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[2024] QSC 320
General information, not legal advice.
Supreme Court of Queensland
2024-12-20
Wilson J
Original judgment source is linked above.
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION - PLAINTIFF'S OR APPLICANT'S IMPECUNIOSITY - GENERALLY - where the first and second defendants applied for security for costs - where the plaintiff acts similarly to a body corporate of a strata scheme - where the plaintiff has no assets or real property but has undertaken to exercise its powers to determine that its members pay a special levy in the event of an adverse costs order - where the plaintiff submits it has demonstrated an ability to raise levies from its members in the past to cover legal costs - whether there is reason to believe the plaintiff will be unable to pay the first and second defendants' costs - whether the court should exercise discretion to order security
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - AMOUNT AND NATURE OF SECURITY - where the parties disagree as to what costs are recoverable - whether security for costs should be ordered to the date of mediation or to the first day of trial
Corporations Act 2001 (Cth), s 1335 (1)
Uniform Civil Procedure Rules 1999 (Qld), r 670, r 671, r 672
Aqua Blue (Noosa) Pty Ltd v Soil Surveys Engineering Pty Ltd [2010] QSC 176
Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114
Beach Petroleum NL v Johnson [1992] FCA 136; (1992) 7 ACSR 203
Fitzpatrick v Isaacs [2024] FCA 1187
General Trade Industries Pty Ltd (in liq) v AGL Energy Ltd (No 2) [2023] FCA 556
Its Eco Pty Ltd v BPS Financial Limited [2022] FCA 842
KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189
Lanai Unit Holdings P/L v Mallesons Stephen Jacques [2016] QSC 2
Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584
Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd [2019] SASC 39; (2019) 133 SASR 408
Monto Coal 2 Pty Ltd v Sanrus Pty Ltd [2018] QCA 309; (2019) 3 Qd R 143
Owners Corporation Strata Plan 64970 v Austruc Constructions Ltd [2007] NSWSC 778
Owners-Strata Plan No 50530 v Walter Construction Group Ltd [2001] NSWSC 820
Re Eastmark Holdings Pty ltd (Recs and Mgrs Apptd) [2015] NSWSC 2071
Strata Plan 94417 trading as The Owners-Strata Plan 94417 v TC Build [2021] NSWSC 1284
Strata Plan 99960 v SPS Building Contractors Pty Ltd [2022] NSWSC 1464
Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317
The Owners - Strata Plan 64415 v Serman [2017] NSWSC 806
The Owners - Units Plan No 1917 v Koundouris & Anor [2014] ACTSC 269
G D Beacham KC with P O'Brien for the first defendant
D O'Sullivan KC with A P McKinnon for the second defendant
"(a) the [plaintiff's] share capital is partially comprised of 350 "Villa Shares". The Villa Shares are divided equally (at 10 shares apiece) between each of the sub-lessees of the Villa Lots (Villa Members);
(b) Villa Members are required to observe the By-Laws at all times;
(c) the [plaintiff] carries on the activities and business of holding the common property (Lot NM) and, so far as possible, acts as if it were a strata body corporate for the Development including administering the common property, raising levies, and administering an administrative fund and a sinking fund;
(d) the [plaintiff] engages an administration manager to carry out administration duties and convene meetings and has done so at all material times;
(e) the [plaintiff's] directors use the administrative fund for the purposes of meeting the [plaintiff's] actual and expected expenditure;
(f) Villa Members are required to, and do, pay amounts levied on them as a contribution to the administrative fund and sinking fund;
(g) where possible, the [plaintiff], Villa Members and directors have regard to the provisions of applicable strata titles legislation and administer consistently with the powers, rights and obligations applying to a strata body corporate;
(h) if it becomes possible to convert the Development into a strata title leasehold system, the [plaintiff] has the power to take steps necessary to prepare for, and if seen fit, recommend to Villa Members the implementation of the conversion."[1]
"12. In its claim against [the first defendant], the [plaintiff] contends that the Policy entitled it to a standard of repair for the Villas in keeping with the above plain wording of the Policy to restore to the same condition as when they were new and that the existence of defects that are not disputed by the parties means that the standard has clearly not been met. Further, the Building Contract included a special condition that reflected [the first defendant's] obligation to reinstate the facility back to a position as per the Policy. The [plaintiff] contends that [the first defendant] paid [the second defendant's] charges for the reinstatement works, and that the insurer also paid amounts for lost rent and temporary accommodation suffered by individual Villa Members. The [plaintiff] seeks specific performance of the insurer's promise under the Policy, or damages for the cost of the rectification works. This relief is based on a breach of the Policy, or a breach of [the first defendant's] duty of utmost good faith pursuant to s 13(1) of the Insurance Contracts Act 1984 (Cth) (ICA).
(a) 12 villa members who were villa members at the time of the damage caused by the cyclone and remained villa members at the date of the assignment;
(b) 18 villa members who were not villa members at the time of the damage caused by the cyclone but were villa members at the date of the assignment; and
(c) two villa members who were villa members at the time of the damage caused by the cyclone but were no longer villa members at the date of the assignment.
(a) there are substantial issues to be tried involving experts from various building disciplines including structural, waterproofing and tiling, and metallurgy;
(b) although general allegations of defective works are made, the precise alleged defects vary across the 35 villas, and the nature of the remedial works said to be required is bound to be disputed; and
(c) the second defendant has raised a number of points of law in its defence of the claims.
"(a) if any order is made against the [plaintiff] that it provide security for [the first defendant's] and/or [the second defendant's] costs of and incidental to this proceeding, the [plaintiff's] directors will exercise their power under clause 22.3 of the Constitution (as defined in paragraph 15 below) to determine that a levy in the amount sufficient to satisfy the order be recommended to be levied on Villa Members (as defined in paragraph 17(a) below) as a contribution the administrative fund; and
(b) the [plaintiff's] directors undertake to the Court that they will do so."[7]
'If any adverse costs order is made against the Plaintiff in this proceeding:
The Directors may establish an Administrative Fund for the purposes of meeting its actual and expected expenditure to:
(a) maintain in good condition on a day to day basis the Common Property and any personal property vested in the Company;
(b) provide for insurance premiums;
(c) pay rent payable under the Lease; and
(d) meet other regular expenses.
The Directors may also establish a Sinking Fund for the purposes of meeting its actual and expected expenditure:
(a) for painting or repainting any part of the Common Property that is a building or other structure;
(b) to renew or replace fixtures and fittings that are part of the Common Property;
(c) to replace or repair the Common Property;
(d) to meet other expenses of a capital nature relating to Common Property; and
(e) to acquire personal property for the Company.
The Directors must determine the amounts recommended to be levied on Villa Members as a contribution to the Administrative Fund and the Sinking Fund to raise the amounts estimated as needing to be credited to those funds each year.
The Directors must determine the non-discretionary expenses of the Company (such as lease payments in respect of the Property, rates and taxes and other amounts which the Company cannot avoid liability for by alteration of the operation of the Common Property) and discretionary expenditure.
The Directors may determine how regularly the contributions are levied (for example, quarterly).
The determination of levies under article 22.3 is subject to approval of the Villa Members by a Villa Member Resolution.
Villa Members may, in the meeting for the determination of levies under article 22.3, proposed and determine by Villa Member Resolution a different levy from that recommended by the Directors, but they may not determine an amount that is insufficient to provide the Company with funds to pay non-discretionary expenditure determined by the Directors under article 22.3.
Subject to approval under article 22.4, the Directors must levy the contributions to be paid by each Villa Member by serving a written Notice on the Villa Member of the amount payable by that Villa Member.
Villa Members must pay the contributions approved under article 22.4. Contributions must be levied in respect of each group of shares set out in Schedule 1 and are payable by the Villa Members in shares proportional to the number of shares held by each Villa Member.
