointed as Receivers and Managers and Controllers to Gilridge. Diamond was notified of this on or about 31 July 2024. Andrew Knight of Korda Mentha has advised Gilridge's solicitors that Gilridge is continuing with the EON Project and has appointed a third builder to complete the Works.
8. The parties have not complied with many of the timetabling orders. Gilridge is yet to finalise its statement of claim and its loss and damage, as it says the building project is continuing and it has not yet been able to calculate its final costs. It appears the claim may now exceed $4 million. Expert reports and witness statements have not yet been served. Discovery is outstanding.
9. The parties attended a case management conference (CMC) with the Commercial Division Lawyer on 14 March 2025. At that time, they agreed the proceeding was not ready for trial and orders were made adjourning the trial date again. Diamond foreshadowed making this application.
10. Despite orders being made (at the defendants' request) allowing Diamond to file a counterclaim, none has yet been issued. Counsel for Diamond advised that Diamond had made the decision to not issue a counterclaim because it seems to them that Gilridge has no assets. This was first communicated at the CMC.
11. On 1 April 2025, Diamond issued this application for security for costs.

1. There is no dispute between the parties as to the relevant principles to be applied in an application for security for costs. The application is made under r 62.02 of the County Court Civil Procedure Rules 2018 (Vic) (the Rules), alternatively s 1335 of the Corporations Act 2001 (Cth). The principles are set out in the decisions referred to by the parties, namely US Realty Investments LLC #1 v Need[2](Need), Livingspring Pty Ltd v Kliger Partners[3](Livingspring), and Trility Pty Ltd v Ancon Drilling Pty Ltd[4] (Trility).
2. Derham AsJ succinctly summarised the principles and factors to take into account in Need[5], as follows:

(a) the principles applicable to an application for security for costs brought against a corporate plaintiff under r 62.02 of the Rules and s 1335 of the Corporations Act are the same;[6]

(b) the jurisdiction to make an order is enlivened, if it appears by credible testimony that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if it is successful in its defence of the proceeding;

(c) the discretion to order or not to order security is unfettered, although like any discretion it must be exercised judicially. There is no general predisposition in favour of making an order for security once the jurisdictional threshold is passed. But impecuniosity is itself a significant discretionary factor and often a most significant factor;

(d) in exercising the discretion whether to order a company to give security for costs, the Court must carry out a balancing exercise. It must weigh the injustice to the plaintiff if it is prevented from pursuing a proper claim by an order for security, against the injustice to the defendant if no security is ordered and at trial the plaintiff's claim fails and the defendant is unable to recover costs from the plaintiff;

(e) the Court will properly be concerned not to allow the power to order security to be used as an instrument of oppression, but also it will be concerned not to be so reluctant to order security that an impecunious company can use its inability to pay costs to put unfair pressure on the defendant;

(f) the burden rests on the defendant, from first to last, to persuade the Court that the order for security for costs should be made;

(g) there are, however, particular discretionary matters in respect of which the plaintiff must necessarily have the carriage. Thus, if the plaintiffs, as in this case, assert that an order for security would impose on it such a financial burden as to stultify or frustrate the litigation, the plaintiffs must establish the facts which make good that assertion;

(h) as a general rule, where a claim is prima facie regular on its face and discloses a cause of action, the Court should proceed on the basis that the claim is bona fide with reasonable prospects of success in the absence of evidence to the contrary;

(i) assessing the plaintiffs' prospects of success is not really a practicable test in any case of reasonable complexity... Although it will ordinarily not be practicable to reach any clear view about the merits of the plaintiff's claim, that is not to say that the merits are always irrelevant (unless totally lacking) or that the bona fides of the claim may be disregarded... The Court is not obliged to consider at length the merits of the claim, and to do so would ordinarily be a waste of resources;

(j) there is a well-recognised factor (sometimes called a principle), which may affect the exercise of the Court's discretion, that the Court will not make an order for the provision of security if the order would operate to frustrate or stultify the plaintiff's arguable case legitimately instituted. The "stultification principle", being a factor relevant to the exercise of the discretion, does not automatically lead to refusal of the application for security. It nonetheless "usually operates as a powerful factor in favour of exercising the Court's discretion in the plaintiff's favour".

