Vergan Enterprises Pty Ltd v Edwards O Pty Limited

Legislation Cited: Australian Consumer Law, s 18
Civil Procedure Act 2005 (NSW), ss 56-60
Corporations Act 2001 (Cth), s 1335(1)
Uniform Civil Procedure Rules 2005 (NSW), rr42.21(1) and 42.21(1A)
Work Health and Safety Regulations 2011 (NSW)

Cases Cited: BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339
Litmus Australia Pty Ltd (In Liq) v Paul Brian Canty and Ors [2007] NSWSC 670

Category: Procedural rulings

Parties: Vergan Enterprises Pty Ltd (Plaintiff)
Edwards O Pty Limited (First Defendant)
Eric Epsilon Operator Corporation 1 Pty Ltd (Second Defendant)
Eric Epsilon Operator Corporation 2 Pty Ltd (Third Defendant)
Eric Epsilon Operator Corporation 3 Pty Ltd (Fourth Defendant)
Eric Epsilon Operator Corporation 4 Pty Ltd (Fifth Defendant)

Representation: Counsel:
G Campbell (Plaintiff)
A Vial (Defendants)
Solicitors:
Benjamin & Khoury (Plaintiff)
Maddocks Lawyers (Defendants)

File Number(s): 2025/187768

Publication restriction: None

JUDGMENT

1. By a notice of motion filed on 18 July 2025, the defendants seek security for its costs in the amount of $1,057,075 or such other amount as is determined by the Court under s 1335(1) of the Corporations Act 2001 (Cth) or alternatively Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.21(1)(d).

2. It is not suggested that those two provisions raise different considerations. It is convenient in those circumstances to focus on UCPR r 42.21(1)(d).

Background

3. On 24 March 2019, the plaintiff, Vergan Enterprises Pty Ltd (Vergan), and the defendants, who together carry out business in partnership under the name Endeavour Energy Network Operator Partnership (Endeavour Energy), entered into a contract (the Mount Druitt Contract) by which Vergan agreed for a contract price of $739,360.62 to carry out roof refurbishment works at Endeavour Energy’s transmission substation located at Kurrajong Road, St Marys, New South Wales (the Mount Druitt Site). Housed in the substation are cubicles containing high voltage switchgear. As part of the work, Vergan agreed to remove slats from the soffit and paint and reinstall them. The contract was subsequently varied to include the replacement of the soffit slats and mounting brackets. Some of that work was subcontracted to George’s Metal Roofing.

4. As it turns out, not all the cubicles housing the high voltage switchgear were fully enclosed. On 17 May 2019, a serious safety incident occurred when materials fell into a high voltage enclosure while George’s Metal Roofing was carrying out work on the soffits. As a result, Endeavour Energy suspended work on the site and another four of its sites where Vergan was working. It subsequently terminated the Mount Druitt Contract and the contracts relating to the other four sites.

5. Vergan’s claim is complicated. It is not necessary to describe it in detail. Broadly speaking, it has three principal components. First, Vergan claims that Endeavour Energy engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL) because it misled Vergan into believing that all the high voltage equipment was fully enclosed in locked cages whereas in fact that was not the case. Second, it contends that under the terms of the Mount Druitt Contract responsibility for implementing a safe system of work lay with Endeavour Energy. Consequently, it says that Endeavour Energy was not entitled to terminate the Mount Druitt Contract or the contracts relating to the other sites on which Vergan was working. Lastly, Vergan claims that Endeavour Energy engaged in misleading and deceptive conduct by wrongly attributing responsibility for the incident to it when dealing with other potential customers of Vergan, with the result that Vergan has lost a large part of its business.

6. Vergan accepts that Endeavour Energy has established the threshold requirement for an award of security, namely that “[t]here is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendants if ordered to do so” (to use the language of UCPR r 42.21(1)(d)). It also accepts that there is no evidence before the Court that the proceedings would be stultified if security were ordered. However, it advances two discretionary grounds for why security should be refused. One is that it has a strong case. The other is that its impecuniosity arises from Endeavour Energy’s conduct. Both are relevant matters for the Court to take into account in deciding to award security: see UCPR r 42.21(1A)(a), (d). In the alternative, Vergan submits that the amount of security claimed by Endeavour Energy is excessive.