A charge of shares in the Company that is in possession of a Villa (whether in person or not) is jointly and severally liability with the Villa Member for any regular period contributions to the Administrative Fund and Sinking Fund together with any interest on those contributions. This does not affect the liability of the Villa Member to pay any contribution levied on it.
Any contribution levied must be paid by the Villa Member and becomes due and payable to the Company in accordance with the resolution under article 22.4 as notified to Villa Members. A contribution, if not paid at the end of one month after it becomes due and payable, bears until paid simple interest at an annual rate of 10 per cent."
"(c) consistently with the Constitution, the [plaintiff's] directors meet regularly as a board to determine the non-discretionary expenses of the [plaintiff], and how regularly and in what amounts there will be levies upon Villa Members to meet the [plaintiff's] expenditure;
(d) Villa Members cannot propose different levies that are insufficient to provide the [plaintiff] with funds to pay non-discretionary expenditure that has been determined by the [plaintiff's] directors;
(e) on each occasion that the directors have determined the amounts recommended to be levied on Villa Members as a contribution to the administrative or sinking fund, the Villa Members have approved those levies;
(f) once a levy has been approved by resolution, the levy is treated by the [plaintiff] as due and payable by the Villa Members. Any overdue levies may attract interest and be recovered by the [plaintiff] as a debt;
(g) since commencing its role as if a body corporate in about 2009, the [plaintiff] has met its debts as they became due;
(h) the [plaintiff] has never been required to take legal action against any Villa Member to recover an overdue levy;
(i) consistently with the Constitution, the levies (including GST) raised by the [plaintiff] are the same per Villa, per annum, and are or have been as follows for the current and last three financial years:
(j) a review of the [plaintiff's] records in respect of the levies issued by the [plaintiff] since 1 March 2022 and paid by Villa Members shows an established practice of the Villa Members paying those levies promptly, and in almost all cases within three months. Exhibit RP 12 is a copy of two spreadsheets prepared by Gail Absolon of Team Whitsundays, the [plaintiff's] administration manager, summarising the outcome of that review, and in which the code 4-1000 is for administration fund levies (other than special levies for the [plaintiff's] own costs of this proceeding), the code 4-1001 is for special levies for the [plaintiff's] own costs of this proceeding, and the code 8-8001 is for sinking fund levies. One spreadsheet is for levies issued from 1 March 2022 to 29 May 2024. The other spreadsheet is for levies issued in the first quarter of the current financial year;
(k) if a Villa Member did fail to pay a levy within three months, then the [plaintiff] would, in the absence of any satisfactory arrangements for payment of the outstanding levy within a reasonable period thereafter being agreed by the [plaintiff] and the Villa Members, exercise its rights to suspend rights that the Villa Member has to use the common property and vote at meetings of Villa Members. The review at Exhibit RP 12 shows that there are six Villa Members presently in arrears in respect of special levies for the [plaintiff's] own costs of this proceeding, namely:
(i) Villa 2 (which was a Villa Member at the time of the damage caused by the Cyclone and has given an assignment as referred to in paragraph 33(n) below in the same form as that at Exhibit RP 13), Villa 32 (which was not a Villa Member at the time of the damage caused by the Cyclone and has given an assignment as referred to in paragraph 33(n) below in the same form as that at Exhibit RP 14) and Villa 34 (who has not given an assignment as referred to in paragraph 33(n) below). In that regard, I am further instructed by Mr Evans and believe that these three villas are in the rental pool referred to in paragraph 33(l)(i) below, and the [plaintiff] has made a commercial decision not to take any enforcement action in respect of those outstanding levies at this time;
(ii) Villa 1 (which was a Villa Member at the time of the damage caused by the Cyclone and has given an assignment as referred to in paragraph 33(n) below). This is in respect of one special levy that was only issued on 1 August 2024, and Villa 1 is otherwise up to date in the payment of special levies;
(a) a villa member at the time of the damage caused by the cyclone who has given an assignment to the plaintiff;
(b) a villa member who was not a villa member at the time of the damage caused by the cyclone and has given an assignment to the plaintiff; and
(c) a villa member who has not given an assignment to the plaintiff.
"MR O'DONNELL: ...The three villa members who didn't pay, they paid their sinking fund levy and they paid the administrative fund levy, other than the special levy for the legal costs.
HER HONOUR: So they're just not wanting to be involved in the legal costs at all?
MR O'DONNELL: There's no evidence from - as to their state of mind. They just didn't pay it."
(a) there have been 29 transfers of sub-leases relating to the 35 villas;
(b) 22 of the 35 sub-leases have been transferred to a new sub-lessee;
(c) five of the sub-leases have been transferred twice and 1 villa's sub-lease has been transferred three times; and
(d) there were four transfers in 2018, none in 2019, one in 2020, 12 in 2021, four in 2022, four in 2023 and one in 2024.
(1) On application by a defendant, the court may order the plaintiff to give the security the court considers appropriate for the defendant's costs of and incidental to the proceeding.
(2) This rule applies subject to the provisions of these rules, particularly, rules 671 and 672.
The court may order a plaintiff to give security for costs only if the court is satisfied -
(a) the plaintiff is a corporation and there is reason to believe the plaintiff will not be able to pay the defendant's costs if ordered to pay them; or
(b) the plaintiff is suing for the benefit of another person, rather than for the plaintiff's own benefit, and there is reason to believe the plaintiff will not be able to pay the defendant's costs if ordered to pay them; or
(c) the address of the plaintiff is not stated or is misstated in the originating process, unless there is reason to believe this was done without intention to deceive; or
(d) the plaintiff has changed address since the start of the proceeding and there is reason to believe this was done to avoid the consequences of the proceeding; or
(e) the plaintiff is ordinarily resident outside Australia; or
(f) the plaintiff is, or is about to depart Australia to become, ordinarily resident outside Australia and there is reason to believe the plaintiff has insufficient property of a fixed and permanent nature available for enforcement to pay the defendant's costs if ordered to pay them; or
(g) an Act authorises the making of the order; or
(h) the justice of the case requires the making of the order.
In deciding whether to make an order, the court may have regard to any of the following matters -
(a) the means of those standing behind the proceeding;
(b) the prospects of success or merits of the proceeding;
(c) the genuineness of the proceeding;
(d) for rule 671(a) - the impecuniosity of a corporation;
(e) whether the plaintiff's impecuniosity is attributable to the defendant's conduct;
(f) whether the plaintiff is effectively in the position of a defendant;
(g) whether an order for security for costs would be oppressive;
(h) whether an order for security for costs would stifle the proceeding;
(i) whether the proceeding involves a matter of public importance;
(j) whether there has been an admission or payment into court;
(k) whether delay by the plaintiff in starting the proceeding has prejudiced the defendant;
(l) whether an order for costs made against the plaintiff would be enforceable within the jurisdiction;
(m) the costs of the proceeding."
(1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."
(a) first, is the jurisdiction enlivened? That is, the plaintiff being a corporation, is there is reason to believe that it will not be able to pay the first and second defendants' costs if ordered to pay them?[10] (the threshold question);
(b) second, having regard to, inter alia, the matters in UCPR r 672, should the court exercise its discretion to order security? (the discretionary issues); and
(c) third, if the first two questions are answered in favour of the first and second defendants, what quantum of security should be ordered? (quantum).
Reason to believe that the plaintiff will be unable to pay the defendants' costs
(a) a consideration of whether there is a rational basis for the requisite belief that the plaintiff will be unable to pay in the future the costs of the first and second defendants; and
(b) a formation of an opinion as to the financial position of the plaintiff at the time of judgment and immediately thereafter.[13]
"[50] I turn next to the meaning of the expression "will be unable to pay". It is found in r 671(a) and is therefore a necessary component of the threshold question. The expression itself does not stipulate when, or by what means, the plaintiff company is to be able to pay the costs order. It does not require, for example, that in order to be able to pay a costs order, a company must have available liquid funds sufficient to meet the costs order on the date that the order is made. To put it another way, it does not state or imply that a company will be unable to pay unless it has on hand such liquid funds at that date.