Has the jurisdictional threshold to order security been enlivened?

1. As stated above, it is necessary, as a threshold question for the defendants to establish that the jurisdiction to order security is enlivened. That is, is there reason to believe, based on credible testimony, that the plaintiff will be unable to pay the defendants' costs? The threshold is low.
2. Ryan J recently observed in Ballymoss Pty Ltd v Kollaras & Co Pty Ltd (No 4) [7]:

The first question to be asked and commonly described as the "threshold requirement," is whether there is a rational basis founded on credible testimony to believe that the plaintiff will be unable to pay the costs of a successful defendant. It is a low threshold which requires making a risk assessment - requiring a practical, common sense approach to the corporation's financial affairs. No more than a rational basis for the belief is required. This requirement reflects the policy of protecting a defendant against the risk of a plaintiff's impecuniosity. As Livingspring makes clear, the approach requires a practical risk assessment. In this instance, would there be a real risk that Ballymoss could not recoup its costs if it successfully defended the counterclaim?

1. There is little dispute over the following factual matters:

(a) Gilridge has a paid up share capital of $12.00;

(b) Gilridge has a credit score of 0/850 points;

(c) Andrew Knight and Craig Shephard at Korda Mentha were appointed as Receivers and Managers of Gilridge, and as Controllers of the EON Project property, on or around 29 July 2024;

(d) Gilridge owns one property (being the EON Project property) which is under receivership, is subject to a mortgage, and is the subject of a warrant of seizure and sale in favour of Diamond;

(e) Gilridge has failed to comply with costs orders made by this Court and the Court of Appeal in respect of other proceedings with the first defendant and warrants to enforce those orders have been unsatisfied due to the appointment of Receivers and Managers.

1. Gilridge's solicitor, Phillip Vasiliadis, deposed to the following matters, based on information received from Andrew Knight at Korda Mentha and belief:

(a) a third builder has been appointed to complete the EON Project;

(b) the targeted date for completion is 25 November 2025;

(c) the costs incurred in order to complete the Works represent approximately 81% of the original contract price with Diamond;

(d) this has been a substantial reason for the appointment of Receivers and Managers and Controllers;

(e) the legal costs associated with the proceedings commenced by Diamond against Gilridge form another reason for the appointment of Receivers and Managers and Controllers to Gilridge;

(f) the Receivers and Managers do not have funding from its appointer, Payton Capital Ltd, to satisfy any order for security should one be made; and

(g) based on Gilridge's books and records, Gilridge in its own right would not have sufficient funds to meet any order for security.

1. Diamond submitted that the evidence of an administrator/controller and receivers being appointed to Gilridge is sufficient to reach the threshold of a belief on credible evidence that it does not have the ability to pay an order for costs should such an order be made against it. They submitted that Gilridge has given no satisfactory evidence explaining why the receiver was appointed or what impact the appointment has had on its business. It has not provided any explanation as to why previous costs orders of approximately $150,000 have not been paid. Nor has it filed any evidence of its financial position, and in circumstances where a receiver is appointed, the evidentiary onus is on Gilridge to establish that it would be able to satisfy an adverse costs order. Counsel for Diamond submitted that the evidence in the affidavit of Gilridge's solicitor, Phillip Vasiliadis is insufficient to meet that onus.
2. In support of that proposition, Diamond relied on the decision of Gensco Laboratories, LLC v Care A2 Plus Pty Ltd (receiver appointed) (No 2)[8](Gensco), which it says involved similar facts to the present. In Gensco, a receiver had been appointed to Care A2, its assets listed on the Personal Property Securities Register were charged in favour of others, and Care A2 had not provided Gensco or the Court with any information or evidence as to its financial position. Halley J found that Gensco had established that there was credible reason to believe that Care A2 may not be able to meet an adverse costs order, and in those circumstances, Care A2 had an evidentiary onus to establish that it would be able to meet such a costs order.
3. In response, Gilridge did not accept that it bears the onus in the application. Gilridge submitted that the burden is on Diamond to adduce a rational basis on credible evidence that Gilridge would be unable to meet a costs order. He relied on the decision of Amcor v Barnes[9] (Amcor), where the plaintiff (Achilla) was in a worse financial position than Gilridge, and Vickery J declined to order security. His Honour found that the onus was on the applicant for security to satisfy the Court of the threshold question. Further, there was no obligation on the part of Achilla to provide a full account of its financial position, and inferences cannot be drawn to fill a gap in evidence, as it is the applicant for security which must put evidence before the Court to satisfy the threshold.
4. Further, Gilridge submitted that Diamond has failed to consider what the appointment of Receivers and Managers to Gilridge actually means. The appointment of a receiver out of Court (that is, not appointed by order of a Court) is done for the purpose of realising the security held by the appointer.[10] Further, and relevantly, the general law will impose a duty on the receiver to:

