Strata Plan 94417 trading as The Owners Strata Plan 94417 v TC Build

Should security be ordered?

1. It is common ground that the Court has power to order the plaintiffs to provide security under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.21(1)(d), which gives the Court power to order security where "there is reason to believe that [the] plaintiff … will be unable to pay the costs of the defendant if ordered to do so". If that threshold requirement is satisfied, the evidential onus shifts to the plaintiff to satisfy the court that, taking into account all relevant factors, security should be refused or should be ordered in a lesser amount than that sought by the defendants: Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [30] per Beazley JA (with whom Meagher and Barrett JJA agreed).
2. In the case of most owners corporations, the owners corporation is governed by an executive committee who in the normal course of events could be expected to take the steps required of them to ensure that the owners corporation was in a position to discharge any liability it had. There will often be a substantial number of lot owners and there is no reason to think that they would seek to order their affairs to avoid payment of a levy that was struck to meet a costs obligation. It was considerations of that type that lead me to reject the application for security in Strata Plan 94417.
3. However, the present case is different. The plaintiffs are plainly impecunious. They are controlled by Mr and Mrs Kenyon, who are the only natural persons for whose benefit the proceedings are brought. The ability of the plaintiffs to discharge any liability for costs depends entirely on them. In that context, it was reasonable for the defendants to request the undertakings they sought and it is relevant that those undertakings were refused. On the material before it, the Court cannot have the same confidence that Mr and Mrs Kenyon will take steps to ensure that the plaintiffs are in a position to meet any costs order against them as might be the case where security is sought from a typical owners corporation.
4. No other discretionary reason was advanced by the plaintiffs for why security should not be ordered. During the hearing, the plaintiffs did indicate that they were willing to provide the undertakings originally sought by the defendants. However, the defendants' position was that they were no longer willing to accept those undertakings. In some cases, undertakings offered by a plaintiff may be relevant to the exercise of the court's discretion particularly when they are freely offered at an early stage. However, in my opinion, if the defendants are otherwise entitled to security as the defendants in this case are, they should not be deprived of that security because the undertaking is proffered at the last moment in a context where it has become apparent that an order for security is likely to be made.

Quantum

1. The defendants' solicitor, Mr Peter Harrison, provided a detailed estimate of the defendants' costs in an affidavit sworn on 15 September 2023. That estimate was criticised by the plaintiffs' solicitor, Ms Cheryl Weston, in an affidavit sworn on 10 October 2023. In response, Mr Harrison swore an affidavit dated 26 October 2023 in which he provided a revised estimate which made adjustments to his original estimate where he thought it was appropriate to take account of Ms Weston's comments. He gives an explanation for each of those adjustments and an explanation of why he disagreed with many of the adjustments proposed by Ms Weston.
2. After making those adjustments, Mr Harrison estimates that the defendants' total legal costs will be as follows: Solicitors costs to date $43,594.00 Estimated future solicitors costs $269,410.00 Counsel's fees to date $10,250.00 Future counsel's fees $85,000.00 Estimated expert witness fees and other disbursements $83,024.00 Total $491,278.00

1. Mr Harrison discounts solicitor's fees by 30 percent and counsel's fees by 10 percent to arrive at an estimate of party/party costs of $387,850.
2. Ms Weston's estimate of solicitor/client costs is $227,883. She applies a discount of 40 percent to arrive at a figure of $136,729.80 as an appropriate amount for security.
3. Ms Weston's estimate of costs only relates to future costs. She applies a discount of 40 percent instead of 30 percent and she applies that discount to solicitor and counsel fees. Those points aside, it is not easy to identify the principal differences between Mr Harrison and Ms Weston. Mr Harrison prepared a detailed schedule providing a description of the work that he thought was necessary, the time it would take and the estimated charge for each solicitor who would undertake that work. Ms Weston takes that schedule and makes reduction for each item, most often because Mr Harrison has assumed that more than one lawyer would need to be involved in the work or because Ms Weston regarded the time allowed for by Mr Harrison to be excessive.
4. It is neither practical nor useful for the Court to address each adjustment made by Ms Weston. In my opinion, the approach taken by Mr Harrison is reasonable. He has provided a detailed breakdown of the work he expects to be undertaken. He has taken account of Ms Weston's comments where he thought it was appropriate to do so and has provided short explanations for his adjustments and why in relation to other items he has made no change. The parties accept that the hearing is likely to take five days. It will involve a detailed factual investigation of the parties' conduct in relation to the redevelopment. It appears to be common ground that it will be necessary for the defendants to call expert evidence form a planning consultant. Taking those matters into account, the estimate provided by Mr Harrison does not appear to be unreasonable. The figure arrived at by Ms Weston seems unreasonably low.
5. In my opinion, it is appropriate that the defendants should obtain security for past costs. The Commercial List proceeding was stayed pending determination of the plaintiffs' proofs of debt. The Corporations List proceeding was not commenced until April 2023. Although the application for security was not made until September 2023, the question of security was first raised in correspondence in May 2023. The defendants sought reasonably to resolve the question of security before filing their motion.
6. The plaintiffs appear to object to providing security for past costs on the basis that Mr Harrison did not provide copies of the invoices for those costs. Mr Harrison explains that he did not do so because the invoices contain privileged information. It may have been better for the invoices to have been provided with the privileged information redacted. However, there is no reason to doubt the figures provided by Mr Harrison and I do not think that the absence of invoices provides a reason for refusing security in respect of past costs.
7. In my opinion, a discount on estimated solicitor/client costs to arrive at a figure for estimated party/party costs of 40 percent is unreasonable, particularly when it is applied to counsel fees as well as solicitor fees. The discounts proposed by Mr Harrison fall within the range of what would be regarded as acceptable.
8. Taking those matters into account, in my opinion, it is appropriate to order security in the sum of $375,000 in three tranches of $125,000 each. The first tranche should be paid within 21 days of the date of this judgment. The second tranche should be paid within 21 days after the matter is set down for final hearing. The third tranche should be paid 28 days before the date fixed for the commencement of the hearing. The security should be by way of payment into Court or in such other form as agreed between the parties.
9. The orders sought by the defendants provide that the defendants have liberty to apply for further security. The orders I propose to make provide for security up until the end of the hearing. The nature of the case does not justify multiple applications for security for costs. It remains open to the defendants to apply for a variation of the orders I propose to make if a change in circumstances justifies such an application. I am not satisfied that it is appropriate in those circumstances to make the order sought by the defendants.
10. In circumstances where the plaintiffs were unsuccessful in resisting the application for security, it is appropriate that they pay the defendants' costs of the motion.
11. Accordingly, the orders of the Court are: 1. The plaintiffs provide security for the defendants' costs of this proceeding and proceeding 2022/00069738 in the amount of $375,000 with such security to be by way of payment into Court or in such other form as agreed between the parties; 2. The security be provided in the following tranches: 1. $125,000 to be paid within 21 days of the date of this judgment; 2. $125,000 to be paid within 21 days of the date on which the proceedings are set down for a final hearing; 3. $125,000 to be paid at least 28 days before the date fixed for the commencement of the final hearing; 1. This proceeding and proceeding 2022/00069738 be stayed if the security is not provided in accordance with order (2) until the security is provided; 2. The plaintiffs pay the defendants' costs of the notice of motion filed on 18 September 2023; 3. Matter listed for directions on 1 December 2023.

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