Should security be ordered?

7. In my opinion, this is an appropriate case in which to order security notwithstanding the two discretionary grounds pointed to by Vergan. Vergan accepts that it does not have the resources to meet any costs order against it. It is a proprietary company and it is to be expected that those who stand behind it will benefit directly from any success in the proceedings. However, there is no suggestion that they have agreed to indemnify the company against any costs order against it. Consequently, they stand to benefit from the proceedings without bearing any of the consequences of a loss. In the normal course of events, that provides a strong reason for making an order for security. The two reasons advanced by Vergan for why security should be refused either alone or together do not outweigh those considerations in this case.

8. I accept that on the material before the Court Vergan appears to have a strongly arguable case. However, the proceedings are complicated and are at an early stage. Endeavour Energy has not yet filed its list response let alone served the evidence on which it will rely at trial. A central element of Vergan’s case is that under the Mount Druitt Contract, responsibility for safety issues relating to the work rested with Endeavour Energy. That is said to arise from the fact that it was Endeavour Energy, not Vergan, which was appointed “Principal Contractor” under the contract.

9. Clause 15 of the contract provides:

“Work health and safety management

The Contractor must be committed to creating a safe working environment and to continuous improvement in Work health and safety

1. In carrying out the Works the Contractor is responsible for and must comply with the requirements of the Contract for work health and safety, in addition to the provisions of the Work Health and Safety Act 2011 (NSW) and the Work Health and Safety Regulation 2011 (NSW) applicable to a person conducting a business or undertaking. This includes, without limitation, compliance with the NSW Government ‘Work Health and Safety Management Systems Guidelines’.

2. Unless specified otherwise in Contract Information item 15, the Principal hereby appoints the Contractor as principal contractor for the Works and authorises the Contractor to exercise such management and control of the Site and the Works as is necessary to enable the Contractor to discharge the duties imposed on a principal contractor by the Work Health and Safety Regulations 2011 (NSW). For any period for which Contract Information item 15 indicates that the Contractor is not appointed as principal contractor, the Contractor must execute the deed poll in Schedule 12 in favour of the person stated in Contract Information item 15 to be the principal contractor during that period.

3. Where applicable, as indicated in Contract Information item 16A, at least 14 days before starting Design and construction the Contractor must document, submit and implement a WHS management plan which complies with the Work Health and Safety Regulation 2011 (NSW) and the NSW Government ‘Work Health and Safety Management Systems Guidelines’.

4. The Contractor must systematically manage its work health and safety management process in accordance with the systems, plans, standards and codes specified in the Contract.

5. The Contractor must demonstrate to the Principal, whenever requested, that it has met and is meeting at all times its obligations under clauses 15.1 to 15.4.

6. To the extent not prohibited by law, the Contractor must indemnify the Principal against any damage, expense, loss or liability suffered or incurred by the Principal arising out of or in connection with the failure of any party to exercise or fulfil the functions and obligations of the principal contractor under the Work Health and Safety Regulation 2011 (NSW).”

10. It is plain from item 15 of the “Contract Information” Endeavour Energy was appointed “Principal Contractor” for the purposes of cl 15.2.

11. However, it does not follow that Vergan had no responsibility for safety matters. The extent of its responsibilities depends on the relationship between cl 15.1 and cl 15.2. The effect of cl 15.2 is that Endeavour Energy had the duties imposed on a principal contractor by the Work Health and Safety Regulations 2011 (NSW). But it does not follow from that that Vergan had no responsibilities for safety issues under cl 15.1. Whether it bears responsibility for what happened will depend on the correct construction of cl 15 and factual questions concerning what each of Vergan and Endeavour Energy did and did not do. Those matters cannot and ought not be resolved on an application for security for costs.

12. Moreover, the case involves complicated factual issues concerning what Vergan was told and what it was reasonably entitled to conclude from what it was told. Again, those issues cannot be resolved on an application for security for costs. This is not a case where the likely outcome is reasonably clear. Consequently, Vergan’s prospects of success are of limited relevance to the question of security.