(a) in the first place, a duty to the mortgagee to collect and realise the assets of the company for the purpose of discharging the security; and

(b) second, the receiver has a duty imposed on it to hold in trust for the mortgagor, any proceeds from the sale of the company's assets after the satisfaction of the claims of the mortgagee and subsequent creditors.[11]

1. Applying the above jurisprudence to the current facts, Gilridge submitted that the Receivers and Managers appointed to Gilridge have:

(a) a primary duty to recover and realise such funds as will discharge the security of their appointer (being Payton Capital); and

(b) second, to hold any surplus funds on trust for Gilridge.

1. Gilridge also submitted that I could presume the EON Project would make a profit for Gilridge and its backers once it is completed and the apartments are sold, as otherwise they would not have funded the completion of the project with a third builder.

Discussion and conclusion on the jurisdictional threshold

1. In my view, the decisions of Gensco and Amcor are not inconsistent with each other. They both address the process of adducing evidence to enable a court to form the necessary belief that a company would be unable to pay costs if ordered to do so. In both, the starting point was a company with issues of financial capacity. Both applications commenced with the applicant for security providing evidence to the court of these financial issues. The judge in each matter formed a view as to the financial capacity of each respondent company based on the initial evidence before them. Up to that point their approaches were consistent. The divergence happened after that point, when Halley J decided the onus to produce further evidence was on the respondent to the application, while Vickery J decided the onus was on the applicant. To my mind, the divergent approaches can be explained by each judge forming opposite beliefs as to the financial capacity of each company based on the initial evidence before them.
2. In Gensco, the only evidence before the Court was that a receiver had been appointed to Care A2 and searches of the Personal Property Securities Register revealed that there were fixed and floating charges over all of its assets. His Honour Halley J was satisfied of the following matters:

(a) the appointment of a receiver provides a credible reason, in the absence of any evidence explaining the extent, nature or scope of the appointment, that Care A2 may not be able to meet an adverse costs order;[12]

(b) Care A2 made forensic decisions not to lead any evidence explaining the circumstances in which the receiver was appointed. His Honour did not accept the submission made by Care A2, that an unexplained appointment of a receiver over all the assets of a corporation does not give rise to any inference that the corporation may not be able to meet an adverse costs order;[13]

(c) the unexplained registration of security interests over the assets of Care A2 provided further reason to believe that Care A2 may not be able to meet an adverse costs order;[14]

(d) the otherwise unexplained appointment of a receiver to Care A2 gave rise to an evidentiary onus on the part of Care A2 to establish that it would be able to meet an adverse costs order.[15]

1. In Amcor, the evidence before Vickery J was that Achilla (the plaintiff by counterclaim) was no longer trading, had transferred its sole share to a non-beneficial shareholder, and had no interest in any land. Further, Achilla did not put before the Court any accounting records or financial statements that set out its financial position. The Amcor Parties (the defendants by counterclaim) submitted that Achilla's failure to provide such financial material legitimately fortifies the 'credible testimony' upon which they rely.
2. His Honour considered whether the rule in Jones v Dunkel[16] may be used to fill gaps in evidence. He examined earlier authorities and concluded:

... the rule is limited to assisting the court to draw an inference which is available from circumstantial evidence. The absence of evidence to the contrary may not, however, be directly converted into circumstantial evidence itself tending to prove the fact in issue against the silent party. In other words, the rule cannot be used to fill gaps in the evidence or to convert conjecture or suspicion into evidence in the nature of inference.

