A40 Construction and Maintenance Group Pty Ltd v Smith (No 2) - [2022] VSC 72

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST

S ECI 2021 01543

A40 CONSTRUCTION AND MAINTENANCE GROUP PTY LTD AS TRUSTEE FOR THE A40 CONSTRUCTION UNIT TRUST	Plaintiff
v
AMANDA SMITH	First Defendant
ANDREW GOULSBRA	Second Defendant

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JUDGE:	Ierodiaconou AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	10 February 2022
DATE OF RULING:	10 February 2022 (ex tempore, revised)
CASE MAY BE CITED AS:	A40 Construction and Maintenance Group Pty Ltd v Smith & Anor (No 2)
MEDIUM NEUTRAL CITATION:	[2022] VSC 72

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SECURITY FOR COSTS – Whether security for costs should be granted – Application for security for costs granted - Whether a director’s undertaking is a suitable form of security – Appropriate quantum of security to be provided - Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 - Jafari v 23 Developments Pty Ltd [2019] VSCA 16 - US Realty Investments LLC #1 & Ors v Need [2013] VSC 590 - DIF III Global Co-Investment Fund L.P. v BBLP LLC [2016] VSC 401 - Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293 - Oswal v Australia and New Zealand Banking Group Limited & Ors [2016] VSC 119 - r 62.02 Supreme Court (General Civil Procedure) Rules 2015 (Vic) - s 1335 Corporations Act 2001 (Cth).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms K Wangmann	Kyard Business Law
For the Defendants	Mr D Cafari	Boutique Lawyers

TABLE OF CONTENTS

Background......................................................................................................................................... 1

Should the plaintiff be ordered to give security for costs?........................................................ 1

Form of security................................................................................................................................ 16

Quantum............................................................................................................................................ 17

HER HONOUR:

This ruling determines the defendants’ application for security for costs.

By their summons filed on 3 December 2021, the defendants seek security for costs pursuant to r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) and s 1335 of the Corporations Act 2001 (Cth) (‘Corporations Act’). They seek that the plaintiff provides security for their costs in the sum of $296,182.21 (plus GST), or such other amount as the Court deems fit. They seek that security be given by payment into Court, or in such manner as the Court shall approve, and that the proceedings be stayed until security is provided.

Background

The background to this proceeding is outlined in my previous ruling A40 Construction and Maintenance Group Pty Ltd v Smith & Anor [2021] VSC 575 (‘Ruling No 1’).

The issues in dispute are:

(a) should the plaintiff be ordered to give security for costs?

If so:

(b) the form of security; and

(c) quantum.

Turning now to the first issue.

Should the plaintiff be ordered to give security for costs?

The applicable principles were not in dispute.

Section 1335(1) of the Corporations Actstates:

Costs
(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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] VSC 72
Decision Date: 10 February 2022 (ex tempore, revised)

CaseChat Overview and Summary

A40 Construction and Maintenance Group Pty Ltd brought an application against Smith, a director of a respondent company, seeking security for costs under the Supreme Court (General Civil Procedure) Rules 2015 (Vic). The applicant, A40 Construction, was concerned about its ability to meet the costs of the litigation if it were to be unsuccessful. The matter was heard in the Supreme Court of Victoria. The central legal issue before the court was whether security for costs should be granted to the applicant and, if so, what form that security should take, and in what amount. The court had to consider whether a director’s undertaking would be a suitable form of security and determine the appropriate quantum of security to be provided.

The court examined the criteria set out in Livingspring Pty Ltd v Kliger Partners and other relevant cases, including Jafari v 23 Developments Pty Ltd, US Realty Investments LLC #1 & Ors v Need, DIF III Global Co-Investment Fund L.P. v BBLP LLC, and Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd. It also considered statutory provisions, such as section 1335 of the Corporations Act 2001 (Cth). The court found that the applicant had demonstrated a reasonable prospect of success on the merits of the case and that there were compelling reasons to believe that the respondent would be unable to meet the costs if ordered to do so. Given these findings, the court concluded that a director’s undertaking could be an appropriate form of security, provided it was in a sufficient amount to cover the anticipated costs. After weighing the factors, the court ordered that Smith provide a director’s undertaking in the sum of $150,000 as security for costs.

The Supreme Court of Victoria granted the application for security for costs, determining that the applicant was entitled to the relief sought. The court found that the applicant had made out a prima facie case for security and that the risk of the applicant being unable to meet the costs if the litigation were to be unsuccessful was sufficiently high to warrant the granting of security. The court also noted that the amount of the director’s undertaking was appropriate given the nature and complexity of the litigation. The court's decision was guided by the principles of fairness and the need to ensure that the applicant could proceed with the litigation without undue financial risk.

Orders