Owners Corporation Strata Plan 64970 v Austruc Constructions Limited

DECISION : Dismiss application for security for costs.

CATCHWORDS : Practice and procedure - Security for costs - Delay - Overlapping of two sets of proceedings

Bank Invest AG v. Seabrook (1988) 14 NSWLR 711 CASES CITED : Bryan v Maloney (1995) 182 CLR 609 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (unreported, Federal Court of Australia, Beazley J, 28 February 1995). Owners - Strata Plan 50530 v Walter Construction Group Ltd [2001] NSWSC 820

PARTIES : Owners Corporation Strata Plan 64970 (Plaintiff) Austruc Constructions Limited (Defendant)

COUNSEL : Mr G Sirtes (Plaintiff) Mr M White (Defendant)

SOLICITORS : David Le Page (Plaintiff) Doyles Construction Lawyers (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY AND CONSTRUCTION LIST

Friday 13 July 2007 ex tempore Revised 17 July 2007

55048/05 Owners Corporation Strata Plan 64970 v Austruc Constructions Limited JUDGMENT The notice of motion 1 There is before the Court an amended notice of motion filed on 16 December 2005 under cover of which Austruc Constructions Limited, in proceedings 55048/05, seeks security for costs in the amount of $310,000. Owners - Strata Plan 64970 is the plaintiff in the proceedings 2 Concurrent proceedings [55047/03] ordered to be heard at the same time and commenced in 2003 have been brought by Eko Investments Pty Ltd against the same defendant. A recent decision for additional security for costs in the 2003 proceedings was determined on 29 May 2007: [2007] NSWSC 539. That decision serves the purpose of identifying the claims made by Eko Investments against the three defendants to those proceedings, Austruc Constructions Limited being the first defendant. It will be apparent from that judgment that the original order for security for costs of some $296,670 plus the additional security ordered, furnished Austruc with in the order of $436,000 by way of security funds. 3 The plaintiff in the 2003 proceedings had, as developer owner, entered into a contract with the first defendant as head contractor, in respect of the construction of 32 residential units at 46-50 Denning Street, The Entrance. 4 It is common ground that the vast bulk of the claims made by each plaintiff against Austruc in the two sets of proceedings raise common issues. In the main they are issues concerning the common property. There are, however, some matters raised concerning unit owners' property. 5 Mr White, who has appeared for Austruc, has drawn attention to areas where there may be some differences in terms of claims. That this is the case cannot be gainsaid. Having examined exhibits A1 and A2 tendered by the defendant, being respectively the minutes of experts conclaves held in Sydney in February 2007 [with the attached notations of agreements and disagreements] and a report by Mr Norman Fisher [a quantity surveyor retained by the plaintiffs in the 2005 proceedings], my assessment is that some differences may be anticipated in terms of the approaches to be taken by the plaintiffs in the 2005 proceedings as opposed to the approach to be taken by the plaintiffs in the earlier proceedings. Indeed some of the defects currently pursued in the 2005 proceedings are [at least not] yet the subject of claims made in the 2003 proceedings. However, my abiding impression from the evidence is that on the probabilities, these differences are unlikely to be of huge significance in the litigation. 6 One issue to be litigated in the 2005 proceedings involves an alternative defence pursued on Bryan v Maloney [(1995) 182 CLR 609] grounds along the lines that the plaintiff in the 2005 proceedings is acting as agent for the present unit holders and that the defendant had no duty of care to those unit holders in respect of all or some of the types of defect for which the defendant to the 2005 proceedings is being pursued. 7 This matter is certain pleaded. However it is plainly enough only an alternative count. The primary manner in which the plaintiff as immediate successor in title to the developer puts its case relies upon its claimed entitlement to the benefit of the statutory warranties as if the developer were required to hold a contractor licence and has done the work under a contract with the successor in title to do the work: cf section 18C of the Home Building Act 1989 (NSW). 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 [[33] - Bank Invest AG v. Seabrook (1988) 14 NSWLR 711 at 717 per Kirby P];

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.