(a) he was not satisfied that the material before the Court was sufficiently persuasive to permit a rational belief to be formed that Achilla would be unable to pay the costs of the Amcor parties, if it was to be unsuccessful in its counterclaim;[17]

(b) the 'threshold question' is therefore not satisfied in favour of the Amcor parties;[18] and

(c) the absence of any financial records put on by Achilla is not sufficient to fill the gaps in the evidence.[19]

1. In my view, the difference between the two decisions can be explained by each judge differing in their belief as to the financial capacity of each company to pay costs based on the evidence before them. In Gensco, Halley J considered that the appointment of the receiver was sufficient evidence to form the requisite belief. He concluded that in those circumstances, the onus moved to Care A2 to produce evidence to rebut that belief. On the other hand, in Amcor, Vickery J considered the facts that Achilla was not trading, had transferred shares and had no assets, to be insufficient to form the requisite belief. In those circumstances, there was no obligation on the part of Achilla to provide a full account of its financial position. As "the threshold issue could not be answered in favour of the Amcor Parties on the material before the Court, ...[Achilla] was entitled to ... not put on any detailed financial evidence."[20] Further, no Jones v Dunkel inference was capable of being drawn to fill the evidentiary gap.
2. In other words, the starting point is the evidence before the Court. There is no dispute that this evidence is to be provided at first instance by the applicant for security. If that evidence provides a sufficient basis for the Court to form the necessary belief, then the threshold has been reached unless the respondent can produce evidence to the contrary.
3. In the present matter, therefore, the first step is to assess the evidence before me. That evidence is set out above. In summary:

(a) Gilridge has only a nominal paid up share capital and a low credit score;

(b) Gilridge owns only the EON Project property, which is under receivership, is subject to a mortgage, and is the subject of a warrant of seizure and sale in favour of Diamond;

(c) Gilridge has failed to comply with costs orders made by this Court and the Court of Appeal in respect of other proceedings;

(d) Receivers and Managers were appointed to Gilridge, and a Controller has been appointed to the EON Project property;

(e) the Receivers and Managers and Controllers were appointed by Gilridge's backers, Payton Capital;

(f) the Receivers and Managers and Controller are continuing to manage Gilridge in order to complete the EON Project;

(g) it is safe to assume that Payton Capital would only fund the completion of the Project if they could see a return on their investment;

(h) the Receivers and Managers have duties to recover and realise such funds as will discharge the security of their appointer and to hold any surplus funds on trust for Gilridge;

(i) the only way the Receivers and Managers will satisfy their duty to Payton Capital is by completing the Works and selling the apartments;

(j) a third builder has been appointed to complete the EON Project and the targeted date for completion is 25 November 2025;

(k) the dispute with Diamond has led to Gilridge incurring significant increased costs to complete the Works and costs to defend legal proceedings; and

(l) these have been substantial reasons for the appointment of Receivers and Managers and Controllers.

1. Based on that evidence, I am not satisfied that there is reason to believe that Gilridge will be unable to pay Diamond's costs if ordered to do so.
2. If the only evidence was that Receivers and Managers had been appointed, the facts would be similar to Gensco, and the unexplained appointment of a receiver could give rise to an inference that the corporation may not be able to meet an adverse costs order. Gilridge may then have borne the onus of disproving that inference.
3. However, in the present matter, the appointment has been explained by Gilridge. I accept the evidence provided on information and belief as set out above. I accept Gilridge's submission that in order to discharge their burden, Diamond was required to illustrate to the Court that there is a rational basis to believe that after the Receivers and Managers have fulfilled their primary duty, there will be no surplus funds from the completion of the Works and subsequent sale of the apartments which would be available to satisfy an adverse costs order made against Gilridge. Diamond has not met that burden.
4. The Court must form an opinion about what the financial position of the plaintiff corporation will be at the time of the judgment and immediately thereafter. I note the evidence that the EON project is due to be completed by November 2025. The apartments will be sold before or after that time. The trial of this proceeding will be not before 2026. Accordingly in my view, there is no evidence that Gilridge would not be able to meet a costs order made in 2026 or later.
5. Further, as the evidence before me is insufficient for me to form the necessary belief, Gilridge has no obligation to file further evidence. The facts are analogous to Amcor.
6. For those reasons, I am not satisfied that the threshold has been reached, and I am not satisfied that my discretion under r 62.02 of the Rules, alternatively s 1335 of the Corporations Act 2001 (Cth), to make an order for the provision of security by the plaintiffs has been enlivened.
7. The power to order security not having been enlivened, there is no need to consider the discretionary factors. However, in case I am wrong about the threshold, and it has been reached, I would nevertheless refuse to make an order on discretionary grounds, for the following reasons.

