Goldblaze Nominees Pty Ltd v Hha Architects Pty Ltd - [2020] WASC 139

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
CITATION:   GOLDBLAZE NOMINEES PTY LTD -v- HHA ARCHITECTS PTY LTD [2020] WASC 139
CORAM:   MASTER SANDERSON
HEARD:   ON THE PAPERS
DELIVERED          :   6 MAY 2020
PUBLISHED           :   6 MAY 2020
FILE NO/S:   CIV 1102 of 2019
BETWEEN:   GOLDBLAZE NOMINEES PTY LTD
First Plaintiff

NORMAN PHILLIP CAREY
Second Plaintiff

AND

HHA ARCHITECTS PTY LTD
First Defendant

BRETT CHARLES ANTHONY
Second Defendant

Catchwords:

Costs - No determination of merits of application - Turns on own facts

Legislation:

Corporation Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)

Result:

Costs of the application be in the cause

Category: B

Representation:

Counsel:

First Plaintiff	:	No appearance
Second Plaintiff	:	No appearance
First Defendant	:	No appearance
Second Defendant	:	No appearance

Solicitors:

First Plaintiff	:	Mony De Kerloy
Second Plaintiff	:	Mony De Kerloy
First Defendant	:	DLA Piper Australia - Perth
Second Defendant	:	Clyde & Co (Perth Office)

Case(s) referred to in decision(s):

Nil

MASTER SANDERSON:

On 18 December 2019 the first defendant issued a chamber summons seeking an order the plaintiffs give security for the first defendant's costs in the sum of $249,300. Although the chamber summons does not indicate the basis upon which these orders were sought (and there is no reason why it needed to do so) it is reasonable to assume the application against the first plaintiff was based upon s 1335 of the Corporations Act 2001 (Cth) and the application against the second plaintiff was brought under O 25 of the Rules of the Supreme Court 1971 (WA) (RSC). It is important this jurisdictional difference be noted.
The security for costs issue has been settled between the parties. These reasons deal with the issue of the costs of the application.
The application was supported by an affidavit of Richard Fairley Frederick Edwards sworn 18 December 2019. Mr Edwards is the solicitor for the first defendant. In par 8 of his affidavit Mr Edwards sets out the nature of the dispute between the plaintiffs and the first defendant. At par 10 of his affidavit Mr Edwards sets out the basis of the first defendant's defence. As these two paragraphs present a fair representation of the basis of the dispute I will quote them in full:
8.In the statement of claim, the Plaintiffs alleged as against HHA that:
8.1on 20 August 2014, the Second Plaintiff (Mr Carey) and HHA entered into an agreement, pursuant to which HHA agreed to provide architectural services on certain allege terms (express and implied). The architectural services were to design three houses for a particular property: (Statement of Claim [11] - [13].
8.2HHA owed a duty of care to Mr Carey: Statement of Claim [16].
8.3HHA undertook the architectural services, and prepared designs for three houses: Statement of Claim [18].
8.4The three house designs prepared by HHA could not be lawfully constructed on the property by reason of the operation of s 90 of the Water Services Act 2012 (WA): Statement of Claim [23].
8.5HHA was in breach of its agreement with Mr Carey, and in breach of its duty of care, because the design of the three houses did not comply with s 90 of the Water Services Act 2012 [sic] (WA): Statement of Claim [37], [38].
8.6As a consequence of HHA's breach of the agreement with Mr Carey, the First Defendant (Goldblaze) was delayed in respect of the development of the property for a period of about 10 months: Statement of Claim [39].
8.7By reason of HHA's breach of the agreement with Mr Carey, Goldblaze claimed damages, which included holdings costs, lost opportunity and loss of use of money: Statement of Claim [40].
8.8By reason of HHA's breach of the agreement with Mr Carey, Mr Carey claimed damages which amounted to wasted fees for professional services, including the services of HHA: Statement of Claim [40].
...
10.On 13 October 2017, HHA filed its defence. Broadly:
10.1HHA admitted that it entered into an agreement with Mr Carey for the provision of services, but disputed the alleged terms of that agreement and in particular the nature of the services that HHA was engaged by Mr Carey to provide: Defence [11].
10.2HHA disputed the Plaintiffs' allegations concerning HHA's liability and responsibility in respect of the Water Services Act 2012 [sic] (WA), and the operation of that Act.
10.3In respect of the Plaintiffs' claims of causation and loss, HHA pleaded that it had not entered into a contract with Goldblaze, and did not owe Goldblaze (with whom it had no relationship) a duty of care: Defence [40.2].
On 28 October 2018 the plaintiffs filed an amended statement of claim. Where previously the plaintiffs had alleged that the second defendant entered into an agreement with the first defendant, the amended statement of claim alleged that it was the first plaintiff that entered into the agreement with the first defendant. Where previously it was alleged the first defendant owed a duty of care to the second defendant, it was then pleaded that the first defendant owed a duty of care to the first plaintiff.[1] That effectively means it was only the first plaintiff that sought relief against the first defendant.[2] The second plaintiff did not seek any relief at all. The particulars to the amended statement of claim quantified the first plaintiff's loss as just over $3.2 million.[3] In broad terms, by its amended defence the first defendant denied it owed any duty of care to the first plaintiff and, further, if such duty was owed, it was not breached.[4]
[1] Affidavit of Richard Fairley Frederick Edwards sworn 18 December 2019 [12].
[2] Affidavit of Richard Fairley Frederick Edwards sworn 18 December 2019 [14].
[3] Affidavit of Richard Fairley Frederick Edwards sworn 18 December 2019 [15].
[4] Affidavit of Richard Fairley Frederick Edwards sworn 18 December 2019 [16].
Given the size of the claim, on 24 December 2018 the matter was remitted to this court. On 21 February 2019 the first defendant sought security for costs.[5] The time line then can be summarised as follows. The action was commenced on 10 July 2017 in the District Court. A statement of claim was endorsed on the writ. The first defendant's defence was was filed on 13 October 2017 and in October 2018 the statement of claim was substantially amended. The matter was transferred to this court on 24 December 2018 and the request for security for costs was first raised by the first defendant on 21 February 2019.
[5] Affidavit of Richard Fairley Frederick Edwards sworn 18 December 2019 [18].
It is important to remember when dealing with the question of costs in circumstances such as these, there has been no adjudication on the merits of the claim. However, in his written submissions counsel for the plaintiffs submits the delay in bringing the application for security provided a significant impediment to any order being granted.[6] One of the factors to be considered when determining whether security ought be granted is the timeliness of the bringing of any application. It may well be the case that the first defendant should have brought an application almost as soon as an appearance was filed. On the other hand, it was not until the amended statement of claim was filed that the first defendant was fully appraised of the nature of the claim it had to meet. The strength or otherwise of the plaintiff's claim is always a factor in determining whether or not an application for security ought be brought. It is arguable the first defendant was not in a position to decide whether or not an application for security ought be made until the statement of claim was settled. This can be illustrated by reference to the second plaintiff. As he is not claiming any relief in the proceedings, it is somewhat difficult to see why he should be a party to the action. In any event, if he is personally taking no real part in the proceedings, it is hard to see why any order for security should be made against him. In other words, it is arguable the first defendant acted prudently in not rushing to seek an order for security. But even if that assessment is too generous to the first defendant, the fact of the delay is, in my view, unlikely to have been in and of itself determinative of the application. Insofar as it is a factor, it can be seen as marginally against the interests of the first defendant.
