Grocon Group Holdings Pty Limited v Infrastructure NSW

[2020] NSWSC 1194

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Grocon Group Holdings Pty Limited v Infrastructure NSW [2020] NSWSC 1194

Hearing dates:

27 August 2020

Date of orders:

4 September 2020

Decision date:

04 September 2020

Jurisdiction:

Equity - Commercial List

Before:

Henry J

Decision:

Security for costs ordered and suppression order made. See paragraph [169].

Catchwords:

COSTS – security for costs – whether sufficient reason to believe plaintiffs’ will be unable to pay defendant’s costs – whether defendant’s conduct materially contributed to plaintiffs’ financial position – whether proceedings would be stultified if an order for security was made – whether proceedings involve a matter of public importance – security for costs ordered – security for costs payable in tranches

CIVIL PROCEDURE – Hearings – Suppression and non-publication order – where plaintiffs sought suppression order over unaudited management accounts – whether suppression order necessary to prevent prejudice to the proper administration of justice – whether suppression order necessary in the public interest – suppression order granted

Legislation Cited:

Corporations Act 2001 (Cth), s 1335

Court Suppression and Non-publication Orders Act 2010 (NSW), ss 7, 8

Uniform Civil Procedure Rules 2005 (NSW), r 42.21(1A)(d)(f)(g)

Cases Cited:

Adelaide (SA Pools and Spa) Manufacturing and Installation Pty Limited v Westcourt General Insurance Brokers Pty Limited [2016] SASC 60

All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840

Ariss v Express Interiors Pty Limited (In Liq) [1996] 2 VR 507

Beach Petroleum NL v Johnson (1992) 7 ACSR 203

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1

Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65

Crown Sydney Property v Barangaroo Delivery Authority; Lendlease (Millers Point) v Barangaroo Delivery Authority [2018] NSWSC 1931

DRJ v Commissioner of Victims Rights [2020] NSWCA 136

Duke Holdings Limited (In Liq) v Duke Group Limited (In Liq) [2009] SASC 245

Fat-sel Pty Ltd v Brambles Holdings Ltd (1985) ATPR 40-544

Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664

Hardingham v RP Data Pty Limited [2020] FCA 1062

Hogan v Australian Crime Commission (2010) 240 CLR 651; [2010] HCA 21

In Re Pioneer Energy Holdings Pty Limited [2013] NSWSC 1366

Jazabas Pty Ltd v Haddad [2007] NSWCA 291

John Fairfax Group Pty Ltd v Local Court of New South Wales (1991) 26 NSWLR 131

KDL Building Pty Ltd v Mount [2006] NSWSC 474

KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189

Li v State of New South Wales [2013] NSWCA 165

Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302

LRSM Enterprise Pty Ltd v Zurich Australian Insurance Limited [2014] NSWCA 88

MHG Plastic Industries Pty Ltd v Quality Assurance Services Pty Ltd [2002] FCA 821

Nonox Australia v Certain Underwriters at Lloyds Subscribing to Contract No CV0263CGL [2014] NSWSC 221

Pioneer Park Pty Limited (In Liq) v Australian and New Zealand Banking Group Limited [2007] NSWCA 344

Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611

Rinehart v Welker (2011) 93 NSWLR 311; [2011] NSWCA 403

Welker v Rinehart [2011] NSWSC 1094

Wilson v Basson [2020] NSWSC 512

Wollongong City Council v Legal Business Centre Pty Limited [2012] NSWCA 245

Wollongong Coal Limited v Gujarat NRE Properties Pty Limited [2019] NSWSC 187

Wright Prospecting Pty Ltd v Hamersley Iron Pty Ltd (No 3) [2013] NSWSC 1069

Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542

Texts Cited:

G E Dal Pont, Law of Costs (4th ed, 2018, LexisNexis Butterworths)

Category:

Procedural and other rulings

Parties:

Grocon Group Holdings Pty Limited (First Plaintiff)
Grocon (CB) Developments Pty Limited (Second Plaintiff)
Grocon Developments Group Pty Limited (Third Plaintiff)

Infrastructure NSW (Defendant)

Representation:

Counsel:
D Studdy SC with J Buncle (Plaintiffs)
D Barnett (Defendant)

Solicitors:
Quinn Emanuel Urquhart & Sullivan (Plaintiffs)
Corrs Chambers Westgarth (Defendant)

File Number(s):

2020/37937

Publication restriction:

Pursuant to Order 5 of Henry J made on 4 September 2020, parts of this judgment have been redacted for publication.