If the jurisdiction has been enlivened, should security for costs be granted?

1. It is uncontroversial that the discretion to award security for costs is unfettered and should be exercised having regard to all of the circumstances of the case. The Court must carry out a balancing exercise, weighing the injustice to a plaintiff if it is prevented from pursuing a proper claim by an order for security, against the injustice to a defendant if no security is ordered and at trial the plaintiff's claim fails and the defendant is unable to recover costs from the plaintiff. The task of the court is to decide which of any number of discretionary factors should be taken into account in determining whether to exercise the discretion and to give them the weight according to the particular circumstances of the case.[21]
2. In the present matter, the parties referred to the following considerations relevant to my discretion:

(a) Diamond's delay in bringing the application;

(b) whether Gilridge commenced the proceeding as (at least in part) a defence to Diamond's claims against;

(c) whether the proceeding would be stultified if security were ordered; and

(d) are Diamond's actions the cause of, or did they contribute to, Gilridge's impecuniosity?

Is the delay in making the application a factor?

1. In my view, there was a significant delay by Diamond in bringing this application, and that weighs heavily against an order for security. The basis for considering delay as a discretionary factor was set out by Sifris J in Oswal v Australia and New Zealand Banking Group Ltd,[22] as follows:

Delay is usually an important factor, and often a decisive factor in deciding whether to order security and in particular security for past costs. The main reason is that by such delay, the defendant has permitted the plaintiff, during the period of the delay, to incur costs, and often substantial costs, that may not have been incurred had the application been made promptly. If a plaintiff proceeds on the assumption that no such application will be made, it may be harsh and unfair to require security for such past costs. There are, of course, or may well be, other considerations which will excuse delay or balance the assumed and presumed prejudice that inevitably arises out of such delay.

1. The relevant principles have been summarised as follows:[23]

(a) Delay in making an application for security for costs, or further security for costs, is a most important and often a critical factor, essentially because it unfairly allows a plaintiff to proceed and incur costs on the assumption that no application is to be made.

(b) Delay is more significant, and often critical, in relation to security for past costs although it may also be a relevant factor in relation to security for future costs.

(c) Prejudice to a plaintiff is assumed and presumed because of the delay. However, each side may adduce evidence in support of, or against, such prejudice.

(d) Despite delay, security may be granted for past costs (in whole or in part) where it is established that there is some conduct that negates the prejudice, harshness, or oppression, that is otherwise apparent when there is a delay, and substantial costs have been incurred. The Court retains a broad discretion which requires all relevant facts and circumstances to be taken into account. Each case must be decided in accordance with its own peculiar facts and circumstances.