[51] In Beach Petroleum NL v Johnson, von Doussa J observed:
"A corporation 'will be unable to pay' the costs within the meaning of the section if it can only do so if given extended time to realise assets which might be difficult to realise, at least at a price sufficient to provide a surplus over the liabilities, sufficient to pay the costs... The company will also be unable to pay the costs within the meaning of the section if the payment would be one that will amount to a preference of the defendant over other creditors such that the payment would be liable to be set aside either as a preference or as a fraudulent disposition (that is a payment made by the plaintiff corporation with the intention to defeat or delay one or more other creditors) in the event of the plaintiff corporation later going into liquidation ...
In my opinion the power of the court under s 1335 arises if credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocator, if judgment goes against it."
[52] These observations imply, correctly in my view, that the period of time likely to be required for determination, by assessment or otherwise, and allowing for resolution of any disputes that arise in the determination process, is to be taken into account. So also is the opportunity that the plaintiff corporation will have within that period to realise non-liquid assets in order to pay the quantum of the ordered costs as and when they are ultimately determined."[18]
"[59] With respect, that proposition assumes that the requisite conclusion is to be reached without regard for either the time required for realisation or, for that matter, the time required for determination of the quantum of costs payable. As I have explained, such an assumption is, in my view, incorrect."[19]
"In my opinion the power of the court under s 1335 arises if credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs along with all the circumstances, actual and possible, about its financial position, would be then taken into account in the exercise of discretion, and in framing the orders of the court if the decision is to order security."[22]
Security for costs when a levy is required to pay an adverse costs order - a summary of the relevant cases
"With respect to the indemnity, unless the applicant itself co-operated, or the applicant company were wound up, benefit could not be obtained by the respondents thereunder. No direct process of execution would be available for the purpose of obtaining that benefit. Further, the extent to which the indemnity would in any event be productive would depend upon the state of the finances of the trust. And the possibility of some defences cannot be ignored."[28]
"As Smithers J explained in Laundry Coin Wash, this is because, where the only tangible assets of the plaintiff are held on trust for another entity, so that the plaintiff's solvency depends on its right of indemnity, the Court must bear in mind the difficulty which a successful defendant may encounter in attempting to execute in respect of an order for costs. These observations of Smithers J were approved by Tadgell J in Lagarna (at 154)."[30]
"[64] ...the reason ordinarily given for this approach to trustee plaintiffs is that a successful defendant should not be subjected to the potential complexity, and hence expense and uncertainty, associated with having to resort to derivative rights in order to recover any costs to which it might be entitled. This has been held to be so even in situations where there is evidence of significant trust assets against which the right of indemnity might be exercised; the reason being that there is a risk those assets may become unavailable, for example, by reason of them being distributed to beneficiaries prior to the conclusion of the proceedings.
[65] While it is thus significant, in the context of an application for security, that a plaintiff is suing as trustee, it does not follow automatically that it will be appropriate that there be an order for security. The onus remains on the defendant to establish both that the threshold requirement has been made out (in the case of an application under s 1335), and that the interests of justice will be best served by making an order for security."[32]
"[36] I am of the view that for the defendant to have discharged its burden, it needed to call evidence upon which, viewed objectively, I could be satisfied that the plaintiff was not entitled to raise a special levy to pay the costs or, if able to raise levies in respect of costs, that such levies would not be paid. There is no evidence of any recalcitrance on the part of the unit holders to pay the special levies nor is there any evidence of an inability in any of the unit holders to pay a levied amount of approximately $5,700 or $11,500 depending on whether the costs are $1 million or $2 million.
[37] Mr Hunt, for the defendant, argued that the structure of the Management Act prevented the plaintiff from raising a levy to meet the costs of the proceedings should the plaintiff be unsuccessful. In support of this submission he referred to the restrictions in s 230 on the owners corporation levying contributions. I am of the view that this section is adverse to the defendant's submission. The restriction that is expressly stated in s 230 is only a restriction on the owners corporation raising levies in respect of proceedings brought under Chapter 5. There is no other express restriction on the owners corporation levying contributions to pay costs. I am of the view, that there is an entitlement to raise a levy for the payment of costs of these proceedings and that the terms of s 230 reinforces that view.
[38] In all of the circumstances I am not satisfied that the defendant has discharged its evidentiary burden. I am not satisfied that the evidence before me viewed objectively gives rise to the requisite satisfaction that there is reason to believe that the plaintiff will be unable to pay the defendant's costs if ordered to do so."[35]
"[8] Considerable assistance has been given in unravelling the principles which inform applications of the present type by the judgment given by Bergin J in Owners - Strata Plan 50530 v Walter Construction Group Ltd [2001] NSWSC 820 (24 September 2001).
[9] In particular the plaintiff in resisting the present claim for security for costs has relied upon the following distillation of those principles which seems to me to be unexceptionable:
'a) the defendant has the evidentiary burden of proving it is entitled to the order it seeks...;
b) if the Owners Corporation is able to pay any adverse costs order by way of a special levy and there is no evidence of any recalcitrance on the part of any unit holder to pay the special levy, or inability for such payment to be made (and no evidence to the contrary) the defendant would not have discharged its evidentiary burden.'"[37]
(a) the body corporate submitted that the evidence showed that it had powers to raise funds by way of special levies and had done so;
(b) any suggestion that a further special levy might not be paid was speculation; and
(c) the body corporate's financial records demonstrated that it had never had any issue with raising or recovering levies and had predominately maintained a positive net asset position.
"[131] In the present case where the records of the body corporate were available they show that the entity has, in the relatively recent past, had the capacity to raise substantial amounts by way of a special levy from the owners. There is no evidence that indicates that the owners would be unable or unwilling to pay a levy that was necessary to fund a costs order against the plaintiff. While the plaintiff may not have that money immediately available there is no evidence to indicate that it could not be raised with in a reasonably short period of time and hence to be available to meet a costs order by the time that order became crystallised in an enforceable judgment for a particular amount."[40]
"[6] The same applies in this case: it seems to me that, unless the plaintiff itself cooperates or unless it were wound up, the defendants could not enforce any right and duty of the plaintiff to raise an additional levy from the unit holders. The defendants would have no direct process of execution against the unit holders for the purposes of doing so. The extent to which the levy would be productive in any event would depend upon the terms of the resolution determined at a general meeting of the Owners Corporation by the people liable to pay and it cannot be excluded that they, or some of them, might have some defence to a levy being struck.
[7] It is true that, in the case of Owners-Strata Plan No 50530 v Walter Construction Group Ltd [2001] NSWSC 820, Bergin J (as her Honour the Chief Judge in Equity then was) said (at [36]) that for the defendant to have discharged its burden, it needed to call evidence upon which, viewed objectively, the Court could be satisfied that the plaintiff was not entitled to raise a special levy to pay the costs or, if able to do so, that such levies would not be paid, and in the absence of evidence of recalcitrance on the part of the unit holders to pay the special levies, was not so satisfied. However, that was a rather different case from the present. In particular, as I understand it, there does not appear to have been evidence of the impecuniosity of the plaintiff itself in the way in which there is in this case. Her Honour does not appear to have been referred to the line of authority descending from Laundry Coin-Wash and Pitcairn Investments.