Judgment

1. These reasons deal with a notice of motion filed by the defendant, Infrastructure NSW (INSW), seeking security for its costs from the plaintiffs Grocon Group Holdings Pty Ltd (Grocon Holdings), Grocon (CB) Developments Pty Ltd (Grocon CB) and Grocon Developments Group Pty Ltd (Grocon Developments) (together Grocon).

2. They also deal with Grocon’s application for a suppression order under s 7 of the Court Suppression and Non-publication Orders Act 2010 (NSW) (Suppression Act) over documents which they claim are confidential and were relied on at the hearing of INSW’s motion for security.

3. The applications are brought in proceedings which arise out of the tender process and dealings between Grocon and INSW concerning the development of Central Barangaroo. Grocon makes claims against INSW for misleading and deceptive conduct, estoppel and breaches of contract and seeks damages and equitable compensation which is particularised to be as much as $269.7 million.

4. INSW seeks security of $1,018,395.84 pursuant to r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) or s 1335 of the Corporations Act 2001 (Cth) (Corporations Act). The application is opposed by Grocon primarily on the grounds that, if impecunious, INSW’s conduct that led to these proceedings materially contributed to Grocon’s financial position and that to order security would stultify the proceedings.

5. For the reasons that follow, I have concluded that Grocon should provide security for INSW’s costs in the amount of $1 million by way of two tranches up to the conclusion of expert evidence and mediation.

6. I have also concluded that a suppression order should be made over some confidential financial information relating to Grocon. Information that is the subject of the suppression order will be redacted from the public version of this judgment (as published on NSW Caselaw) but forms part of the version made available to the parties.

Background and claims in the proceedings

7. The following is a summary of facts that do not appear to be in dispute and of the claims made by Grocon in these proceedings. They are taken from Grocon’s commercial list statement (CLS), INSW’s commercial list response (CLR), the written submissions and affidavits relied on at the hearing, and the reasons for judgment in Crown Sydney Property v Barangaroo Delivery Authority; Lendlease (Millers Point) v Barangaroo Delivery Authority [2018] NSWSC 1931 (McDougall J judgment).

The parties

8. Grocon Holdings, Grocon CB and Grocon Developments are part of the privately owned construction and development Grocon group of companies. Grocon Holdings is the holding company of Grocon Developments which is, in turn, the holding company of Grocon CB.

9. Daniel Grollo is the director of Grocon Holdings, Grocon Developments and Grocon CB and the sole director and shareholder of Grocon Investments Pty Limited (Grocon Investments). He and Katherina Grollo are the shareholders in a company known as Twenty Twenty2 Pty Limited. Grocon Investments and Twenty Twenty2 are the sole shareholders in Grocon Holdings. Mr Grollo is also a shareholder in other Grocon Group companies.

10. INSW was formerly known as the Barangaroo Development Authority (also referred to as the Authority). It is a New South Wales Government Agency constituted under the Infrastructure NSW Act 2011 (NSW) and is the owner or controller of the land at Barangaroo, on Sydney harbour.

Background facts

11. There are three development areas in Barangaroo; Central Barangaroo, Barangaroo South and Barangaroo Reserve. Development at Barangaroo is controlled by “Concept Plans” which are intended to implement the overall approach to urban design and planning reflected in a series of master plans: McDougall J judgment at [3].

12. In mid-2015, prior to the tender and design process for Central Barangaroo, INSW entered into a contract with Lendlease Corporation Limited and Lendlease (Millers Point) Pty Limited (together Lendlease) and a contract with Crown Sydney Property Pty Limited and Crown Resorts Limited (together Crown) relating to the development of Barangaroo South. The Lendlease and Crown contracts contain terms which required INSW to negotiate with Crown and Lendlease in relation to development on Central Barangaroo so as to retain certain lines of sight from areas of Barangaroo South to the Sydney Opera House and Harbour Bridge (the Sight Lines) (the Sight Lines Clauses).

13. In effect, the Sight Line Clauses:

1. recognise that optimisation of the development of Central Barangaroo is of critical importance to INSW;

2. recognise that retention of the Sight Lines is of critical importance to Crown and Lendlease respectively; and

3. provide that if any application is made for development on Central Barangaroo different to that provided for in the Concept Plan, INSW must discuss and negotiate in good faith with Crown and Lendlease to seek to agree changes that would retain the Sight Lines while at the same time optimising development opportunities.

See McDougall J judgment at [7].

14. In December 2015, INSW issued a request for development bids for Central Barangaroo. Grocon submitted a bid in response as part of a competitive tender process.