1. Diamond argued that although it was commenced nearly two years ago, little has actually occurred in the proceeding and so Gilridge has not incurred significant costs. Accordingly, the delay has not had the effect of allowing Gilridge to proceed and incur costs on the assumption that no application is to be made. Diamond refers to the fact that Gilridge is yet to finalise its statement of claim and its loss and damage, discovery, expert reports and witness statements have not yet been completed.
2. I do not agree with this submission. I accept the history of the proceeding as set out by Phillip Vasiliadis in his affidavit. Further, Diamond's submission is inconsistent with its evidence that it has incurred legal costs of $53,837.25 to date. It is likely that Gilridge will have incurred a similar amount of costs, given the work carried out according to Phillip Vasiliadis. That Gilridge has incurred a significant amount of costs over two years is a prejudice to them caused by Diamond's delay.
3. Further and equally significantly, I have had regard to the delay from 31 July 2024 to 1 April 2025 (when the summons was issued). As set out above, Diamond became aware that the Receivers and Managers and Controllers were appointed to Gilridge on 31 July 2024. The Warrants issued by Diamond were returned unsatisfied on 16 August 2024. Diamond submitted that it did not issue the summons earlier as between July 2024 and March 2025, Gilridge took no steps to advance the case, comply with the Court's orders, or otherwise indicate that it intended to continue the proceeding despite the appointment of receivers and managers. Once it became apparent at the CMC that Gilridge did in fact intend to progress with the case, Diamond issued the summons promptly thereafter.
4. I consider that Diamond's version of events does not provide an adequate explanation of their failure to make this application sooner. Diamond seeks to paint the impression that it did nothing from July 2024, as it was waiting for Gilridge's Receivers and Managers and Controllers to decide whether to continue with the proceeding. It appears to me that a more accurate explanation is that the delay from July 2024 is merely a continuation of the approach both parties took to the proceeding since its commencement. Diamond's conduct did not change because of the unexecuted warrant or the notification from Korda Mentha. Diamond had already failed to comply with the orders of 20 June 2024 (to file and serve an amended defence and any counterclaim by 19 July 2024) before the appointment of Korda Mentha.
5. I agree with Gilridge's rhetorical question, that if the matters so crucial as to satisfy the threshold question were known to Diamond from July 2024, and they were so concerned and worried about them, why did it take them until 14 March 2025 to first raise the matter with Gilridge and then until 1 April 2025 to file and serve the Summons? There is no adequate explanation which excuses or justifies such delay.
6. In circumstances where Diamond seeks security for past costs in this application, I am bound by the comments of his Honour Justice Sifris in Oswal, set out above.
7. I also note the comments of Croft J in Trility, where his Honour cited the decision of Christou v Stanton Partners Australasia Pty Ltd[24] and held as follows:

"It is, however, incumbent upon a defendant who wishes to obtain security for its costs to apply promptly for that relief once it is, or ought reasonably be, aware that the plaintiff would be unable to meet an order for costs. Security for costs is not a card that a defendant can keep up its sleeve and play at its convenience. Delay is an important consideration in the determination of an application for a security for costs because it is capable of causing prejudice or unfairness to the plaintiff. A plaintiff is entitled to know at the earliest opportunity, before it has committed substantial disruption or distraction in the conduct of the plaintiff's case, and if the plaintiff is unable to provide security, the greater the costs that will have been wasted."[25]

1. In my view, the delay of nearly one year in making the application for security for costs is a critical factor, essentially because it has unfairly allowed Gilridge to proceed and incur costs when there has been no indication that this application would be made. Even if the legal costs were modest during the last year, Gilridge's evidence is that it has continued to complete the Works, including by appointing a new builder, and it intends to amend its claim in this proceeding to claim those losses. This is conduct which falls within the words in Christou "before it has committed substantial disruption or distraction in the conduct of its case"[26]. Prejudice to Gilridge is assumed and presumed because of the delay. Diamond has not adduced evidence against such prejudice. There is no conduct established that negates the prejudice, harshness, or oppression caused by the delay.

1. Gilridge submitted that it commenced this proceeding not only to enforce the contractual rights it had accrued against Diamond but also to commence a defensive action in light of the rights sought to be exercised by Diamond under the SOP Act. This submission is supported by the evidence of Phillip Vassiliadis, made on information and belief.
2. Although Diamond's claim under the SOP Act was only to enforce its rights under that Act, Diamond has indicated it may bring a counterclaim in this proceeding (it sought timetabling orders allowing for a counterclaim and Counsel for the defendants conceded in this hearing that he cannot say Diamond will not issue a counterclaim). In Gilridge's submission, that reinforces that this proceeding is at least partly a defence to Diamond's claims.
3. Diamond disputed that characterisation of this proceeding. It submitted that the claim Gilridge purports to respond to was Diamond's claim under the SOP Act for only $285,000. This proceeding involves claims by Gilridge for between $2.5 and $4 million. Even if Diamond issues a counterclaim in this proceeding, it will be for nowhere near $4 million.
4. The issue is whether Gilridge's proceeding is merely a defence against 'self-help' measures taken by Diamond. This means that the 'case must be looked at to see whether in substance the claim set up is by way of defence such that Gilridge's claims are properly characterised as defensive'.[27]
5. In my view, on the current pleadings and evidence before me, I accept that Gilridge's claims in this proceeding can be described as defensive in nature. The amount claimed is not determinative of the nature of the matters in dispute and the breaches alleged.
6. That is a strong factor against ordering security for costs.