[8] I am satisfied that an order for security should be made."[42]
"...for the defendant to have discharged its burden, it needed to call evidence upon which, viewed objectively, the Court could be satisfied that the plaintiff was not entitled to raise a special levy to pay the costs or, if able to do so, that such levies would not be paid."[43]
"[134] It follows that primarily Brereton J distinguished Walter Construction upon the basis of the factual circumstances applying in each matter, namely the impecuniosity of the plaintiff. It is reasonably clear that his Honour did not demur from the approach adopted by Bergin J in circumstances where there was an absence of evidence of impecuniosity. However, his Honour considered that, in a case where the plaintiff's liabilities exceeded its assets by a very substantial margin with modest liquid assets, the application of the principles in Laundry Coin-Wash should be applied to the determination of the application for security for costs."[46]
"[144] I do not consider that the circumstances of this matter may be distinguished from those in Eastmark Holdings. It follows that, as Brereton J did in that matter, the circumstances in this matter may be distinguished from Walter Constructions, although, as will be observed below, I consider that some of the principles stated by Bergin J in Walter Constructions may also be applied to in the present circumstances."[47]
(a) the liabilities of the plaintiff were $542,621 which far exceeded the plaintiff's assets;
(b) the plaintiff held no real property and had limited cash reserves;
(c) creditors had not been paid by the date on which the plaintiff's invoices were due or payable;
(d) the plaintiff had nearly $30,000 worth of outstanding invoices to multiple creditors as at 16 November 2016. Although that amount had been reduced to $10,000, under the (then) current accounts there remained outstanding a substantial amount of legal costs over a lengthy period of time; and
(e) there was evidence of a failure to pay levies when due and payable in the years 2012 to 2015. Whilst that period excluded the most recent year (2016), it did coincide with the existence of an outstanding legal cost burden (the counterpart of which was any adverse costs order made in those proceedings).
"[110] The Owners' Ledger also illustrated another relevant pattern with respect to levies, namely, special levies were paid by instalment. Special levies fixed from time to time were paid in instalments which represented an amount less than the full instalment due in relation to particular items such as legal costs. There is no explanation in the evidence for this situation but it does accord with other evidence showing that significant liabilities remain unpaid. For example, the fees owed to the defendants from the Vero proceedings were still not fully paid as at February 2017. These fees relate to orders made by Stephenson J on 30 October 2014.
[111] This puts into context one of the submissions by the plaintiff that it had demonstrated a capacity to pay by the means of special levies. The plaintiff pointed to the amounts paid to the first and second defendant in the Vero proceedings, in this respect, which amounted to the total sum of $983,191 (rounded). However, whilst that sum represents substantial repayment, it also represents a liability which has not been fully paid over an extended period of time (the amounts owing as set out earlier).
[112] Similarly, when the plaintiff submitted in defence of the contention of its inability to pay, that it had paid by levy $1.8 million over 5 years, that contention needs to be understood in light of how the systems of levy and payment operate in practice. The counterpart is that the owners corporation has accumulated over a period of time a negative net asset position of $422,985.
[113] This analysis provides the basis for two conclusions.
[114] First, the evidence is supportive of the concern expressed by the defendants that mechanisms within the Act requiring levies to meet liabilities as a costs order do not warrant a conclusion that the payments will be made within a reasonable time. The opposite is the case.
[115] Secondly, these assessments may also illustrate an unwillingness to pay, not merely because levies charged are unduly delayed in payment but because the levies charged are set, for financial or other reasons, in the form of instalments over a period of time."[48]
"[150] Whilst it is true that the plaintiff has a legal obligation to levy the lot holders in the strata scheme to meet an order for costs (or other liabilities) that legal impost does not diminish the difficulties that would be encountered by the defendants in recovering monies owed under a costs order as discussed by Brereton J, because:
(1) the obligation to raise levies does not diminish the difficulties faced by a defendant in acting upon derivative rights;
(2) some lot owners may have a defence to a levy being struck;
(3) the mechanisms for the recovery against the relevant lot owners contributions are limited and ultimately dependent upon recourse by the plaintiff to recovery actions including legal actions (see s 83 of the Act). These processes are exclusive of the defendants, involve substantial sum of money in this case, and may involve a significant time period; and
(4) there is no statutory requirement that a general meeting convened to establish levies in accordance with the obligations must resolve to pay the defendants a full instalment on one occasion as opposed to staged or periodic instalments (s 81(5) of the Act).
[151] The last two observations squarely raise the question of whether costs ordered would be paid within a reasonable time."[49]
"[156] Without limiting the aforementioned discussion, the following factors, by summary, principally feature in that conclusion:
(1) The substantial negative net asset position of the plaintiff;
(2) The cash reserves of the plaintiff are meagre when compared with the estimate of the quantum of an adverse costs order in this matter and insufficient to meet that obligation;
(3) As a corollary of (1) and (2) each lot owner would face a substantial levy to meet the estimated cost order alone, in addition to the levies designed to deal with the current negative net asset position;
(5) There has been no undertaking given by the lot owners to pay any levies when it was imposed upon them and to do so within a reasonable time frame;
(6) The executive committee has not determined to raise a special levy to meet any expected costs order (of the kind mentioned by Einstein J in Austruc Constructions);
(7) The aforementioned discussion of the applicability of Brereton J's judgment in Eastmark Holdings (see [150] of this judgment); and
(8) The conclusions reached (in the light of the preceding analysis) in [114] and [115] of this judgement."[50]
(6) In those circumstances, I consider the approach adopted by Brereton J in Eastmark Holdings and Smithers J with respect to a corporate trustee in Laundry Coin-Wash may be adopted in this case, namely, notwithstanding that the plaintiff may raise levies in accordance with the Act, in the absence of some step taken by the plaintiff to alleviate the difficulties facing the defendants to recover costs, the plaintiff should be found to be or taken as if it were without sufficient assets to meet the liability occasioned by the cost order. In any event, the state of present and projected indebtedness of the plaintiff and the plaintiff's inability to make payments when due and payable (or the corollary that they will not pay a costs order within a reasonable time) is a plain indication of impecuniosity."[51]
(a) the body corporate had raised two substantial special levies to fund the litigation;
(b) there were some levies in arrears, but the majority of lot owners supported the litigation; and
(c) the body corporate's financial statements recorded a positive net asset position and showed that its financial affairs were well run, and it was not impecunious.
"[12] It appears from the financial records before the Court that the financial affairs of this strata scheme are well run. The fact that the owners corporation has been able to strike two special levies suggests that there is general consensus amongst lot owners to progress these proceedings. Obviously, not all lot owners agree, and it will, of course, remain the burden of those running the owners corporation to seek to ensure that all lot owners are as happy as they can make them, notwithstanding that these lot owners no longer support the bringing of these proceedings."[53]
"[19] It is reasonable to think that the cash at hand is unlikely to be sufficient to meet such an adverse costs order. However, the evidence before the Court indicates that the owners corporation is cohesive and well-organised, such that two special levies have been able to be raised and collected in relation to these proceedings without any great difficulty. There is also evidence that the owners corporation may soon obtain a loan, although there is no evidence to indicate whether the proposed resolution to enter into a loan agreement will succeed or fail at the upcoming meeting."[54]
(a) would satisfy that the plaintiff was not entitled to raise a special levy to pay the costs; or
(b) if the plaintiff was able to raise levies in respect of costs, that such levies would not be paid.[55]
"[21] Her Honour was not there satisfied that the defendant had discharged its evidentiary burden; the evidence viewed objectively did not give rise to the requisite satisfaction that there was reason to believe that the plaintiff would be unable to pay the defendant's costs if ordered to do so.
[22] I am in the same position here. I am not presently satisfied that the Court's power to order security for costs has been enlivened in this case. For that reason, the builder's application is dismissed with costs."[56]
(a) the financial statements of the body corporate showed a positive net asset position and its own costs of the litigation had been funded by a special levy;
(b) some levies were in arrears as at the date of the application;
(c) any order for security would be funded through further a special levy; and
(d) there was a mechanism (under New South Wales strata schemes legislation) by which the body corporate could raise funds from lot owners to meet financial obligations and to recover unpaid contributions.