13. As to the question whether Vergan’s impecuniosity has arisen from Endeavour Energy’s conduct, Vergan points to the following information concerning its revenue and profits before and after the incident:

| Year | VE Total Income | VE Profit | | 2024 | $228,998.00 | -$62,282.00 | | 2023 | $716,822.63 | -$53,304.38 | | 2022 | $513,928.55 | -$269,011.24 | | 2021 | $448,229.28 | -$151,051.19 | | 2020 | $1,158,208.20 | -$146,385.72 | | 2019 | $2,320,472.00 | $3,256.00 | | 2018 | $1,458,466.00 | $26,465.00 | | 2017 | $1,706,609.00 | $32,142.00 | | 2016 | $1,739,947.00 | -$76,505.00 | | 2015 | $2,167,631.00 | $73,160.00 | | 2014 | $2,076,365.00 | $76,230.00 | | 2013 | $2,421,412.00 | $453,853.00 | | 2012 | $2,270,691.00 | $446,815.00 | | 2011 | $2,217,236.00 | $398,277.00 | | 2010 | $1,573,805.00 | $118,960.00 | | 2009 | $3,118,159.00 | $691,239.00 | | 2008 | $5,155,585.00 | $1,039,240.00 | | 2007 | $1,897,192.00 | $417,344.00 | | 2006 | $2,672,462.00 | $232,599.00 | | 2005 | $1,581,339.00 | $143,478.00 | | 2004 | $612,314.00 | -$6,664.00 | | 2003 | $803,146.00 | $74,757.00 | | 2002 | $628,401.00 | -$1,130.00 | | 2001 | $569,899.00 | $38,796.00 | | 2000 | $198,167.00 | $42,535.00 |

14. In an affidavit sworn on 28 August 2025, Mr Riccardo Vergan gives evidence of instances of where he has been told by contractors to Endeavour Energy not to subcontract work to Vergan, with the result that Vergan has ceased to receive any work from those contractors and of one instance where Vergan was successful in winning a tender but the work was subsequently withdrawn from it because of what happened at the Mount Druitt Site. Vergan submits that it can be inferred from the information set out in the table above that the very substantial decline in income and profits from 2020 has been caused by the statements made by Endeavour Energy. There are, however, several difficulties with that submission.

15. First, the table indicates that there was a decline in income and profits before the incident on 17 May 2019. Second, it is unclear to what extent the decline in income and profit was caused by the Covid 19 pandemic rather than anything Endeavour Energy did. Third, it is unclear to what extent any decline in income and profit has resulted from the incident itself rather than what Endeavour Energy has said about the incident.

16. It may be accepted that Endeavour Energy’s termination of its contracts with Vergan and what it has said about that has had some impact on Vergan’s ability to get work, and if Endeavour Energy’s termination was wrongful, then it would follow that Endeavour Energy’s conduct has contributed to Vergan’s impecuniosity. However, in circumstances where it is not suggested that that will stultify the proceedings, I do not think that that is enough. As Anderson J said in BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 346 (a decision of the Full Court of the Supreme Court of Western Australia), in a passage cited with approval by White J in Litmus Australia Pty Ltd (In Liq) v Paul Brian Canty and Ors [2007] NSWSC 670 at [33]:

“Anyway I doubt this factor can be taken in isolation. It must be considered together with the assertion that the effect on the plaintiff of an order for security will be to stultify the action. If that will not be or is not shown to be the effect of the order, that is, if other parties who will benefit from the plaintiff's success are financially able to provide the security and it is reasonable that they do so, the fact that the defendant has caused the plaintiff's own impecuniosity will hardly be good reason to decline security.”

Quantum

17. In support of its claim for security, Endeavour Energy relies on affidavit evidence given by its solicitor, Mr Shaun Temby. Mr Temby assumes that he and three solicitors from his firm will work on the matter. Their respective charge-out rates (excluding GST) are $704, $528, $336 and $280. Mr Temby also assumes that Endeavour Energy will brief junior counsel who will charge $3,900 per day plus GST and $390 per hour plus GST and senior counsel who will charge $15,000 per day plus GST and $1,500 per hour plus GST. Mr Temby estimates that the hearing will last eight days and that each party is likely to call four lay witnesses and two expert witnesses, one a forensic accountant and the other an expert on workplace health safety and welfare matters.