[6] Plaintiffs' submissions filed 26 March 2020 [4].
Between March 2019 and July 2019 the solicitors for the parties corresponded on the question of security for costs. The relevant letters appear as attachments RFE2 through to RFE9 of Mr Edwards' affidavit. Without going to the correspondence in detail, it is sufficient if I say no agreement could be reached. The final position of the plaintiffs was their solicitors had significant funds in their trust account more than covering any likely order for costs.
On 27 February 2018 the plaintiffs provided discovery. Using documents discovered and documents publicly available from the Australian Securities and Investments Commission and the Australian Personal Property Securities Register, Mr Edwards was able to put together a picture of the financial position of the first plaintiff. The end result is set out in a diagram found as attachment RFE23 to Mr Edwards' affidavit. It shows the first plaintiff is part of a complex web of interrelated companies. Although Mr Edwards' affidavit never actually says as much, the clear implication is that because of the sheer complexity of the corporate structure in and around the plaintiffs, there is reason to believe the first plaintiff would not be able to meet any adverse costs order made against it.
In response to the first defendant's application, the second plaintiff swore an affidavit dated 4 February 2020. The second plaintiff notes that as at March 2019 following the first defendant raising the issue of security for costs the plaintiffs' solicitors held more than $4,500,000 in their trust account.[7] The second plaintiff goes on to say the first plaintiff had net assets of $3,362,124.35. The second plaintiff also notes that the first defendant 'has considerable assets, a pipeline of development and substantial profit and cash flow in the near to mid future'.[8] On that basis, the second plaintiff asserts the first plaintiff would be able to meet any adverse costs orders from its assets and anticipated cash flows.
[7] Affidavit of Norman Phillip Carey sworn 4 February 2020 [8].
[8] Affidavit of Norman Phillip Carey sworn 4 February 2020 [23].
In his written submissions counsel for the plaintiffs maintained that it was only when the first defendant realised that it could not obtain an order for security for costs it agreed to the application being dismissed. In fact, the agreement was reached after the second defendant undertook to be personally liable to pay any adverse costs order. As counsel notes, this was done without the provision of any security and it was an offer made in an effort to resolve the matter. It is the first defendant's position that it has in large measure achieved the aim of the application by obtaining the undertaking from Mr Carey.
As I have indicated above, given there has been no determination of this application, it is not appropriate to discuss in detail the merits. But a number of points are worthy of note. First, it is difficult to see how the first defendant could have obtained an order for security for costs against the second plaintiff. Mr Edwards' affidavit appears to be directed at showing the second plaintiff did not have assets that would allow him to meet any adverse costs order. Even assuming the second plaintiff is impecunious (and I am making no finding to that effect) that would not provide a basis for the making of an order for security for costs. The second plaintiff does not fall into any of the other categories referred to in O 25 of the RSC. It must be open to question then whether or not the first defendant could have obtained an order for security for costs against the second plaintiff.
So far as the first plaintiff is concerned, the matter is less clear. The fact the plaintiffs' solicitors have presently in their trust account an amount which would satisfy any costs order must be seen as of little relevance. There was no undertaking to maintain an account balance which would cover the first defendant's anticipated costs. But even if such an undertaking had been given, acting on that undertaking after trial presents difficulties. It is not uncommon in applications for security for costs for there to be an order for funds to be held in a joint account between the plaintiffs' solicitors and the defendants' solicitors, such funds to be available to meet an order for costs should one be made. But that was not what was proposed by the plaintiffs in this case.
Moreover, given the complex corporate structure in which the first plaintiff was involved, it is arguable that although its assets may exceed its liabilities those assets are not easily realised and real doubts about future trading activities a court may have come to the conclusion the first plaintiff would not have been able to meet a costs order after trial. If that point was reached, then consideration would need to be given to the discretionary factors which are considered once jurisdiction is enlivened. The fact that the second plaintiff, who presumably is the ultimate beneficiary of the outcome of the litigation, agreed to provide a personal undertaking with respect to costs would doubtless be a factor in the exercise of the discretion. In fact, it may have been decisive. Given the arguments about the financial position of the second plaintiff, that is by no means certain.
In all the circumstances, I am not satisfied the position is clear one way or the other. On the one hand, the first defendant had reasonable arguments in favour of an order being made under s 1335 of the Corporations Act. It cannot be said, looking at the correspondence passing between the solicitors, the application was hopeless. On the other hand, it is difficult to see how the application for security against the second plaintiff could ever have succeeded. It is arguable the threshold question may not have been resolved in the first defendant's favour - that is to say, based upon the evidence as to the financial position of the first plaintiff, it is possible there may have been a finding it would be in a position to meet any adverse costs order. If the matter came down to an exercise of discretion, the fact of the undertaking by the second plaintiff was highly relevant. I am not satisfied the plaintiffs' argument the delay in bringing the application would have been any more than a factor marginally against the granting of security.
In the end, I am satisfied the appropriate order ought be that the costs of the application for security be in the cause. If the plaintiffs succeed in the action, then they will have their costs of the application. So too the defendants. In each case, it can perhaps be said the merits of the action overall have determined the merits of the security for costs application. In a matter as complex as this, where there has been no final adjudication of the application itself, such an order seems to me to be the fairest result.
Accordingly, the order will be that the costs of the application for security for costs, including any reserved costs, be costs in the cause.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
IW
Associate to Master Sanderson
6 MAY 2020