"[7] ...Consequently, in substance, these proceedings are brought for the benefit of lot owners who ultimately must bear the costs of the proceedings, including any costs orders made against the Owners Corporation. There is no evidence before the Court that the individual lot owners would not ultimately pay any special levy raised to meet any costs order against the Owners Corporation. Indeed, it is the applicants' case that the Court should not conclude that the lot owners would be unable to pay any special levy raised to meet the defendants' costs.
[8] The true position, therefore, is that, not unsurprisingly, the Owners Corporation does not have cash on hand to meet any costs ordered against it. However, it has not only the ability but the obligation to raise that cash from unitholders if an adverse costs order is made against it. At most, all that can be said on the evidence is that it may take some time for the Owners Corporation to raise funds to meet any costs order against it. The question is whether that provides a sufficient basis for an order for security for costs. In my opinion, it does not."[58]
Submissions by the first and second defendant in relation to the threshold question
(a) the directors must determine the amounts recommended to be levied on villa members;[60]
(b) this is subject to approval of villa members by a villa member resolution;
(c) villa members may propose and determine a different levy but may not determine an amount that is insufficient to provide the company with funds to pay "non-discretionary expenditure", as determined by the directors;[61]
(d) the plaintiff may (not must) recover, as a debt, a contribution not paid by a villa member at the end of one month after it becomes due and payable;[62] and
(e) if a villa member does not pay and is more than three months in arrears, the villa rights attached to villa shares (primarily, the entitlement to occupy the common property) are suspended and the villa member may not vote at general meetings.[63]
(a) whether or not there is a levy raised for existing or anticipated costs, debt will be determined by a combination of directors' resolutions and villa members' resolutions; and
(b) whether or not such a levy is recovered depends on a decision by the plaintiff to take action against the villa member.
(a) vote to approve a levy; and/or
(b) pay any levies imposed upon them and do so within a reasonable time frame of any adverse costs order.
"And so, in our submission, the two animating principles is (1), the benefit and burden principle, and secondly, the difficulties of enforcement together should persuade you, in our submission. This is plainly a case where the balance in terms of the - in exercise of your Honour's discretion favours the granting of security in such amount as you see fit.
What about the undertaking, your Honour? The undertaking counts in favour of Mr O'Donnell's client because it is a factor in his favour. The question for you is is it sufficient to displace the principles that I've just addressed? That is, those who take the benefit of litigation should bear its burden, and secondly, problems of execution in the case of derivative - claimants who are funded by derivative rights of action, difficulties of execution is a reason for ordering security.
In our submission, the undertaking doesn't address either of those two, as it were, animating principles. Those who bear the benefit - those who stand to benefit from the litigation are the 35 villa owners. They haven't provided an undertaking, but they will pay the levies. They haven't provided an undertaking to you, but they'll even vote in favour of levies.
Secondly, your Honour, the second animating principle, namely, the problems of execution are to be laid at the door of the plaintiff, not at the door of the defendant. That problem isn't addressed at all by the undertaking. All the undertaking does is highlight the problem because it indicates that if this undertaking is met, what will, in fact, happen is a recommendation would be made by the directors. There's then a process whereby the members undergo the process your Honour saw in the articles. They can vote one way or another.
And then there's the question about whether and when, your Honour, these levies will ever be paid, and in our submission, as we've already said, you have those who stand behind the villa owners, as your Honour saw, and I'll give you a list, some of them are individuals - here's the list that I said I'd give to your Honour - some are corporations, and some are corporate trustees. The details don't matter.
What matters is that, in terms of the second principle that's in play, which is difficulties of execution, the undertaking doesn't answer that at all. My client still can't levy execution against the villa members. It still has no practical right to compel any villa member to pay any of the levies, and in our submission, for that reason, your Honour would regard the undertaking as not meeting one of the two animating principles which attract the exercise of your Honour's discretion in favour of security."
The plaintiff's submissions as to the threshold question
(a) while levies must be approved by resolution, villa members cannot propose different levies that are insufficient to meet non-discretionary expenditure determined by the plaintiff's directors;
(b) once a levy is approved, it becomes a debt due and payable by villa members that may attract interest and is recoverable as a debt;
(c) non-payment of levies may lead to suspension of villa members' rights to use common property and vote at meetings; and
(d) the plaintiff would exercise its rights if a villa member failed to pay a levy within three months in the absence of satisfactory arrangements for payment by agreement.
"Someone who's a member today but is no longer a member when the proceedings are finally determined gets no benefit from the success - the plaintiff's success, and in our submission, it falls into the category of being commercially impractical to expect that the current members should give an undertaking to the court to meet a future levy for costs following an adverse court order."
"So the directors have no power to impose a condition that an incoming villa member must first give an undertaking to the court to bear a share of any adverse costs order. In other words, there's no mechanism to impose that obligation to give an undertaking to the court upon villa members who come in between now and any final assessment of the costs. And that would mean that the burden of any costs order would fall upon those who gave the undertaking back in 2024, and a subset of those being only those who continue to be villa members at the time of the adverse determination, and it would mean that the burden of the costs order fall unfairly upon those villa members, that is, they don't just pay one-thirty-fifth. If there's only 15 of them left, they each pay one-fifteenth.
It also has the problem that it would provide a ready means for a villa member to evade the obligation under the undertaking. If the company lost the case and an order for costs were made, the villa member could simply transfer the sub-lease to someone else. They could transfer it from company A to company B. So in our submission, it falls - it's not a commercially practicable proposal, and that was one of the things Justice Derrington remarked upon in General Trade Industries."
"[51] Notwithstanding the trace of some inconsistency in the authorities so far surveyed, the decisions can collectively be reconciled to a significant extent by the observation that "mere" unwillingness, in the sense of straightforward disinclination, without further reasons, will not in and of itself make it unreasonable to expect those standing to benefit from the litigation to provide security. In attempting to demonstrate the unreasonableness of such an expectation, a decisive factor will be an absence of means on the part of the persons concerned, but it may also be relevant to show "commercial impracticability" of the type considered in Ariss."[67]
(a) of the fluctuating membership;
(b) the obligation cannot be imposed on a new incoming villa member;
(c) accordingly, the burden would therefore fall unequally upon those who are current members and who remain current members in years ahead until an adverse determination; and
(d) if the undertaking was qualified in terms such as "if I remain as a member" then it provides a mechanism for an escape route by villa members to avoid the obligation.
(a) the plaintiff's financial statements over the four previous financial years record an average annual income of about $1.6 million;
(b) the plaintiff's income in the most recent financial year ending 30 June 2024 was about $2.5 million;
(c) the income in the two most recent financial years includes special levies paid by villa members for the plaintiff's own legal costs of this proceeding;
(d) the plaintiff is not impecunious;
(e) the plaintiff has had a positive net asset position over the four previous financial years. It is not charged any rent in respect of its sub-lease of the common property. It has met its debts as they become due in the 15 years since it commenced operating in 2009;
(f) villa members pay levies within three months in most cases;
(g) the plaintiff has never had to take legal action against a villa member to recover an unpaid levy; and
(h) while six villa members are now in arrears in respect of special levies for the plaintiff's costs of this proceeding, three of these are in arrears in relation to a special levy that was only issued on 1 August 2024 and are otherwise up to date in the payment of special levies.
"What's critical in this case, we say, is that the plaintiff Club has the ability to raise costs as and when needed, and has demonstrated that ability over its 15 years of operations. In other words, we point to a demonstrated track record within the plaintiff of raising funds from the members to meet the [plaintiff's] expenses as and when they have occurred, as and when they've fallen due, over the past 15 years. And we say that track record is the best guide to what will occur in the future if an order for costs is made against the [plaintiff]."
