The Owners - Strata Plan No 94267 v DEC Engineering & Construction Pty Ltd & Anor

Decision

1. In my opinion, the Developer's application should be refused on this basis.

The events leading to the Deed

1. On 20 March 2015, the Builder and Developer entered an agreement in the Chinese language, the title of which, translated into English, was either "Contract of Construction Project Execution" or "Project Construction Contract". [1] Counsel referred to this agreement as "the Chinese Agreement".
2. On 20 April 2015 the Developer and the Builder entered into a contract pursuant to which the Builder agreed to contract the Lane Cove property for $5.4 million ("the Building Contract").
3. The parties fell into dispute in 2016. The Builder's solicitor described that dispute as follows: "[The Builder] was concerned with [the Developer]'s interference with the works during construction. [The Developer] would not approve [the Builder]'s recommended subcontractors and would insist on [the Builder] engaging [the Developer]'s preferred subcontractors. As the builder for the project, [the Builder] was aware that, absent an agreement settling the parties' respective liabilities, that [the Builder] would be ultimately responsible for the completed works even though [the Developer] had interfered with [the Builder]'s control of the works to save costs."
4. Accordingly, the Builder, the Developer and the Guarantors entered the Deed.
5. The Deed recited that: "A. The Builder and Developer entered into an Agreement dated 20 March 2015 [2] for the construction of a six storey mix [sic] use building and basement parking at the [Lane Cove] Property (the Works) whereby the Developer agreed to pay to the Builder $280,000 inclusive of GST (Licence Fee) and 5% of the net profit of the development project (Profit Sharing). B. The Builder and Developer also entered into a Building Contract on or around 20 April 2015 for the Works. C. A dispute has arisen as to the nature of the parties' obligations under the Building Contract. D. At the request of the Guarantors, the Builder has agreed to enter in this Deed. E. The parties have agreed to settle all claims between them upon the terms and conditions contained in this Deed."
6. The effect of the Deed was that: 1. the Developer agreed to pay the Builder the Licence Fee of $280,000 and a "Profit Sharing Amount" of $750,000; [3] 2. the Developer agreed to indemnify the Builder in relation to any claim made against the Builder in connection with the Works carried out under the Building Contract; [4] and 3. the Guarantors agreed to guarantee that obligation. [5]
7. The Deed thus reflected a compromise between the Builder and the Developer concerning the Builder's profit entitlement under the Chinese Agreement whereby the Builder accepted the figure of $750,000 and the indemnity by the Guarantors on account of profit share.
8. On 24 October 2017, the Builder and Developer entered a further deed under which the Builder, in effect, agreed to limit its claim for profit to $600,000, rather than the $750,000 for which provision was made in the Deed.

The cross claims

1. On 11 June 2020 the Builder filed its Cross Claim against the Developer seeking indemnity under the Deed.
2. The Developer filed a Response denying liability under the Deed and raising such matters as legality, duress, inducement and unconscionable conduct.
3. On 8 July 2020 the Developer filed its Cross Claim against the Builder seeking an order that the Deed be set aside and an order that the Builder repay the Developer all monies paid under the Deed.
4. In its Cross Claim List Statement the Builder identified the "Issues Likely to Arise" as being, simply, whether the Developer and the Guarantors were liable under the Deed and, if so, for what amount.
5. In its cross claim, the Developer included as the Issues Likely to Arise: 1. whether all or part of the deed is illegal; 2. whether the builder exerted duress on the developer to execute the Deed; 3. whether a director of the Builder, Mr Ng, exerted duress on the Developer and the Guarantors to execute the Deed; 4. whether the Builder acted unconscionably in its dealings with the Developer and the Guarantors in respect to the execution of the Deed; 5. whether Mr Ng acted unconscionably in his dealings with the Developer and the Guarantors in respect to execution of the Deed; 6. whether the Builder executed undue pressure on the Developers and the Guarantors to execute the Deed; 7. whether Mr Ng exerted undue pressure on the Developers and the Guarantors to execute the Deed; 8. whether the Developer and the Guarantors were induced to execute the Deed; 9. whether all or part of the Deed is unjust in the circumstances relating to the contract at the time it was made; 10. whether the Developer is entitled to liquidated damages against the Builder for late completion of the building works pursuant to the Building Contract; 11. whether the Developer is entitled to damages against the Builder and/or Mr Ng; 12. whether the Builder is in breach of the Home Building Act 1989 (NSW); and 13. whether the Builder is in breach of the Design and Building Practitioners Act 2020 (NSW).