15. During the bid process, Grocon submitted schematic proposals for the Central Barangaroo development (CB Development) that provided for a development at 90,000 sqm of gross floor area (GFA), one at 120,000 sqm of GFA and one at 127,000 sqm of GFA. The proposals included heights for some of the buildings in excess of those allowable under the Concept Plan at the time and would have impeded the Sight Lines to some extent: McDougall J judgment at [12] – [13].

16. In June 2016, Grocon was selected as the preferred bidder for the CB Development.

17. On 20 December 2016, Grocon Holdings, Grocon CB and INSW executed a development agreement for the CB Development which was placed in escrow (Conditional CENDA) until 15 November 2017. The development proposed by Grocon that was the subject of the Conditional CENDA (Final Bid) did not comply with the Concept Plan at the time and did not retain the Sight Lines: CLS and CLR at [138].

18. During 2017, Grocon continued to prepare design documentation for the CB Development. The schemes prepared by Grocon for the CB Development were on the basis that the development would exceed 120,000 sqm of GFA and partially interfere with the Sight Lines.

19. In November 2017, Grocon says they entered into agreements with Aqualand Management Services Pty Limited ATF Aqualand Trust (Aqualand) and the Scentre Group (Scentre) by which they would participate in the CB Development. Aqualand was to participate in the development of the residential space. Scentre was to participate in the development of the retail space.

20. On 15 November 2017, Grocon Holdings, Grocon CB and INSW entered into the “First Deed of Amendment” which annexed the final version of the CENDA and replaced the Conditional CENDA.

21. The CENDA included a clause obliging INSW to use all reasonable endeavours to procure the satisfaction of a condition precedent (as defined by clause 1.1) that the negotiations which INSW was obliged to undertake with Lendlease and Crown in relation to the Sight Lines (Sight Lines Negotiations) be resolved to INSW’s satisfaction or concluded (Sight Lines Condition Precedent): CLS at [143].

22. Grocon contends that INSW was obliged to use all reasonable endeavours to procure the satisfaction of the Sight Lines Condition Precedent by issuing a notice that the Sight Lines Negotiations be resolved to INSW’s satisfaction or concluded (Sight Lines Resolution Notice) with as little impact as possible on the provisions of the CENDA as soon as reasonably practicable after the date of the CENDA: CLS at [246]. INSW disputes this, although it accepts that the Conditional CENDA contained a clause entitling it to unilaterally waive the Sight Lines Condition Precedent: CLS at [144](b); CLR at [144](a), [246].

23. The CENDA also included an obligation for Grocon to pay to INSW a Development Rights Fee of $422,584,261 which was calculated by reference to and reflect an above ground developable GFA (ADGFA) of 124,208 sqm. Clause 1.10 of the CENDA governed how the Development Rights Fee would increase or decrease depending upon the outcome of the Sight Lines Negotiations, a modification to the Concept Plan and planning approval in relation to any application to amend the Concept Plan.

24. On 15 November 2017, the same day, Grocon Holdings, Grocon CB and INSW entered into a Deed of Waiver. There is a dispute between the parties as to the legal effect of the Deed of Waiver. INSW contends that it had the effect that the Sight Lines Condition Precedent to the CENDA was waived, which meant that INSW was not obliged to use its reasonable endeavours to procure the issuance of the Sight Lines Resolution Notice. Grocon disputes this and contends that INSW continued to be obliged to comply with the CENDA and consult in relation to the Sight Lines.

25. On 30 June 2018, Grocon entered into an agreement with OMERS Asia Pte Limited (Oxford) pursuant to which Oxford agreed to pay Grocon around $140 million for the purchase of the commercial office component of Central Barangaroo (which Grocon says was premised on the GFA for the office component being 59,692 sqm) and the formation of a joint venture for the entire development at Central Barangaroo (the Oxford transaction). $116 million was payable by Oxford on financial close of the Oxford Transaction which, according to Grocon’s evidence, was expected to be by 31 December 2018. Those funds were to be applied by Grocon to repay a financing agreement with MaxCap Investment Management Pty Ltd (the “MaxCap facility)” [1] and $49.3 million to Dexus and GPT in respect of liabilities relating to Grocon’s leases of premises in Brisbane.

    1. A financing agreement entered into by Grocon and MaxCap Investment Management Pty Ltd in December 2017.

26. On 9 August 2018, Crown and Lendlease commenced the “Sight Lines proceedings” against INSW seeking declarations to the effect that the development at Central Barangaroo must not interfere with the Sight Lines.