The Directors may establish an Administrative Fund for the purposes of meeting its actual and expected expenditure to:
The Directors may also establish a Sinking Fund for the purposes of meeting its actual and expected expenditure:
(a) for painting or repainting any part of the Common Property that is a building or other structure;
(b) to renew or replace fixtures and fittings that are part of the Common Property;
(c) to replace or repair the Common Property;
(d) to meet other expenses of a capital nature relating to Common Property; and
(e) to acquire personal property for the Company."
(a) the plaintiff's directors will exercise their power under clause 22.3 of the constitution to determine that a levy in the amount sufficient to satisfy the order be recommended to be levied on villa members as a contribution to the administrative fund; and
(b) the plaintiff will take steps under clause 22.8 of the constitution to recover from a villa member, as a debt, any unpaid levy for any such adverse costs order at the end of one month after such debt becomes due and payable.
"Now, the constantly changing membership has been urged upon your Honour as a big problem for the court and for the defendants on Friday and today. And the gist of what's said by Mr O'Donnell is, "That's a reason why my client's villa members shouldn't - it shouldn't be held against them that they have come forward - haven't come forward and given an undertaking to meet a costs order or to pay a levy".
In our submission, the following matters arise. Firstly, there is no evidence of that. If that was a case they wanted to bring forward, Ms Pisano could have put it on, and she hasn't. Secondly, if one has a moment to think about it, the obvious undertaking would, of course, be one for so long as you're a villa member, if that was going to be the position. It wouldn't be one forever. And one can well imagine, if efforts were made to investigate this, the arrangement would be, well, "I give you an undertaking to the court for as long as I'm a villa member" and the arrangements will be, when someone becomes a new villa member, they will have to give a like undertaking.
One can imagine by, commercially, that might - thought not to be a very good idea. It might affect the value of the villas. But that's got no traction with your Honour's assessment of whether the first threshold test is met because an undertaking of that kind could have been given and it would have gone some significant way to allaying the concerns that otherwise exist: is there reason to believe - is there a reason to believe that, at the end of the day, the costs won't be paid? So in our submission, your Honour would give no credence to the notion that the changing villa members is some problem either in grating security or in relation to the question of whether the members of the club - it ought to be held against them that they haven't given an undertaking."
(6) In those circumstances, I consider the approach adopted by Brereton J in Eastmark Holdings and Smithers J with respect to a corporate trustee in Laundry Coin-Wash may be adopted in this case, namely, notwithstanding that the plaintiff may raise levies in accordance with the Act, in the absence of some step taken by the plaintiff to alleviate the difficulties facing the defendants to recover costs, the plaintiff should be found to be or taken as if it were without sufficient assets to meet the liability occasioned by the cost order. In any event, the state of present and projected indebtedness of the plaintiff and the plaintiff's inability to make payments when due and payable (or the corollary that they will not pay a costs order within a reasonable time) is a plain indication of impecuniosity."[68]
"MR O'DONNELL: So Justice Walton ordered security for costs, primarily on the basis that the body corporate in that case was already in a net liability situation. He analysed it this way at 146. "To meet the estimated costs order if the defendants won the case, there would need to be a levy on each owner of about 30,000." But he said, "There would also need to be an additional levy just to get the body corporate out of its current negative net asset position. So the total levy would need to be about 62,000." And that was the evidence he relied upon to say that the threshold test was satisfied.
But that's not the case of this plaintiff, because this plaintiff, as your Honour will see from the accounts of 30 June 2004, it has currently net assets."
(a) the levy of $62,857 is based on security for costs in the amount of $2.2 million;
(b) the levy of $62,857 is based on 35 members paying their special levy;
(c) to date, three villa members have not paid their special levy and the plaintiff has not taken action to recover these unpaid levies;
(d) if three villa members continue to not pay their special levy, then the $62,857 will not be shared by 35 villa members, but rather, by 32 villa members. Accordingly, these 32 villa members will either pay more, or the plaintiff will not be able to pay the entirety of the security for costs;
(e) an adverse costs order is likely to be significantly higher than $2.2 million;
(f) the defendants' legal fees, after a trial, could be around $3 million (or more);
(g) accordingly, in the event of an adverse costs order, the levy for each villa member could be $100,000 and higher if the three villa members continue not to pay the special levy;
(h) any levy to pay an adverse costs order will be in addition to the "usual" levies that the villa members pay to the administrative fund and the sinking fund;
(i) a special levy for legal costs was only raised in FY 2023-24; and
(j) previous legal costs were paid by the sinking fund.
(a) the administration fund raised no special levies;
(b) the administration fund paid $2,485 in legal fees; and
(c) the sinking fund paid $86,938 in legal fees.
(a) the administration fund did not raise any special levy;
(b) the administration fund did not pay any legal fees; and
(c) the sinking fund carried this burden by paying $363,948 in legal fees.
(a) the administration fund raised $867,501 in a special levy for legal fees;
(b) the administration fund paid $1,186,827 in legal fees; and
(c) the sinking fund paid no legal fees.
(a) $0 in FY 2020-21;
(b) $255,247 in FY 2021-22;
(c) $226,648 in FY 2022-23; and
(d) $262,400 in FY 2023-24.
(a) the legal fees can only be paid from the administrative fund;
(b) the administrative fund has been running in a deficit since FY 2021-22:
(i) a net deficit of $36,550 in FY 2020-21;
(ii) a net deficit of $113,144 in FY 2021-22;
(iii) a net deficit of $118,043 in FY 2022-23; and
(iv) a net deficit of $464,372 in FY 2023-24;
(c) on the financial records before the court, FY 2019-20 was the last year that the administration fund had surplus funds. In that financial year, there was a surplus of $54,764. Since then, the administration fund has run at a deficit;
(d) the sinking fund has carried over a surplus balance sheet every year:
(i) $500,537 in FY 2019-20;
(ii) $738,328 in FY 2020-21;
(iii) $786,419 in FY 2021-22;
(iv) $560,757 in FY 2022-23; and
(v) $796,599 in FY 2023-24;
(e) in relation to the sinking fund, in:
(i) FY 2022-23 it ran a substantial deficit of $225,661. This was largely due to paying $363,948 in legal costs; and
(ii) FY 2023-24 it had a surplus of $235,841. This was due to the only expense incurred being $4,159 for gates;
(f) the sinking fund has built up a significant buffer of funds over time which defrays the deficit incurred each year by the administration fund. This ensures that each year the plaintiff has cash in the bank that it can draw upon;
(g) however, the total available members funds have been slowly declining since FY 2020-21:
(i) $701,777 in FY 2020-21;
(ii) $673,275 in FY 2021-22;
(iii) $442,714 in FY 2022-23; and
(iv) $332,226 in FY 2023-24.
