GMW Urban Pty Ltd v Alexandria Landfill Pty Ltd
[2013] NSWSC 660
•30 May 2013
Supreme Court
New South Wales
Medium Neutral Citation: GMW Urban Pty Ltd v Alexandria Landfill Pty Ltd [2013] NSWSC 660 Hearing dates: 24 May 2013 Decision date: 30 May 2013 Jurisdiction: Equity Division - Technology and Construction List Before: Stevenson J Decision: Plaintiff to provide security for costs in the sum of $400,000
Catchwords: COSTS - security for costs - impecunious plaintiff - discretionary factors - delay - defendant's contribution to plaintiff's impecuniosity - stultification Legislation Cited: Building and Construction Industry Security of Payment Act 1999
Corporations Act 2001 (Cth)
Uniform Civil Procedure Rules 2005Cases Cited: GMW Urban Pty Ltd v Alexandria Landfill Pty Ltd [2012] NSWSC 237
Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744Category: Interlocutory applications Parties: GMW Urban Pty Ltd (plaintiff / first cross-defendant)
Alexandria Landfill Pty Ltd (first defendant / cross claimant)
Westpac Banking Corporation (second defendant)
Jason French (second cross-defendant)
Scott Williams (third cross-defendant)
Brett Beauchamp (fourth cross-defendant)Representation: Counsel:
L Shipway (plaintiff / first cross-defendant)
J Clarke (first defendant / cross-claimant)
Solicitors:
Vincent Young (plaintiff / first cross-defendant)
Esplins Solicitors (first defendant / cross-claimant
File Number(s): SC 2012/50410 Publication restriction: Nil
Judgment
Introduction
This is an application by the first defendant, Alexandria Landfill Pty Ltd ("Alexandria"), that the plaintiff, GMW Urban Pty Ltd ("GMW"), provide security for its costs of the proceedings. Alexandria makes this application under Uniform Civil Procedure Rules 2005 (UCPR) r 42.21 or, alternatively, under s 1335 of the Corporations Act 2001 (Cth).
On 23 December 2009, GMW and Alexandria entered into a construction contract for the design and construction of a waste facility at Eastern Creek ("the Contract").
GMW made a number of progress claims on Alexandria under the Building and Construction Industry Security of Payment Act 1999 ("the Act").
These proceedings are concerned with the claims made between the parties arising out of payment claims 18 and 19 made by GMW on Alexandria on 6 December 2011 and 11 May 2012 respectively. Adjudicators under the Act determined that Alexandria should pay GMW the full amount of payment claim 18 ($807,139.36) and a relatively small proportion of the amount of payment claim 19 ($114,471.73 of an amount claimed of approximately $4.41 million).
The matters now in issue in these proceedings are, in substance, GMW's entitlement under the Contract in respect of the issues which it agitated in payment claims 18 and 19 and Alexandria's entitlement to damages in respect of various complaints it makes about the manner in which GMW performed work under the Contract.
Decision
GMW should provide security for costs in the sum of $400,000.
No dispute concerning the threshold test
The threshold question for me to consider is whether there is credible testimony to establish that GMW will be unable to pay Alexandria's costs of the proceedings if Alexandria is ultimately successful: see, for example, Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [2] and [35].
GMW is the subject of a Deed of Company Arrangement ("DOCA"). GMW accepts that on that basis there is reason to believe that it will be unable to pay Alexandria's costs if ordered to do so.
Discretionary factors
Nonetheless, GMW submits that there are a number of discretionary factors that provide reasons why security should not be granted in this case.
Delay
First, GMW submits that Alexandria has delayed the bringing of these proceedings.
These proceedings were commenced on 22 February 2012 when GMW sought, and obtained, from McDougall J, an order restraining Alexandria from calling on a bank guarantee (see GMW Urban Pty Ltd v Alexandria Landfill Pty Ltd [2012] NSWSC 237).
One effect of McDougall J's orders of 15 March 2012 was that Alexandria was obliged to pay to GMW the amount of the determination in respect of GMW's payment claim 18 ($807,139.36). Alexandria made that payment on 15 March 2012.
Alexandria submits, and I accept, that the consequence of that payment was that its concerns as to GMW's solvency were temporarily allayed.
Between March and April 2012, the parties sought to resolve their disputes. Those efforts were not successful.
During April, July and August 2012, orders were made concerning the progress of pleadings.
On 24 September 2012, voluntary administrators were appointed to the plaintiff.
Mr Shipway, who appeared for GMW, submitted that prior to 24 September 2012, events occurred which should have indicated to Alexandria that GMW was in financial difficulty. Mr Shipway pointed, in particular, to the making by a subcontractor of a withholding request on 19 July 2012.
I have taken these matters into account but have concluded that it was not until the appointment of administrators on 24 September 2012 that Alexandria had reason to be concerned about the solvency of GMW.
Mr Clarke, who appears for Alexandria, has pointed to events following the appointment of administrators and has submitted that those events provide a reasonable explanation for the fact that Alexandria did not make an application for security until 26 March 2013.
On 22 October 2012, the administrators published a report stating that GMW was insolvent, with unsecured creditors' claims totalling approximately $2.2 million.
The proceedings were, by consent, stood over on 26 October 2012 and 16 November 2012 as GMW's solicitor was awaiting further instructions from the administrators.
The second meeting of creditors took place on 29 October 2012 and the DOCA was signed on 16 November 2012.
The DOCA recorded that a funder, Hub Street Equipment Pty Ltd ("Hub"), had agreed to provide funding to GMW to conduct these proceedings.
Under the DOCA, Hub agreed to pay $550,000 on account of GMW's costs of the proceedings together with "[a]ny other costs or expense incurred by [GMW] in respect of the Proceedings".