27. On 20 August 2018, INSW sent a letter to Grocon CB attaching what has been described as a “letter of comfort” from INSW to Grocon CB to provide to Oxford.

28. The letter of comfort states that the Sight Lines negotiations are currently ongoing and that INSW had determined and proposed to convey to Crown and Lendlease that it will not, unless required by law or directed by the NSW Government, approve, lodge or permit the lodgement of any planning application for development on Central Barangaroo which is less than 59,692 sqm of above ground developable GFA (as defined in the CENDA) available for use as offices, except if requested to do so by Grocon and INSW agrees to that request. The letter of comfort also notes that INSW reserves the right to approve a different amount of above ground developable GFA available for use as offices. The cover letter to the letter of comfort notes that INSW is under no obligation to commit to pursuing planning approval for a minimum above ground developable GFA of 59,692 sqm for use as offices as requested by Grocon or to provide the letter of comfort.

29. On 21 September 2018, the Oxford Transaction was amended when the parties entered into an agreement entitled “Implementation Agreement – First Deed of Amendment”. The Implementation Agreement provided that Oxford could terminate the Oxford Transaction if a Sight Lines Resolution Notice was not issued by 31 January 2019 and for an option to extend at Oxford’s discretion to 31 June 2019 at the latest: Annexure A, cl 5.7.

30. In September 2018, Grocon negotiated standstill agreements with Dexus and GPT which deferred liabilities in respect of Grocon’s leases of the Brisbane premises until 31 December 2019 or termination of the Oxford Transaction.

31. On 14 December 2018, Justice McDougall delivered his reasons in the Sight Lines proceedings (the McDougal J judgment). His Honour held that the Sight Lines Clauses required INSW to negotiate with Crown and Lendlease from the starting point of retention of the Sight Lines. Grocon contends that the effect of McDougall J’s judgment is that the CB Development proposed by Grocon could not have 120,000 sqm or more of GFA or any tower on block 5 of Central Barangaroo.

32. Sometime soon after the McDougall J judgment, Oxford terminated the Oxford Transaction: CLS at [217]. It is not clear on the evidence precisely when it did. Grocon’s standstill agreements with Dexus and GPT were also terminated. Dexus and GPT issued statutory demands which led to Grocon Constructors (Vic) Pty Ltd (GCV) and Grocon Constructors (Qld) Pty Ltd (GCQ) being placed into voluntary administration.

33. INSW appealed McDougall J’s judgment. On 19 August 2019, it was announced that the appeal from McDougall J’s judgment had settled and the appeal withdrawn.

34. On or around 26 September 2019, Grocon transferred their rights to the office component and to develop Central Barangaroo to Aqualand for $73 million. As a result of that transaction, Aqualand became the developer of the CB Development under the CENDA in place of Grocon. There is evidence that Aqualand had previously offered $150 million for those rights, subject to the outcome of the Sight Lines Negotiations with INSW.

These proceedings

35. Grocon commenced these proceedings on 5 February 2020. Their commercial list statement is 76 pages long and comprises over 280 paragraphs.

36. Grocon claims that their decisions to participate in the competitive bid process for the CB Development, to enter into the CENDA and to proceed on the basis that they would have the opportunity to develop Central Barangaroo in accordance with its Final Bid were made on the basis of INSW’s misleading and deceptive conduct. The conduct alleged by Grocon to have been misleading and deceptive are representations made by INSW in tender documents, correspondence and other communications from and with INSW.

37. The representations that are alleged to be misleading and deceptive alleged by Grocon are set out at paragraphs 62, 63 and 125 of the CLS and can be summarised as follows (Representations):

1. INSW had a general obligation to negotiate with Crown and Lendlease, as the developers of the South Barangaroo site, with respect to maintaining the Sight Lines;

2. INSW was not obliged to accept any position being put to it by Crown and Lendlease in the consultation or negotiation process and it had an entitlement to terminate the consultation process if agreement could not be reached on terms which were acceptable to INSW; and

3. the CB Development would have around 120,000 to 150,000 sqm of ADGFA and a high-rise tower on block 5, at the South end of the CB Development.