"The determination of an application for security for costs calls for the exercise of a judicial discretion in all the circumstances of the particular case. The exercise of that discretion requires the assessment and weighing of relevant factors, some of which may be inter-related."[70]
The means of those standing behind the proceeding and the villa owners prosecuting the action without risk as to costs[71]
"The general practice with regard to companies has been said to be "just the opposite" of that prevailing in respect of individuals, and the company's impecuniosity may be a "most significant factor" in the exercise of the discretion... The policy objective served by s 1335(1) and its antecedents has been explained on a number of occasions as being, essentially, to ensure that the privilege of limited liability is not misused in such a way as to make the company a "stalking horse", enabling those who stand behind it, and those who are liable to benefit from the proceedings that it has brought, to pursue their own interests in the action without facing any risk as to costs..."[72]
"[74] As to the form of the evidence required on this issue, it has consistently been recognised that the discharge of the onus borne by the impecunious applicant will usually necessitate that it puts on a full and frank statement of the assets and liabilities of the persons or entities who stand to benefit from its success in the litigation, including shareholders and creditors... Obviously, this will exclude arm's length trade creditors, since they cannot reasonably be required to provide a detailed summary of their financial position to the applicant, nor can the applicant reasonably be required to go to the lengths of obtaining such details from them. Instead, where the party against whom security is sought is attempting to demonstrate that it would be commercial impracticable for its creditors to contribute to the costs of the litigation, that state of affairs will generally need to be established through evidence as to the approaches made to those creditors (particularly the larger ones) with requests for support..."[73]
The impecuniosity of a corporation[74]
"With respect to the indemnity, unless the applicant itself cooperated or the applicant company were wound up, benefit could not be obtained by the respondents thereunder. No direct process of execution would be available for the purpose of obtaining that benefit. Further, the extent to which the indemnity would, in any event, be productive would depend upon the state of the finances of the trust and the possibility of some defence cannot be ignored."[75]
"The same applies in this case: it seems to me that, unless the plaintiff itself cooperates or unless it were wound up, the defendants could not enforce any right and duty of the plaintiff to raise an additional levy from the unit holders. The defendants would have no direct process of execution against the unit holders for the purposes of doing so. The extent to which the levy would be productive in any event would depend upon the terms of the resolution determined at a general meeting of the Owners Corporation by the people liable to pay and it cannot be excluded that they, or some of them, might have some defence to a levy being struck."[77]
The prospects of success or merits and genuineness of the proceeding[78]
"As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success."[80]
(a) the plaintiff's claim for indemnity under the policy in respect of damage to all buildings on the 36 lots was accepted. The policy provided for the repair of the cyclone damage to an "as new" condition;
(b) there can be no serious dispute that the villas were buildings covered by the policy. Significant repairs to the villas were carried out at the direction of the first defendant and paid for by the first defendant;
(c) there are multiple sources of evidence about the existence of defects in the building works carried out by the second defendant; and
(d) the effect of that evidence is that the villas have not been repaired to the standard required by the policy.
(a) there can be no serious dispute that the second defendant owed obligations to perform the work without defects both under the building contract and under the Queensland Building and Construction Commission Act 1991 (Qld);
(b) the evidence establishes defects that fall short of the second defendant complying with its obligations, including that the works are contrary to the requirements of the National Construction Code and applicable Australian Standards; and
(c) the plaintiff seeks to enforce its rights for the second defendant's non-compliance with its contractual and statutory obligations, amongst other actions.
"...All costs associated to reinstate the facility back to a position as per the insurance policy are to be invoiced to the below entity for payment."
(a) the claim brought by the plaintiff involves a deal of complexity;
(b) there are substantial issues to be tried involving experts from various building disciplines including structural, waterproofing and tiling, and metallurgy;
(c) although general allegations of defective works are made, it appears that the precise alleged defects vary across the 35 villas, and the nature of the remedial works said to be required is bound to be disputed;
(d) the trial of the matter can be expected to be reasonably lengthy and complicated;
(e) the plaintiff is now up to its third amended statement of claim;
(f) the second defendant pressed the plaintiff for better particularisation and a revised pleading because of the "unconventional approach" adopted by the plaintiff in using annexures to plead defects and the opaqueness of allegations including, for example, "accretion of mould on walls" and "damage" to various parts of villas;
(g) the second defendant is yet to file and serve its expert reports and has indicated to the plaintiff that it will need to amend its defence once that occurs;[81]
(h) the plaintiff has sought to make much out of allegations the second defendant has raised in its proceedings against third party subcontractors;
(i) the second defendant has accepted in its r 445 letter[82] that, due to an oversight, it did not expressly condition its pleaded case against four of five defendants upon the second defendant being found liable to the plaintiff in the primary proceedings;
(j) the second defendant states that it intends to correct that oversight, which, it says, ought to have been an obvious one given that the remaining claims against third parties are pleaded in such a manner; and
(k) accordingly, the second defendant states that it is wrong for the plaintiff to seek to treat such third party claims as "admissions" when they are conditioned on disputed facts being established by the plaintiff in the primary proceeding.
"[23] The consideration of the strength of the applicants' claim on the question of whether security for costs should be awarded is necessarily a factor of variable weight. It will carry greater weight one way or the other where the claims made are less complex and their veracity or lack thereof is capable of being demonstrated with some relative ease. Conversely, where the claims are more intricate and turn on matters of disputed evidence, nuanced fact-finding or difficult questions of law, less weight can be accorded. In order to achieve any level of confidence about the merits of such a case, a mini-trial would need to be undertaken. That is, necessarily, inappropriate on interlocutory applications."
There is no suggestion of stifling[86]
"[52] ...A broad brush approach does not require that. Parties should not be encouraged to devote extensive resources (including court resources) to questions of security for costs. It should not be forgotten that an order for security is not a final assessment of anything about the amount of the costs that may be payable but a provision against a contingent amount that depends on a number of things that are not amenable to precise predictions."
"[41] That should not, however, be construed as requiring the judge hearing such an application to engage, in effect, in some sort of anticipatory assessment of costs. In the present case, I am satisfied that the evidence led by the defendants is cogent evidence, and am also satisfied on that evidence that each of the defendants will incur significant costs up to and including the first day of trial in defending this matter. However, I am also satisfied that the quantum of those costs claimed by the plaintiff needs to be discounted to take account of the matters advanced by the plaintiff. The approach to fixing the quantum to be provided by way of further security is not a finely tuned mathematical exercise. The principles appropriate to the approach to be adopted were collected by French J (as he then was) in Bryan E Fencott and Assocs Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 at 515:
In fixing the amount of the security the court must look first at the whole case and take into account, inter alia, the chance of it collapsing without coming to trial. It is not bound to give the amount of security which a defendant says will be the amount of his costs.
The court may in such a case, order somewhat less than if there seems to be every prospect that the action will be fought to a finish.
The court does not set out to give a complete and certain indemnity to a defendant.
The process of estimation embodies to a considerable extent, necessary reliance on the "feel" of the case after considering relevant factors."[92]
(a) using the plaintiff's estimate as to each of the defendant's future recoverable costs;
(b) then, adding the past recoverable costs as set out in each defendant's instructing solicitor's affidavit; and
(c) then, applying a 25% discount.
[1] Affidavit of Raffaela Pisano sworn 11 October 2024 at [17].
[2] 30 November 2016 to 30 November 2017.
[4] As listed in Annexure 11 of the plaintiff's third amended statement of claim filed 12 July 2024.
[5] This is the total costs incurred by the first defendant to August 2024 plus $41,554.15 (plus GST) in work in progress as set out in the affidavit of Patrick Mead sworn 4 September 2024, at [23]. The first defendant has estimated a total of recoverable costs incurred of $116,299.59 (plus GST) as set out in the affidavit of Patrick Mead sworn 4 September 2024, at [25].
[6] Affidavit of Andrew Kelly affirmed 5 September 2024, at [29]. The second defendant has estimated a total of recoverable costs incurred of $583,938 (affidavit of Andrew Kelly affirmed 5 September, at [39]).
[7] Affidavit of Raffaela Pisano sworn 11 October 2024 at [7].
[8] The plaintiff also considers that the sub-leases provide the plaintiff with the power to raise levies and require villa members to contribute to the expenses of the plaintiff in addition to its powers under the constitution.
[9] Affidavit of Raffaela Pisano sworn 11 October 2024 at [33].
[10] Uniform Civil Procedure Rules 1999 (Qld) r 671 (a); Corporations Act 2001 (Cth) s 1335 (1).
[11] Robson v Robson [2008] QCA 36.