Is the Developer seeking security for the costs of its own cross-claim?

1. Security for costs is only available against a "plaintiff". [6]
2. Where in substance a party is a "plaintiff", security may be ordered against it. On the other hand, where in substance a party making a claim is acting defensively and should not be seen as the "plaintiff", security may be declined.
3. Regard must be had "to the overall nature of the proceedings" [7] and who in substance is the "attacker" and who is the "defender". [8]
4. Here, each of the Builder and the Developer is a cross claimant and cross defendant.
5. It is true that the matters raised by the Developer in its response to the Builder's claim under the Deed are in substance the same as the matters it raises in its cross claim against the Builder. [9]
6. Thus, both cross claims arise out of the same matter and are not "wholly distinct". [10]
7. But that is the beginning, not the end, of the inquiry.
8. In other cases, I have held that the fact that the matters agitated in a cross claim against the plaintiff were, in substance, the same as those agitated in the cross claimant's defence to the plaintiff's claim, pointed to the conclusion that the cross claim should be seen as defensive to the claim. [11]
9. But the facts here are different.
10. Both the Builder and the Developer make claims against each other. Both those claims relate to the Deed. But the Builder's claim is simply to enforce what appears to be a clearly worded Deed, whereas the Developer's case is to set aside the Deed on the various bases alleged, to seek recovery of the monies paid by it under the Deed, and to bring a claim of liquidated damages against it, including a claim for delay damages. [12]
11. The Builder's case against the Developer is documentary and formal. This is illustrated by the fact that it has described in its cross claim the issues likely to arise as being, simply, whether the Developer and Guarantors executed the Deed and if so, what the liability is under the Deed.
12. The recitation by the Developer, in its cross claim, of the issues it contends will arise in relation to the Deed, as set out at [23] above, persuades me that it should be seen, in substance, as the "attacker".
13. I think Mr Sheldon, who appeared with Mr Sud for the Builder, was correct to submit that, in substance, the Developer is seeking security for the costs of its own cross claim.
14. I think that is a sufficient basis to dismiss the Developer's application, and that it is not necessary to consider the other matters argued by Mr Sheldon.

Conclusion

1. The Developer's notice of motion of 4 September 2020 is dismissed with costs.

Endnotes

1. There is a dispute as to the correct translation.
2. The Chinese Agreement.
3. Clause 2.1.
4. Clause 2.2.
5. Clause 3.
6. Uniform Civil Procedure Rules 2005 (NSW) r 42.21(1) and Corporations Act 2001 (Cth) s 1335(1).
7. Eg Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399 at [18] (Brereton J).
8. Amalgamated Mining Services Pty Ltd v Warman International Pty Ltd (1988) 19 FCR 324 at 325 (Wilcox J).
9. As illustrated by the Schedule that Mr Salama and Ms Bartley prepared comparing the allegations in the two documents.
10. Cf Neck v Taylor [1893] 1QB 560 at 562 per Lord Escher.
11. TM Thoroughbreds Pty Ltd v President Bloodstock Pty Ltd (No 2) [2019] NSWSC 1607 at [17]-[26] and Steel Building Systems Pty Ltd (in Liq) v Decmil Australia Pty Ltd [2019] NSWSC 1645 at [11]-[20].
12. See [23(10)] above. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 November 2020