38. Grocon claims to have suffered loss and damage as a consequence of INSW’s misleading and deceptive conduct, namely:

1. Grocon’s loss of opportunity to negotiate commercial arrangements with INSW, Aqualand and Scentre for the CB Development, which reflected the design described in the Final Bid, as opposed to a design and commercial arrangements for the CB Development in line with the Sight Lines, which were more favourable to Grocon and which would have enabled Grocon to realise their financial value at an earlier date;

2. Grocon’s loss of the opportunity to undertake alternative or additional commercial developments; and

3. Grocon expending in excess of $37.5 million in preparing documents and negotiating the complex commercial arrangements associated with the CB Development.

39. Grocon claims that INSW is estopped from departing from the Representations and that they are entitled to equitable compensation by reason of INSW departing from them, reflecting the expected profit margin that Grocon Holdings asserts it would have received or earned had INSW been held to the Representations, which is estimated to be $269.7 million.

39. Grocon’s breach of contract claims are based on asserted breaches of implied terms that INSW would treat Grocon fairly and in good faith and that INSW would cooperate with Grocon. Those terms are said to have been implied into two contracts between Grocon Developments and INSW, referred to as the Pre-Preferred Bidder Contract and the Preferred Bidder Contract, and the CENDA.

40. Grocon alleges that INSW breached the implied terms of those contracts, including by making the Representations; representing that INSW would complete or conclude the negotiations with each of Crown and Lendlease shortly; failing to sufficiently disclose the position Lendlease and Crown were taking in discussions with INSW; repeatedly requesting that Grocon Developments focus on a development at Central Barangaroo comprising a high rise tower and ADGFA of at least 120,000 sqm; failing to disclose that the Sight Lines Clauses purportedly required INSW to retain or preserve the Sight Lines or the risk that the Sight Lines Clauses would have that effect; refusing to cooperate with Grocon Holdings and Grocon CB to prepare alternative design proposals which were acceptable to Lendlease and Crown; refusing to consent to the transfer of Grocon’s development rights unless Grocon provided certain releases; and refusing to participate in a CEO meeting allegedly required under the dispute resolution mechanisms of the CENDA.

41. Grocon also alleges breaches of specific clauses of the CENDA in respect of the Sight Lines Condition Precedent and INSW’s contractual obligation for any dispute between the parties to be first referred to the CEO’s of Grocon and INSW.

42. The loss and damage Grocon claims to have suffered as a consequence of the breaches of contract are that:

1. Grocon sold their interest in Central Barangaroo to Aqualand in September 2019 for considerably less than their expected profit margin of $269.7 million and the amount they would have received from Aqualand under the Implementation Agreement;

2. Grocon Holdings spent more than $37.5 million preparing its bid, numerous designs and negotiating the terms on which it would, either itself or via a subsidiary, enter into the CENDA with INSW and agreements with each of Aqualand and Scentre;

3. Grocon Holdings and Grocon CB lost the opportunity to negotiate a commercial outcome with INSW, Lendlease and Crown, which offered higher commercial returns than the returns available under a development which is required to preserve the Sight Lines;

4. Grocon Holdings and Grocon CB lost the opportunity to sell their interest in Central Barangaroo at an earlier date than September 2019; and

5. Grocon Holdings and Grocon CB continued to expend considerable sums of money in preparing documents in accordance with the CENDA; negotiating arrangements with Oxford on the basis that the CB Development would be in accordance with the design in the CENDA; renegotiating terms with their financiers; negotiating the terms on which INSW would be prepared to consent to the transaction; the receivership of Grocon CB; and seeking to comply with their contractual obligations under cl 48 of the CENDA.

44. INSW’s filed its list response on 2 April 2020.

45. INSW denies making the Representations; denies they were misleading or deceptive; denies that Grocon relied on them; and (if they were relied on), denies that Grocon suffered loss or damage as a result of that reliance. It also says that the Representations were statements of opinion; INSW provided the terms of the Sight Lines Clauses to Grocon during the 2015 bidding process; and INSW made it clear to Grocon that the height and GFA of the CB Development would ultimately be subject to the outcome of the negotiations contemplated under the Sight Lines Clauses, among other possible limitations; and the effect of the Sight Lines Clauses in respect of the extent of the limitations imposed on INSW is different to that as characterised by Grocon.

46. INSW denies the allegations of breach of contract and says that all of Grocon’s claims are defeated by the various contractual exclusions and limitations agreed to by Grocon as part of the 2015 bidding process, in the CENDA and in the contracts Grocon allegedly entered into with INSW, and that Grocon is estopped by deed from resiling from representations made in the CENDA which are inconsistent with bringing the claims.

47. On 27 May 2020, INSW filed its application for security in accordance with an order of the Court made on 15 May 2020.