18. Mr Temby divides the proceedings into four phases: commencement and initial steps (Phase 1), evidence (Phase 2), discovery (Phase 3), preparing for and attending the hearing (Phase 4). He estimates that solicitor costs for Phase 1 will be $105,720 to $132,150 and disbursements (including counsel fees) will be $50,000. His estimates for Phase 2 are $161,904 to $202,380 for solicitor costs and $140,000 (although he refers to a figure of $50,000 in his affidavit) for disbursements, for Phase 3, $112,400 to $140,500 for solicitor costs and $80,000 for disbursements and for Phase 4, $372,680 to $465,850 for solicitor costs and $340,000 for disbursements. Mr Temby then takes the midpoint of the range for solicitor fees and discounts that by 40% and discounts disbursements by 10% to arrive at a figure for costs that are likely to be recovered on assessment on a party/party basis.

19. Mr Temby gives a breakdown of how the estimates for solicitor costs are calculated. He sets out the tasks he expects each solicitor to undertake and his estimate of the hours that task will take to arrive at his low range estimates. He adds 25% for contingencies to arrive at the high range estimates.

20. In my opinion, three adjustments need to be made to Mr Temby’s figures,

21. First, I do not think it is appropriate for Mr Temby to produce a range for solicitor costs by adding 25% to his initial estimate to allow for contingencies and then to take a midpoint. In effect, Mr Temby is adding 12.5% to his estimate to allow for contingencies. In calculating an appropriate amount for security, it is not appropriate to allow for contingencies. The aim of an order for security for costs is to provide security in an amount that is fair and reasonable having regard to the costs that are likely to be recovered on assessment if the defendants are successful, as well as matters such as the nature of the case and the amount in issue. The starting point for a determination of that amount is the actual expected costs not those costs plus some allowance for contingencies.

22. Second, I do not think any amount should be allowed for discovery. Mr Temby has proceeded on the basis that the Court will order discovery of all documents that are relevant to a fact in issue and that that will, for example, require the electronic records of multiple employees to be searched. That is not correct. Discovery will only be ordered to the extent that it is necessary to resolve the real issues in the proceedings. Having regard to the nature of the case, it is not clear to me that any discovery will be necessary and, if it is, it is likely to be very limited.

23. Third, although I think it is appropriate to allow for senior counsel fees, the amount that has been allowed ($15,000 per day) seems excessive having regard to the nature of the matter.

24. The determination of an appropriate amount of security is not a precise calculation. It depends on an estimate of likely costs at an early stage of proceedings. Moreover, as I have said, it also depends on an assessment of what is fair and reasonable having regard to the nature of the case and the amount in issue. In some cases, it may be appropriate only to order security up to a particular stage or to leave it open to the defendants to make further applications for security if the amount initially fixed by the Court is inadequate. However, that is not this case. Here, it seems to me desirable that each party should know the amount of security that is to be provided. That will assist those behind the plaintiff in determining what they should do. It will encourage the defendants to consider what costs really need to be incurred to defend the claim properly and consistently with its obligations under ss 56 to 60 of the Civil Procedure Act 2005 (NSW).

25. Taking those matters into account, I have concluded that the appropriate amount of security is $750,000, which should be provided in three tranches each of $250,000. The first tranche should be provided within 21 days. The second should be provided within 21 days after the matter has been set down for a final hearing. The third should be provided at least 28 days before the date of the final hearing.

26. The defendants have been largely successful in its application. There is no reason in those circumstances why the plaintiff should not pay its costs of the application.

Orders

27. Accordingly, the orders of the Court are:

28. The plaintiff provide security for the defendants’ costs in the amount of $750,000 to be provided in the following tranches:

(a) $250,000 within 21 days of today’s date; (b) $250,000 within 21 days after the matter is fixed for final hearing; (c) $250,000 no later than 28 days before the commencement of the final hearing.

2. The security be provided in a form that is agreed between the plaintiff and the defendants or, in the absence of agreement, by the payment of the amount of the security into court.
3. The proceedings be stayed if security is not provided in accordance with order (1).
4. The plaintiff pay the defendants’ costs of the notice of motion filed on 18 July 2025.
5. Stand the matter over for directions on 31 October 2025.

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Amendments

14 October 2025

Errors on coversheet - representation amended, legislation cited "Australian Consumer Law corrected from s 21 to s 18; same correction in [5]