[12] Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [29]- [30] (Beazley JA, Meagher and Barrett JJA agreeing).
[13] Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [32](3).
[14] Monto Coal 2 Pty Ltd v Sanrus Pty Ltd [2018] QCA 309; (2019) 3 Qd R 143 at [48]- [49] (Gotterson JA, McMurdo JA and Boddice J agreeing).
[15] Monto Coal 2 Pty Ltd v Sanrus Pty Ltd [2018] QCA 309; (2019) 3 Qd R 143 at [41] (Gotterson JA, McMurdo JA and Boddice J agreeing) citing Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; (2014) 98 ACSR 301, 311-312 at [56], [59] (Ward JA).
[16] Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; (2014) 98 ACSR 301 at [16] (McFarlan JA).
[18] Monto Coal 2 Pty Ltd v Sanrus Pty Ltd [2018] QCA 309; (2019) 3 Qd R 143 at [50]- [52] (Gotterson JA, McMurdo JA and Boddice J agreeing). Citations omitted.
[19] Monto Coal 2 Pty Ltd v Sanrus Pty Ltd [2018] QCA 309; (2019) 3 Qd R 143 at [59] (Gotterson JA, McMurdo JA and Boddice J agreeing).
[20] Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 at [2], [6].
[22] Beach Petroleum NL v Johnson [1992] FCA 136; (1992) 7 ACSR 203, 205.
[23] Re Skytraders Pty Ltd [2024] NSWSC 984 at [20] referring to Re Felan's Fisheries Pty Ltd [2016] NSWSC 1351 at [10].
[24] Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [32(6)].
[25] Monto Coal 2 Pty Ltd v Sanrus Pty Ltd [2018] QCA 309; (2019) 3 Qd R 143 at [41] citing Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; (2014) 98 ACSR 301 at [16]- [17] (Macfarlan JA, Tobias AJA agreeing).
[26] Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [143].
[28] Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584, 46,729.
[30] Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 at [9].
[32] Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd [2019] SASC 39; (2019) 133 SASR 408 at [64]- [65]. Citation omitted.
[33] Re Eastmark Holdings Pty Ltd (Recs and Mgrs Apptd) [2015] NSWSC 2071; Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [130]- [135].
[35] Owners-Strata Plan No 50530 v Walter Construction Group Ltd [2001] NSWSC 820 at [36]- [38].
[37] Owners Corporation Strata Plan 64970 v Austruc Constructions Ltd [2007] NSWSC 778 at [8]- [9]. Citation omitted.
[38] Owners Corporation Strata Plan 64970 v Austruc Constructions Ltd [2007] NSWSC 778 at [17].
[40] The Owners - Units Plan No 1917 v Koundouris & Anor [2014] ACTSC 269 referring to Owners - Strata Plan 50530 v Walter Construction Group Pty Ltd [2001] NSWSC 820 with approval at [130] and stating at [131].
[42] Re Eastmark Holdings Pty Ltd (Recs and Mgrs Apptd) [2015] NSWSC 2071 at [6]- [8].
[43] Re Eastmark Holdings Pty Ltd (Recs and Mgrs Apptd) [2015] NSWSC 2071 at [7] referring to Owners-Strata Plan No 50530 v Walter Construction Group Ltd [2001] NSWSC 820 at [36].
[44] Re Eastmark Holdings Pty ltd (Recs and Mgrs Apptd) [2015] NSWSC 2071 at [7].
[46] The Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [134].
[47] The Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [144].
[48] The Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [110]- [115].
[49] The Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [150]- [151].
[50] The Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [156].
[51] The Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [160](6).
[53] Strata Plan 99960 v SPS Building Contractors Pty Ltd [2022] NSWSC 1464 at [12].
[54] Strata Plan 99960 v SPS Building Contractors Pty Ltd [2022] NSWSC 1464 at [19].
[55] Strata Plan 99960 v SPS Building Contractors Pty Ltd [2022] NSWSC 1464 at [20] citing Owners - Strata Plan 50530 v Walter Construction Group Pty Ltd [2001] NSWSC 820 at [36].
[56] Strata Plan 99960 v SPS Building Contractors Pty Ltd [2022] NSWSC 1464 at [20]- [21].
[58] Strata Plan 94417 trading as The Owners-Strata Plan 94417 v TC Build [2021] NWSC 1284 at [7]-[8].
[59] Constitution, clauses 22.1, 22.2.
[60] Constitution, clause 22.3.
[61] Constitution, clause 22.4.
[62] Constitution, clause 22.8.
[63] Constitution, clause 22.9.
[64] Beach Petroleum NL v Johnson [1992] FCA 136; (1992) 7 ACSR 203, 204-5.
[67] General Trade Industries Pty Ltd (in liq) v AGL Energy Ltd (No 2) [2023] FCA 556 at [51].
[68] Owners - Strata Plan 64415 v Serman [2017] NSWSC 806 at [160](6).
[70] Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114 at [23] (Wilson AJA, McMurdo P and Applegarth J agreeing).
[71] Uniform Civil Procedure Rules 1999 (Qld) r 672 (a).
[72] General Trade Industries Pty Ltd (in liq) v AGL Energy Ltd (No 2) [2023] FCA 556 at [33]. Citations omitted.
[73] General Trade Industries Pty Ltd (in liq) v AGL Energy Ltd (No 2) [ 2023] FCA 556 at [74]. Citations omitted.
[74] Uniform Civil Procedure Rules 1999 (Qld) r 672 (d).
[75] Laundry-Coin Wash Nominees Pty Ltd v Dunlop Olympic Ltd & Ors (1985) ATPR 40-584, 46,729; noted by Brereton J in Re Eastmark Holdings Pty Ltd (Recs and Mgrs Apptd) [2015] NSWSC 2071 at [3].
[76] Re Eastmark Holdings Pty Ltd (Recs and Mgrs Apptd) [2015] NSWSC 2071 at [2].
[77] Re Eastmark Holdings Pty Ltd (Recs and Mgrs Apptd) [2015] NSWSC 2071 at [6].
[78] Uniform Civil Procedure Rules 1999 (Qld) r 672 (b)-(c).
[80] KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189, 197.
[81] In a letter of 2 August 2024, the solicitors for the plaintiff noted at para 6(j) that "the only expert opinion evidence that has been prepared for the purposes of this proceeding and that is probative of the existence of defects is the evidence that has been delivered by the [plaintiff]".
[85] Fitzpatrick v Isaacs [2024] FCA 1187 at [70] citing Gumm v Commissioner of Taxation [2024] FCA 71 at [99].
[86] Uniform Civil Procedures Rules 1999 (Qld) r 672 (h).
[87] Mio Art Pty Ltd v Mango Boulevard Pty Ltd [2018] QSC 31 at [89]; Lanai Unit Holdings Pty Ltd v Mallesons Stephen Jacques [2016] QSC 2 at [52].
[89] Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497, 515; Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 at [69].
[90] Brundza v Robbie & Co [1952] HCA 49; (1952) 88 CLR 171, 175 (Fullagar J).
[92] Aqua Blue (Noosa) Pty Ltd v Soil Surveys Engineering Pty Ltd [2010] QSC 176 at [41]. Citations omitted.
[94] This point was followed by Davis J in Get Tonic v Pocket Health [2020] QSC 235 at [52].
Great Barrier Reef Yacht Club Villas Pty Ltd
Insurance Australia Ltd [2024] QSC 320
(1995) 56 FCR 189
(2019) 133 SASR 408
(2019) 3 Qd R 143
(1987) 16 FCR 497
(1952) 88 CLR 171
(iii) Villas 15 and 17 (who have not given an assignment to the [plaintiff]). This is in respect of one special levy that was only issued on 1 August 2024, and Villas 15 and 17 are otherwise up to date in the payment of the special levies;"[9]