The DOCA provided that the "Administrators' Fund" (be constituted, primarily, by the proceeds of this litigation) was to be distributed as follows: -
(1) first, to the expenses of the administrators (currently in the order of $200,000);
(2) second, in payment of employee claims (the evidence suggests that there are none outstanding);
(3) third, in payment of the costs of the petitioning creditor ($5000);
(4) fourth, payment to Hub from the "Received Litigation Proceeds" (which includes any costs recovered) of all funding provided by it; and
(5) fifth, payment to Hub of 22.5 per cent of the Received Litigation Proceeds to Hub "as a premium to cover the risk associated with the Funding".
I shall return to Hub's position, and relationship to GMW, later in these reasons.
In correspondence between November 2012 and February 2013, GMW's solicitors indicated that they were awaiting instructions from the administrators as to whether the proceedings were to be continued.
It was not until February 2013 that the administrators made the decision to continue the proceedings.
Shortly thereafter, Alexandria filed its Notice of Motion of 26 March 2013 seeking security for costs.
Those circumstances provide, in my opinion, a reasonable explanation for such delay as has occurred in the bringing of this application.
Alexandria's contribution to GMW's impecuniosity
Mr Shipway points to the statement in the report of the administrators' of 22 October 2012 that the "trigger for [GMW's] insolvency was the non-payment by [Alexandria] and the adverse adjudication result in July 2012".
The administrators were referring to the fact that an adjudicator under the Act determined that, of the amount of approximately $4.41 million claimed by GMW under payment claim 19, only $114,471.73 was payable.
However, the evidence shows that Alexandria has paid to GMW all amounts determined under the Act as payable.
Further, GMW accepts that until September 2012, it had access to sufficient working capital to ensure it was able to meet costs incurred in respect of its projects.
At that time, GMW had unsecured creditor claims in the sum of $2.1 million, which were incurred in circumstances separate from those the subject of GMW's claim against Alexandria in these proceedings.
As Mr Clarke submitted, the only circumstance in which it could be concluded that Alexandria is responsible for GMW's impecunious state is if GMW's claims in these proceedings are ultimately made good. For obvious reasons, that is not a matter I can determine at the moment.
For those reasons, I do not accept Mr Shipway's submission that I should decline security on this basis.
Stultification
GMW submits that, if it is ordered to provide security, there is a "significant risk" that the proceedings will be stultified.
I do not accept that submission for the following reasons.
As Mr Clarke submits, standing behind GMW in these proceedings, is its litigation funder, Hub.
Hub is not a professional, arms-length, litigation funder. It is a company owned and controlled by the owners of GMW itself. The directors of Hub, and of GMW, are a Mr Scott Williams and Mr Robert Matchett. The shareholders of Hub are trustee companies of the family trusts of Mr Williams and Mr Matchett and of Mr Andrew Gifford.
The shareholders of each of Hub and GMW are trustee companies associated with Messrs Williams, Matchett and Gifford. The beneficiaries of those family trusts, and the primary recipients of distributions from those trusts, are Messrs Williams, Matchett and Gifford and members of their families.
It is clear from the terms of the DOCA that Hub stands to benefit, significantly, from these proceedings. If GMW is successful, those who ultimately benefit are those who stand behind Hub, namely Messrs Williams, Matchett and Gifford (or their families). Those same parties stand behind GMW.
There is no evidence that those persons are not able to provide security and none have offered to come out from behind the skirts of GMW, its shareholders or Hub or its shareholders, and accept responsibility for an adverse costs order.
In substance, the proceedings are to be funded by, and for the benefit of, Hub and those who stand behind it (being the same parties who stand behind GMW) without any one of those persons undertaking responsibility for the costs of these proceedings, in the admitted circumstance that GMW itself is unable to meet those costs.
In my opinion, that is a very powerful factor in favour of granting security. It also leads me to conclude that, were security to be offered, these proceedings would not be stultified.
GMW in practical terms a defendant?
Mr Shipway also submitted that GMW should be treated as if it were the defendant, for the purpose of this application.
As I have mentioned (see [11] above) GMW commenced these proceedings with a view to obtaining from McDougall J the order to which I have referred.
However, now that interlocutory matters are resolved, and as I have mentioned at [5] above, GMW is seeking to establish its rights under the Contract; in particular to the amounts underlying payment claims 18 and 19. In substance GMW is the plaintiff.
Quantum of security
Alexandria's solicitor, Mr Rush, has estimated that the likely legal costs of Alexandria in these proceedings will be in the range of $550,000 to $835,000.
GMW's solicitor, Mr Young, has estimated that the more likely range of Alexandria's costs is in the order of $650,000 to $747,000.
Alexandria accepts that there should be a discount in the order of 60 to 75 per cent to reflect the probability that Alexandria, if successful, will be awarded costs on a party/party basis, rather than an indemnity basis.
Mr Shipway produced evidence of an analysis of the fees rendered by Mr Rush's firm to date which is said to show that only 34 per cent of the costs rendered by that firm to 28 February 2013 are referable to the defence of these proceedings (as opposed to defending other proceedings, responding adjudication applications under the Act, pursuing Alexandria's cross claim in these proceedings and advising on general contractual disputes between the parties).
It is not appropriate that I conduct the kind of detailed analysis of the legal costs rendered such as would enable me to form any opinion about this contention. In any event Mr Rush's estimates are directed to the likely legal costs of Alexandria in the proceedings as a whole.
Mr Shipway's analysis of the competing contentions of Mr Rush and Mr Young as to future costs shows that the range is between approximately $287,312 to $393,512.
In those circumstances, I am satisfied that an appropriate amount for security is $400,000.
Conclusion
In those circumstances, I propose to order for security in that amount.
I will hear submissions as to the precise orders I should make.
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Decision last updated: 30 May 2013
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