Was Gilridge's impecuniosity caused by or contributed to by Diamond?

1. Gilridge seeks to resist the application for security on the grounds that its impecuniosity was caused by Diamond. There is no dispute that Gilridge bears the onus of establishing that the conduct of Diamond was the cause of its financial difficulties, that there must be a solid foundation for that conclusion, on the basis of admissible evidence.[28]
2. Phillip Vasiliadis deposed, based on information received from Andrew Knight at Korda Mentha, and information and instructions provided to him by Leon Kochen of Gilridge, and belief, that the current financial position of Gilridge "only arises because of the actions of Diamond which are the subject of the disputes in this proceeding."[29] Following the termination of the Contract with Diamond, Gilridge appointed new builders to complete the Works, at a significantly higher contract price.
3. I accept Phillip Vasiliadis' evidence and belief that the costs to complete the Works have been "a substantial reason" for the appointment of Receivers and Managers and Controllers. I also accept Phillip Vasiliadis' evidence and belief that the legal costs associated with various proceedings commenced by Diamond against Gilridge, and the effect of the orders made in those proceedings, "form another reason for" the appointment of Receivers and Managers and Controllers.
4. I am satisfied that this evidence provides a solid foundation for me to conclude that the conduct of Diamond was the cause of Gilridge's financial difficulties. I do not accept Diamond's submission that the evidence is inadequate because it is based on information and belief. The information was provided by Andrew Knight of Korda Mentha (the Receivers and Managers and Controllers) and by the director of Gilridge, Leon Kochen. They have firsthand knowledge of the affairs of Gilridge. Phillip Vasiliadis' belief is based on that information.
5. The facts in the present matter are not the same as the facts in Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd & Anor[30], which Gilridge relied on. In that matter, the plaintiff sued its previous solicitors alleging negligent legal advice and breach of contract. The plaintiff submitted that the defendants' alleged negligence meant that it had run an appeal and rejected a settlement offer and then suffered judgment against it, and that was the cause of its impecuniosity. Matthews JR rejected that submission on the basis the plaintiff had led no evidence at all as to how it was said the defendants had caused this loss and how this loss made it impecunious.
6. In the present matter, Gilridge has led evidence that following the termination of the Contract with Diamond, it entered into new contracts to complete the Works, at a significantly higher cost, which it intended to claim from Diamond in this proceeding. Gilridge also led evidence of the other proceedings initiated by Diamond against it, the orders made, the costs incurred, and the warrants issued. The information provided to Phillip Vasiliadis by Andrew Knight and Leon Kochen in my view provides a sound basis for him to form the belief he deposed to.
7. I accept the submission that Gilridge's impecuniosity was caused by Diamond's conduct. This is a significant factor in the exercise of my discretion.

Would ordering security stultify Gilridge's action?

1. There is no dispute that Gilridge bears the onus of establishing stultification.[31] A powerful factor weighing against the grant of an order for security for costs is whether such an order is likely to prevent a litigant from continuing with the proceeding.[32]
2. Phillip Vasiliadis deposed, based on information received from Andrew Knight at Korda Mentha, and belief, that:

(a) the Receivers and Managers presently do not have funding to satisfy any order for security should one be made;

(b) based on Gilridge's books and records, Gilridge in its own right would not have sufficient funds to meet any order for security;

(c) consequently, Gilridge's claim would not be able to continue should the application be granted; and

(d) there is a real risk that this is if this application is granted, the completion of the Works may be compromised.