48. On 27 August 2020, immediately before hearing INSW’s motion for security, I dealt with INSW’s notice of motion filed on 3 August 2020 seeking to set aside a notice to produce issued by Grocon for documents relating to the settlement of the appeal from the McDougall J judgment and the issuance of a Sight Lines Resolution Notice to Aqualand. I set aside Grocon’s notice to produce for the reasons given that day.

49. At the hearing on 27 August 2020, Grocon also indicated that they intend to seek leave to file an amended CLS.

50. Under the current timetable, Grocon are required to serve their lay evidence by 31 August 2020.

INSW’s application for security for costs

51. INSW’s motion seeks security in the amount of $1,018,395.84 by way of a first tranche up to the conclusion of expert evidence and mediation. It also seeks a stay of the proceedings until Grocon gives security in the manner ordered by the Court.

52. In support of its motion for security, INSW relies on two affidavits of Samuel Delaney, INSW’s solicitor on the record, sworn 27 May 2020 and 24 July 2020, and the exhibits to those affidavits (Exhibit A, Confidential Exhibit B and Exhibit C). Mr Delaney’s first affidavit sets out the costs incurred by INSW to date as well as his estimate of the costs INSW is likely to incur up to the end of a four week contested hearing. Mr Delaney estimates that $2,538,555.86 would be recoverable against Grocon on a party/party basis if INSW were successful in the defence of the proceedings.

53. Grocon relies on an affidavit of Asia Lenard sworn 15 July 2020 (Lenard Affidavit), the exhibit to the Lenard Affidavit (Exhibit 1) and other documents tendered at the hearing of the motion (Exhibit 2). While they oppose the motion for security, Grocon does not contest Mr Delaney’s calculations of the likely costs to be incurred by INSW which support the quantum of security sought.

54. Grocon and INSW also rely on written submissions provided to the Court in advance of the hearing and supplementary submissions received on 27 and 28 August 2020. There was no cross-examination at the hearing of the security motion.

Threshold question

55. The threshold question raised by INSW’s application for security is whether there is credible evidence that establishes there is reason to believe that Grocon will be unable to pay INSW’s costs if ordered to do so: UCPR, r 42.21(1)(d); Corporations Act, s 1335(1).

56. That question, on which INSW bears the onus, has been described as an undemanding test, sets a low threshold and requires the Court to adopt a practical common sense approach to the examination of Grocon’s financial affairs: Wollongong Coal Limited v Gujarat NRE Properties Pty Limited [2019] NSWSC 187 at [19] and the cases there cited.

57. INSW submits that there is credible evidence to believe that Grocon will not be able to meet an adverse costs order. It referred to a range of evidence relating to each of them in support of that submission, the relevant aspects of which are summarised below. In particular, INSW points to the lack of recent audited financial statements for Grocon Holdings which, as a large proprietary company, it is obliged to file, the lack of recent audited accounts for Grocon Developments and Grocon CB, a lack of liquid assets, and information contained in 2019 financial reports relating to GCQ and GCV which INSW submits is indicative of a lack of available funds within the Grocon Group.

58. The hearing proceeded on the basis that Grocon did not accept that INSW had established the threshold question. Their written submissions argue that the evidence on which INSW relies to support Grocon’s impecuniosity is “sparse” and that, in any event, INSW’s assertion must be considered in the context where Grocon claims that INSW’s has materially contributed to their financial position.

59. Pausing here, as private companies, the Grocon plaintiffs were in the best position to adduce evidence in response to the evidence relied on by INSW and demonstrate they are currently in a financial position to satisfy a costs order. Other than some unaudited management accounts for the six months ending 31 December 2019, they chose not to do so. As to whether Grocon can establish that INSW materially contributed to their financial position such that they are unable to satisfy a costs order, in my view, that factor is more relevant to the exercise of my discretion to order security, rather than on whether INSW has satisfied the threshold question.

Grocon Holdings

60. The most recent filed financial statements that relate to Grocon Holdings are contained in the Annual Special Purpose Financial Report for Grocon Holdings and its controlled entities for the year ending 30 June 2017 (2017 Report), filed with ASIC on 7 February 2018. No subsequent financial statements have been filed.

61. According to the 2017 Report, in the year ending 30 June 2017, Grocon Holdings’ incurred a net loss of $27.5 million, had net cash outflows of $106.3 million from operating activities, and its current liabilities (of $229.2 million) exceeded current assets (of $214.9 million) by $14.3 million. Net assets were $37 million, although this includes $71.578 million of non-liquid goodwill and deferred tax assets which, if removed, leaves net assets of negative $34.578 million.

