Gratrax Pty Ltd v TD & C Pty Ltd

[2010] QDC 409

[2010] QDC 409

DISTRICT COURT

CIVIL JURISDICTION

JUDGE ROBIN QC

No 3774 of 2009

GRATRAX PTY LTD	Plaintiff
and
TD & C PTY LTD	Defendant

BRISBANE

..DATE 26/10/2010

JUDGMENT

CATCHWORDS

Uniform Civil Procedure Rules, r 670, r 671

Security for costs ordered where "$2 company" with exemplary record in paying its trade creditors refuses to disclose its balance sheet - principal of plaintiff company rejects proposal to provide a personal undertaking to pay costs - claim in essence of professional negligence against a company not in Queensland

HIS HONOUR:  This is an application for security for costs by
the defendant, which is a Victorian company of engineers
brought in to assist the plaintiff in production of
engineering drawings to lead to the construction of roadworks
in the Gold Coast when the local engineer who had previously
been engaged left his employment.

The claim is, essentially, in the nature of professional
negligence, the complaint being that when the road came to be
constructed, Council inspections led to the discovery, as the
plaintiff has it, that the plans used for construction were
inadequate and in apparently important respects, such as the
qualities of materials used and the thickness of one or more
layers of the road tarmac.

The damages sought are in the amount of $108,737.75, which
looms very large when measured against the defendant's charges, also large when measured with $70,000, which is
the quantum of security for costs which it is asked be ordered
under rules 670 of the UCPR and following.

The defendant is mounting vigorous resistance to the claim.
Among the circumstances mentioned in the hearing today include
that the defendant's drawings were clearly marked as not
construction drawings.  There is a good deal of complexity
about the case which may be added to if pleadings are changed,
as has been foreshadowed, and particulars are sought.

There is a good deal of murkiness, it seems to me, in
identifying what the defendant's brief was and how its work
fitted in, or didn't fit in, as the case may be, with what had
been done in Queensland.

The respondent/plaintiff submits that a case hasn't been shown
under rule 671.

The defendant's material included an assertion relevant to
what paragraph (b) of the rule covers, that the plaintiff
company was really suing for the benefit of Mr Haggar, that's
effectively its principal, although it may be that his spouse
or partner is the director, based on assertions in solicitors'
correspondence before action, which was in terms that
Mr Haggar had suffered loss, was forced to take certain
courses and the like.

Mr Meredith has asserted that, from previous dealings, the
defendant knew that it was dealing with a company.  I am not
suggesting for a moment that this is one of those
it-wasn't-me-it-was-the-company situations.  Mr Meredith was,
I assume, correct in saying that plans the defendant produced
show the plaintiff as the client rather than Mr Haggar.

In my opinion, the case does come under paragraph (a) of rule
671.  There is reason to believe the plaintiff will not be
able to pay the defendant's costs if ordered to pay them.

Mr Haggar asserts, and for present purposes it has to be

accepted, that the plaintiff has an excellent record in paying
its creditors, including the defendant.  Arrangements with its
bankers, who have a general charge over assets, are in order
and there may, indeed, be nothing owing.  That a company pays its suppliers and general creditors in the course of its business does not mean it will necessarily be willing and able to pay costs from which it gets no advantage.

What gives pause is the plaintiff's coyness in revealing the
state of its balance sheet.  No financial documents have been
filed in recent years, whereas they used to be in the past.
It is not suggested that that indicates the company has
encountered difficult times.  Mr Haggar candidly explains the
plaintiff's coyness about its assets in terms of its wishing
to preserve the privacy which a "private company" is entitled
to.  That means that the defendant and the court lack the
comfort that a healthy balance sheet might provide.

A straw in the wind is the awaited reaction of Mr Haggar, who
has been approached through the day with a view to his giving
instructions to provide a document to the court taking
personal responsibility for costs which the defendant might
obtain against the plaintiff in this proceeding if the
plaintiff doesn't pay them.

The court at the beginning of the hearing had indicated
preparedness to resolve the application by accepting such an
undertaking from Mr Haggar.  I was not inclined to accede to
Mr Keane's suggestion that there ought to be a joint
undertaking involving his partner as well.  It seems to me,
speaking generally, that in circumstances like this, the court
is, in the usual case, prepared to accept a costs context in
which there is an individual potentially liable rather than a
$2 company, as the plaintiff as a matter of record is.

Accepting an individual’s undertaking is, it seems to me, likely to be attractive to a plaintiff company which is spared the onerous obligation of having to find or make arrangements for security in a substantial sum, one which as noted looms large when compared with the sum sued for.

I propose, against the possibility that Mr Haggar might have
second thoughts, to include in the order to be made a
possibility that his personal undertaking may stand as
security.

There is an issue as to the amount of security between
Mr Scott, the plaintiff's solicitor, and the defendant's
solicitors, who have given, in general terms, not backed up by
any kind of itemisation, a range of $60,000 to $80,000.  They have come down in the middle.  Mr Scott's estimate for costs was $25,000 to $30,000.  A later deponent from the firm
representing the defendant, Ms Yates, in my judgment makes
some good points in defence of the estimate of her
predecessor, including that "whilst the quantum of the claim
may be modest, the subject matter of the proceedings is
technical and complex."

There is also the circumstance that the defendant has a
Victorian domicile and Victorian personnel who will be obliged
to visit Queensland, not only for the trial but very likely
for other purposes, such as participation in ADR or giving
instructions.  It is not clear to me that Mr Scott has allowed
anything on that account.

The Yates affidavit assists in identifying standard costs
incurred by the defendant to date in the vicinity of $15,000.
That is accepted to form part of the $60,000 to $80,000 estimated.

Mr Keane, for the applicant/defendant, concedes there is an
issue as to whether or not security ought to be given to cover
costs already incurred.

It is well known that in this area of jurisprudence, a
defendant who delays applying may face adverse consequences,
even failure of the application.  The application here is
made soon after the close of pleadings.  While I'm not
critical of the defendant for the timing of its application,
the fact is that it could have been made sooner than it was,
placing the plaintiff on notice.

One aspect of Ms Yates' affidavit I ought to have mentioned is
the engagement of experts, which she anticipates - and I think
correctly describes as costly.  She says she anticipates
expert fees in the vicinity of $12,000 to $20,000.

In my opinion, the court ought to proceed on a conservative
basis here, which I think involves some recognition of the
defendant's difficulties arising from its being headquartered
in Victoria.   I think the court ought to take the bottom
figure in the defendant's range and also exclude from it the
costs incurred to date.

The consequence is that the court will make an order along the
lines of what the application seeks for provision by the
plaintiff of security for the defendant's costs pursuant to
rule 670 in the sum of $45,000.  That security is to be given
by way of payment into court or in some other way approved by
the Registrar.

The security is to be paid within 28 days of the Court's order, failing which the plaintiff's claim against the defendant is stayed.

The defendant is to have liberty to apply for further security
when its costs assessed on a standard basis have exceeded or
will exceed the security given under the above arrangements.

The stay will not apply and the security arrangements above
will not apply if there is filed in the court a signed
undertaking of Graeme Charles Haggar to pay costs which the
plaintiff may be ordered but fail to pay to the defendant in
this proceeding.

In the discussion this morning, it was indicated, and I understood the parties to accept, that costs of the application ought to be costs in the cause.

MR KEANE:  I think that's right.  I have a draft order that
covers everything except that last order that you made.

HIS HONOUR:   It will be orders as per initialled draft.

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