1. Diamond submitted that this evidence, being information and belief, is not sufficient to satisfy the Court. They referred to the decision of Bell Wholesale, where Phillips JA said:

if the plaintiff relies upon a want of means to establish that the order cannot be met, the plaintiff must demonstrate that fact by reference not to its resources (which ex hypothesi must be inadequate if the discretion is called into play), but by reference to the resources of those who will benefit from the litigation and who might reasonably be expected to meet some of the costs.[33]

1. For the reasons stated above (in relation to the cause of Gilridge's impecuniosity), I am satisfied that there is an evidentiary basis to form the conclusion contended by Gilridge. I accept Phillip Vasiliadis' belief as set out in his affidavit, as it is based on information given to him by Andrew Knight of Korda Mentha, the Receivers and Managers and Controllers.
2. I accept that ordering security would stultify Gilridge's ability to continue this proceeding. That is a significant factor in the exercise of my discretion.

1. For the reasons set out above, I am not satisfied that the material before the Court is sufficiently persuasive to permit a rational belief to be formed that, if ordered to do so, Gilridge would be unable to pay the Diamond's costs, if it was to be unsuccessful in its claim. The 'threshold question' is therefore not satisfied in favour of Diamond.
2. If I am wrong about that, I would exercise my discretion and refuse the application. In an application for security, the Court is required to:

carry out a balancing exercise. It must weigh the injustice to the plaintiff if it is prevented from pursuing a proper claim by an order for security, against the injustice to the defendant if no security is ordered and at trial the plaintiff's claim fails and the defendant is unable to recover costs ...[34]

1. In balancing factors of delay, the nature of the claim being largely defensive, the stultification of the proceeding, and the cause of Gilridge's impecuniosity, I conclude that Gilridge would suffer a greater injustice if it is prevented from pursuing its claim, than Diamond's risk of being unable to recover costs.
2. I will order that the application is dismissed.
3. Absent any objection, it appears to be appropriate to make an order that the defendant should pay the plaintiff's costs of and associated with the application, assessed on the standard basis on the County Court scale.

I certify that these 24 pages are a true copy of the ruling of her Honour Judge Kirton delivered on 12 August 2025.

[2] US Realty Investments LLC #1 v Need [2013] VSC 590 (Need).

[3] Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 (Livingspring).

[4] Trility Pty Ltd v Ancon Drilling Pty Ltd [2013] VSC 577 (Trility).

[6] Need (n 2) [18]; Need references r 62.06 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) not the County Court Civil Procedure Rules 2018 (Vic), the Rules relevant to this matter. The legislation is identical for an application under r 62.06 for security of costs; Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 62.02; Corporations Act (2001) (Cth) s 1335.

[7] Ballymoss Pty Ltd v Kollaras & Co Pty Ltd (No 4) [2023] VCC 1268, 186.

[8] Gensco Laboratories, LLC v Care A2 Plus Pty Ltd (receiver appointed) (No 2) [2024] FCA 23 (Gensco).

[9] Amcor v Barnes [2015] VSC 90 (Amcor).

[10] State Bank of NSW v Chia [2000] NSWSC 552; (2000) 50 NSWLR 587 625 [868] (Chia).

[16] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298.

[21] Need (n 2); Trility (n 4); Amcor (n 8); Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311 (Colmax).

[22] Oswal v Australia and New Zealand Banking Group Pty [2016] VSC 52 [34].

[24] Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 [20].

[27] Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd & Anor [2017] VSC 200 [48]-[49] and cases cited therein.

[28] Colmax (n 25) [20(b)], cited in Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd & Anor [2017] VSC 200 [33] (Bodycorp Repairers).

[29] Affidavit of Phillip Vassiliadis sworn 15 May 2025, 7 [37].

[31] FNH United Pty Ltd v United Petroleum Franchise Pty Ltd (Security for costs) [2025] VSC 190 [29] (FNH).

[32] Ibid (n 34) [29] citing All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840 (Allsop CJ).

[33] Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) [1984] FCA 34; (1984) 52 ALR 176 cited in Bodycorp Repairers (n 31) [40]; Ariss v Express Interiors Pty Ltd [1996] 2 VR 507, 515.