62. The notes to the 2017 Report records that, on 19 December 2017, Grocon Investments (Grocon Holdings’ sole shareholder) entered into a financing agreement that enabled $40 million to be invested in the Grocon Group which required repayment of $51 million by 22 September 2018.

63. The notes also record that the continuing viability of the Grocon Group was dependent on achieving its initiatives to sell the development rights to a project (which must be completed by 22 June 2018 under the terms of the financing agreement) and achieving future cash flows on existing and pipeline projects. The notes record that, as a result of those matters, there was material uncertainty that may cast significant doubt on the Grocon Group’s ability to continue as a growing concern and discharge its liabilities. The 2017 Report does not identify the “development rights” that had to be sold by 22 June 2018 or the existing and pipeline projects.

64. Also in evidence are unaudited management accounts for the six month period ending 31 December 2019 for Grocon Holdings and its controlled entities (2019 Unaudited Accounts), which Grocon provided to INSW on a confidential basis (and which are subject to the suppression order). [Redacted].

65. [Redacted].

66. [Redacted]. According to Grocon’s evidence in support of the suppression order, the 2019 Unaudited Accounts do not reflect the last six months performance, are out of date and subject to change, and do not provide a complete picture of Grocon’s financial position.

67. INSW also relies on two recent reports relating to GCQ and GCV. The Report on Company Activities and Property lodged with ASIC on 31 October 2019 in the administration of GCQ refers to Mr Grollo’s belief that GCQ is owed over $2.53 million by Grocon Holdings and that the estimated return value for that loan is “nil”.

68. The Administrator’s Report to Creditors in the administration of GCQ and GCV lodged with ASIC and dated 20 November 2019 (2019 GCQ and GCV Report) also refers to the loan from Grocon Holdings to GCQ, in respect of which the administrator assesses that, in a liquidation, a “low” return is “nil”, and a high return would be around 20% of the loan, at $472,000.

69. The 2019 GCQ and GCV Report also notes that Grocon Holdings’ assets are subject to a security in favour of Swiss Re, with bonds issued to date of $38.9 million, but that the administrator is of the view that Grocon Holdings (the Grocon Pooled DOCA proponent) has sufficient funds to meet a funding requirement of $4 million in cleared funds on or before 20 December 2019. The notes to the 2019 Unaudited Accounts indicate that Grocon Holdings is to contribute that amount in instalments over the course of 2020.

70. The 2019 GCQ and GCV Report also refers to around $43 million owed to GCQ by Grocon related parties, of which less than $1 million is assessed as likely to be recoverable, and around $274 million owed to GCV by Grocon related parties, of which less than $8.2 million is assessed as likely to be recoverable.

71. INSW also relies on a title search in relation to Grocon Holdings, which discloses it has no ownership interest in any property in Australia.

72. In written submissions, Grocon argued that the Court should not be satisfied that their financial position is tenuous because, as a developer, their revenues (and therefore profits) are inconsistent in nature, with the result that there will be years where they make a loss, followed by years where there is a big turnover in profit.

73. I accept that Grocon’s profits are likely to be “lumpy” and change over time. The information in the financial reports relating to the 2014 to 2017 financial years reflects this. The evidence also demonstrates that Grocon Holdings has been in existence for over eight years, is a large development and construction company with many subsidiaries and, over the period from 2014 to 2016, had significant net assets and generated revenues to enable the Group companies to carry out projects and continue to trade without material financial risk. But, as outlined above, the evidence demonstrates that Grocon’s financial position changed in 2017. In the absence of evidence as to Grocon’s future projects, their timing and amount of expected profits, or up to date and accurate financial records relating to Grocon Holdings, I do not consider Grocon’s submission regarding the inconsistent nature of their profit and asset position to answer the picture as to Grocon’s financial position created by the evidence.

74. It is also relevant that Grocon submits that their financial capacity to continue with the proceedings will be significantly stifled if required to pay security. Implicit in that submission is a recognition that there are doubts as to Grocon’s financial capacity to meet an adverse costs order if required to do so. While not determinative, I also note that, towards the end of the hearing, Grocon’s Senior Counsel was asked whether Grocon maintained that INSW had not established the threshold question, and responded that “I can’t say anything contrary to what Mr Barnett (INSW’s counsel) said… on that aspect”: T59:11-12.