Delay 10 Notwithstanding the fact that the original notice of motion seeking security for costs was filed in late November 2005, the defendant was content to have the notice of motion stood over pending a mediation which then failed. Thereafter the list judge ordered that a conclave of experts be held in an attempt to narrow the issues. It does not appear that the defendant resisted that order. The Court has been informed by Mr White, who appears for Austruc, that it did not at the time seek to further pursue its application for security for costs being of the view that it would be better in terms of possibilities of settling the matter to go along with the orders for the conclave. 11 Looking back over the history of the prosecution of first the 2003 proceedings and later the 2005 proceedings, it becomes clear that an enormous amount of work has been carried out by the parties in preparation of the 2003 proceedings. There is a full cardboard box containing the materials evidencing the amount of work carried out. Further, it is apparent that since the advent of the 2005 proceedings [and in particular the order that the two sets of proceedings be heard together] work has continued apace by both parties to bring the 2005 proceedings 'up to speed' with the 2003 proceedings. Apparently both parties have been looking towards seeking a date for the matter to be referred out at some time in August, which is now very close. 12 It is trite that there is an obligation on a party seeking security for costs to pursue an application in that regard without delay. Whilst it is unnecessary to cite authorities in support of that long-standing, proposition the material authorities may be found set out by Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (unreported, Federal Court of Australia, Beazley J, 28 February 1995). The obvious reason for the requirement that such applications be brought promptly is to prevent the circumstance that a plaintiff against whom such an application has not yet been prosecuted, may be required to continue preparation of the litigation only to find in due course that it has wasted the funds necessary in that regard when it proves to be unable to satisfy a successful application for security. 13 It appears to be the case that at a directions hearing on 30 March 2007, counsel for the defendant indicated to the Court that his client would seek to pursue its application for security for costs against the plaintiffs in both the suits and that on 5 April 2007 the defendant's solicitors wrote to the plaintiff's solicitors confirming the status of the defendant's application for security for costs and repeating the defendant's request that the sum of $310,000 be provided by way of security. 14 The proceedings were relisted on 25 May 2007 on which occasion the motion presently before the Court was fixed for hearing today. The Court has been informed that apparently the delay, as from 25 May up to 13 July, involved an accommodation being given to meet the convenience of the plaintiff's counsel. That notwithstanding, I regard Austruc as having been under a continuing obligation to pursue with vigour the obtaining of a hearing date for such a motion. To my mind in all of the circumstances [and taking into account the forensic activities involved in the complex mediation and the following experts conclave], even the period which expired as between 30 March 2007 and 25 May, which apparently did not involve any question of the convenience of meeting the plaintiff's counsel, would seem to be unjustified. 15 One would infer that Austruc may well have had in mind that in any event the Court would always, when and if the security for costs application in relation to the 2005 proceedings was prosecuted through a hearing, closely examine the extent to which the common issues as between the two suits would dictate that a substantial part of the costs ordered in the earlier proceedings be regarded as effectively security for costs also of the later proceedings. 16 Sufficient has already been said to justify my view that Austruc is seen to have erred in having failed to expressly extract from the plaintiff an acceptance that its failure to pursue its security for costs application would not be relied upon by the plaintiff in terms of taking the point that the application had not been pursued promptly. Additionally it hardly behoves a party intent upon seeking security for costs to go along with a situation in which the party from whom that security is sought, continues to be obliged to comply with interlocutory directions, without extracting from the plaintiff an overt acceptance that delay will not be put in bar of the application when it is finally heard. The evidentiary burden upon Austruc 17 There is a very real question as to whether Austruc has discharged its onus of persuading the Court on the evidence that the plaintiff, if unsuccessful, would not be able to pay Austruc's costs. The evidence before the Court includes the following:

i. the Owners Corporation has, to date, raised special levies specifically to fund this litigation on 19 March 2005 and 28 November 2005.

ii. Rex Schmidt, the Strata Manager of the Plaintiff, has received no expressions of unwillingness to pay these levies.

iii. all the lot owners have always paid the levies within a matter of weeks of those levies being due and payable. 18 Clearly enough the plaintiff in later proceedings has an entitlement to raise levies if and when appropriate. I accept the defendant's submission that the financial statements of the body corporate annexed to Mr Schmidt's affidavit show the following:

i. for the year ended June 2004 the levies for the administrative fund totalled $58,031 and the sinking fund $17,360;

ii. the estimated levies for the year ended June 2005 were $56,431 and $16,454 respectively;

iii. despite the resolutions to raise special funds passed in March and November 2005, the actual levies received by December 2005 were only $28,784 and the legal fees levy received was only $2,200. 19 This notwithstanding as I see it, the subject context is as follows:

i. even if the defendant's fallback position of now seeking $185,000 as security for costs in the second proceedings were to succeed, a levy for such an amount would impose an impost on each unit owner of approximately $6,000.

ii. if the Court were now to order security for costs say in the sum of $50,000, a levy for such amount would impose an impost on each unit owner of approximately $1,500.

iii. notwithstanding the submission by Mr White that the building concerned contains units of modest value, there is evidence of sales under contracts dated July 2001 bringing purchase prices of approximately $265,000. It is not difficult to see that those purchase prices would likely have considerably increased by the present time [notwithstanding the litigious world into which the unit owners, either directly or by proxy, have been thrown]. Hence I reject the proposition that Austruc has discharged the above-described evidentiary burden. 20 I am absolutely persuaded that the principled exercise of the discretion could not permit any thing remotely like an order for security for costs in the sum of $310,000. This estimate covers many items dealing with past rather than future costs. Indeed it is salutary to compare the estimates relied upon by Austruc in the schedules currently presented to the Court, with the anticipated costs set out in the judgment concerning the latest security application in the 2003 proceedings. That comparison suggests that Austruc has already received security in relation to many of the items now sought, no attempt seemingly having been made to accommodate many of those costs. Further, some of the costs claimed appear inflated, as for example the amount of $20,000 for the request and provision of particulars. To deal with the matter with some additional particularity, the sum claimed in the more recent updated security for costs application for the hearing was $92,800, which is exactly the same as the sum sought for the hearing and dealt with in the judgment of 29 May 2007. Likewise the disbursements claim of $25,000 is simply a repeat of that which was sought in the more recent updated security for costs application. The amount claimed for counsel's fees in the recent updated security for costs application was on the other hand $120,000 whereas the amount now sought is the more modest sum of $81,000. Other overlaps are to be seen.

Decision 21 The principled exercise of the relevant discretion is to dismiss the application for security. The application fails at the least for the following reasons:

i. Austruc has failed to discharge its onus of persuading the Court on the evidence that the plaintiff, if unsuccessful, would not be able to pay Austruc's costs.

ii. Austruc has failed to prosecute its security for costs application promptly in all of the circumstances.

iii. in a circumstance in which the hearing of the two sets of proceedings together will very clearly involve a considerable mass of connected and overlapping issues [albeit also raising some discrete issues] it behoved Austruc, in order to succeed on an application such as the present, to provide satisfactory evidence as to:

a) what are the anticipated connected and overlapping issues;

c) in the light of the above, the particular reasons why additional security to that already provided for in the 2003 proceedings require to be ordered in the 2005 proceedings. Austruc has simply not provided satisfactory evidence of this type, leaving the Court in the invidious position of having to do no more than speculate as to the detail. 22 For those reasons, the orders of the Court will be that the amended notice of motion originally filed on 16 December 2005 be dismissed.

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