Eko Investments Pty Limited v Austruc Constructions Limited

[2007] NSWSC 539

CITATION:	Eko Investments Pty Limited v Austruc Constructions Limited [2007] NSWSC 539
HEARING DATE(S):	25/05/07
JUDGMENT DATE :	29 May 2007
JURISDICTION:	Equity Division Technology and Construction List
JUDGMENT OF:	Einstein J
DECISION:	Additional security ordered
CATCHWORDS:	Security for costs
CASES CITED:	Rosenfield Nominees Pty Limited & Anor v Bain & Co & Ors (1988) 14 ACLR 467
PARTIES:	Eko Investments Pty Limited (Plaintiff) Austruc Constructions Limited (Defendant)
FILE NUMBER(S):	SC 55047/03
COUNSEL:	Mr Galvin (Plaintiff) Ms White (Defendant)
SOLICITORS:	Stacks Forster (Plaintiff) Doyles Construction Lawyer (Defendant)

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

Einstein J

Tuesday 29 May 2007

55047/03 Eko Investments Pty Limited v Austruc Constructions Limited

JUDGMENT

The application for further security for costs

1 In January 2005 the plaintiff by bank guarantee in favour of the first defendant provided the sum of $296,670 as security for the first defendant's costs.

2 There is before the court an application by the first defendant for an additional security for costs amount in the sum of $200,000 to be provided by the plaintiff.

The dispute

3 The dispute between the plaintiff and the first defendant involves the rectification of defects consequent upon the execution of a Building Contract between the first defendant and the plaintiff in August 1999. The first defendant was apparently the head contractor. That contract involved the construction of 32 residential units at 46 Denning Street, The Entrance. At the time the plaintiff, by its former name entered into the building contract, the contract sum agreed upon having apparently been $5,668,000. Upon completion of the units by the first defendant, the plaintiff claims to have discovered certain substantial defects. To date the first defendant has apparently refused to rectify such defects. Accordingly the plaintiff claims the cost of rectification of the defects together with relocation costs of tenants residing in the building.

4 Apparently the units have been purchased by lot owners in an Owners Corporation who have brought concurrent proceedings in relation to alleged defects in the building.

5 The dispute between the plaintiff and the second defendant arises from the obligations of the second defendant pursuant to its retainer as a professional architect and pursuant to its alleged breaches of its duty of care said to be owed to the plaintiff. The second defendant was the architect contracted to design plans and specifications for the building having also been appointed under the building contract as the architect.

6 The dispute between the plaintiff and the third defendant arises from obligations of the third defendant pursuant to its retainer as a professional engineer and pursuant to its alleged breaches of duty of care also owed to the plaintiff. The third defendant was the consultant engineer appointed to carry out the structural design of the building.

7 Other cross-defendants include window installers or suppliers and ceiling installers.

8 There is no doubt but that the hearing of the proceedings will be complex and that considerable sums will be expended by the respective parties in pursuing their own claims and in defending themselves from cross claims.

9 The first defendant has identified its estimate of costs as at 27 April 2007 in the following terms:

preparation of defence and cross claims $ 30,000
provision of particulars $ 50,000
directions hearing and any other interlocutory proceedings $130,000
preparation of evidence including experts $130,000
discovery $ 40,000
counsels fees $120,000
hearing on an estimate of one month $ 92,800
disbursements $ 25,000
Total $617,800

10 The proposition put forward by the plaintiff is that there should be no further security for costs orders at all. The plaintiff takes its stand upon the propositions that:

i. by reason of the state of the matter and the considerable amount of work carried out by all parties in relation to the matter, it is simply inappropriate at this point in time for the Court to visit upon the plaintiff yet a further impost over and beyond the orders already made for the plaintiff to put up security for costs for a number of defendants;

ii. the financial information concerning the plaintiff now placed before the court by both parties, should clearly suffice to satisfy the court that in the event that the first defendant succeeds in the litigation, the plaintiff will be in a position to discharge any orders to costs made in favour of the first defendant.

11 Both parties have addressed in relation to the plaintiff's current position as exposed by such evidence as is before the court. The evidence reveals the plaintiff as having a total of $4 in issued capital. The evidence discloses that the assets currently owned by the plaintiff are as follows:

i. a unit at The Entrance, Wyong [there is a caveat over this property securing a mortgage to Green Earth Enterprises Ltd in the sum of $750,000 together with interest. There is no direct evidence as to the value of this unit. However the financial statements before the Court referred to hereunder suggest that the unit is worth $461,653.40];

ii. a leasehold property situated in Lime Street Darling Harbour which is the subject of a sublease. [The financial statements to which reference will be made below suggest that this property is worth about $1.8 million although there is evidence that an offer has been made for the property of over $2 million. The certificate of title refers to the leasehold estate and to the sublease and to a restriction on the use of the land under a section 88B Instrument].

12 Mr Kirk, a director and shareholder of the plaintiff, has appended to his affidavit of 23 May 2007 a copy of the financial statements of the plaintiff for the year ended 30 June 2006 by reference to which he has contended that the combined value of the freehold land owned by the plaintiff is $2,406,199.85 and the total assets $6,666,445.22. He has further deposed that the plaintiff is a profitable company and has net assets of $466,369.17 and revenue of $274,501.

13 He has deposed that the plaintiff would be in a position to meet an adverse costs award in the event that such order was made, either by access to its capital reserve, sale of properties or raising funds. He has also deposed that an expression of interest was recently made for the purchase of the Lime Street property in the sum of $2,335,000 and that as the property is recorded at its historical cost in the financial statements, it is worth considerably more on sale.

14 Plainly enough an expression of interest is no more than that. Little weight can be given to such evidence.

15 It is important to note, as Mr White appearing for the first defendant has observed, that one only gets to the net asset position disclosed in the financial statements [of approximately $466,000] because there are included in the current assets "receivables" of $4,172,278.27 in respect of which Note 6 states that these are all receivables from "related parties". It seems plain enough that the Court could not be satisfied that receivables of this order due from related parties would be available to the plaintiff in the event of an adverse finding requiring the plaintiff to pay the first defendant's costs of the proceedings. So much may be gleaned from the approach taken by Giles J in RosenfieldNominees Pty Limited & Anor v Bain & Co & Ors (1988) 14 ACLR 467.

16 Further although Mr Kirk has deposed that the total revenue in the financial year to 30 June 2006 was $274,501, which does appear from Note 2 in the notes to the financial statements, the actual operating profit after income tax appears to have been $67,448.54.

17 Also of some significance is the fact that the lease of Lime Street includes a right of first refusal given to the sublessee which appears to place considerable restraint upon the entitlement to sell.

Decision

18 In my view the principled exercise of the relevant discretion is to order that the plaintiff provide an additional security for costs amount in the sum of $140,000. There is always a necessity to discount for exigencies. There is also to be taken into account the considerable distance which the proceedings have advanced.