75. In my view, the picture that emerges from all of the above is that it is doubtful that Grocon Holdings has the capacity to pay a substantial costs order of around $2.5 million in favour of INSW if ordered to do so. This is primarily because, according to the 2017 Report [Redacted], the Group’s viability was materially at risk as at 30 June 2017, and Grocon Holdings was assessed as being unlikely to repay the bulk or all of its intercompany loans late last year.

76. As von Doussa J stated in Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 205:

A corporation “will be unable to pay” the costs within the meaning of the section [1335] if it can only do so if given extended time to realise assets which might be difficult to realise, at least at a price sufficient to provide a surplus over other liabilities, sufficient to pay the costs... The company will also be unable to pay the costs within the meaning of the section if the payment would be one that will amount to a preference of the defendant over other creditors such that the payment would be liable to be set aside either as a preference or as a fraudulent disposition...

77. In those circumstances, and having regard to the undemanding test, I am satisfied that the evidence led by INSW, combined with the absence of other evidence adduced by Grocon, provides an objective basis to conclude that the threshold question has been established and that there is a reason to believe that Grocon Holdings would be unable to pay INSW’s costs if ordered to do so.

Grocon CB

78. In my opinion, the threshold question has also been satisfied in relation to Grocon CB.

79. Grocon CB is the former special purpose vehicle set up for the purposes of the CB Development. It has paid up share capital of $2, has not filed a financial report since its registration on 8 August 2016 and underwent a period of external administration between 26 September and 6 December 2019. According to a Report on Company Activities and Properties prepared by the Receiver and Manager and lodged with ASIC on 15 October 2019, Grocon CB owed more than $3 million to creditors and Mr Grollo believed that it did not own any assets.

Grocon Developments

80. The position in relation to Grocon Developments is not very different. It has paid up share capital of $1 and has not filed any financial statements since the end of the 2017 financial year.

81. The Annual Special Purpose Financial Report for Grocon Developments and its controlled entities for the year ending 30 June 2017 (GD 2017 Report) filed with ASIC on 24 April 2018, discloses that it has net assets of $29.573 million, although $65.5 million of its assets were related party receivables supported by the financial position and cash flows of the Grocon Group, about which the 2017 Report (referred to at [63]) states there was significant doubt concerning the ability of the Group to continue as a going concern.

82. There is evidence that Grocon Developments is the registered proprietor of four parcels of property located in Epping although the GD 2017 Report discloses that Grocon Developments had provided guarantees and securities over all of its assets and undertakings in support of Grocon Holdings’ borrowings.

83. The 2019 GCQ and GCV Report also valued loans from Grocon Developments’ subsidiaries (Grocon (480 Queen Street) Pty Ltd, Grocon Developments (55 Elizabeth St) Pty Ltd, Belgrave Street Development Pty Ltd and Grocon (Bouverie Street) Pty Ltd) at very small percentages of their face value, also suggesting that they may not be able to satisfy their liabilities.

84. In the absence of any recent financial information or specific submissions advanced by Grocon as to Grocon Developments’ financial position, I am satisfied that there is also a proper basis on the evidence for believing that it would be incapable of meeting an adverse costs order if ordered to do so.

85. Accordingly, I have concluded that INSW has demonstrated by credible evidence, in the form of financial and other reports, that there is a reason to believe that each of the Grocon plaintiffs would be unable to satisfy a costs order in favour of INSW.

Discretionary factors

86. As the evidence establishes that there is reason to believe that Grocon will be unable to pay the costs of the litigation if they are unsuccessful, the (evidentiary) onus shifts to Grocon to establish why, as a matter of discretion, security should not be granted: Wollongong City Council v Legal Business Centre Pty Limited [2012] NSWCA 245 (Wollongong City Council) at [30]; Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65 at [18]–[19].

87. The factors relevant to the exercise of the Court’s discretion were not in dispute at the hearing. They are set out in UCPR r 42.21(1A) and identified in the authorities. Relevantly, they include whether there has been delay in seeking security, Grocon’s prospects of success and merits of their case, whether Grocon’s impecuniosity was caused by the conduct complained of in the proceedings, whether making the order would stultify the proceedings, the risk that Grocon will be unable to satisfy an adverse costs order, whether there are public interest factors which weigh against a security for costs order, and whether there is anyone standing behind Grocon who is likely to benefit from the litigation and will provide the security sought: KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 (KP Cable) at 197; KDL Building Pty Ltd v Mount [2006] NSWSC 474 at [12]-[19]; Wollongong City Council at [31]-[32].

86. Grocon submits that INSW’s motion for security should be refused for a range of discretionary reasons which, in essence, are that:

1. INSW’s conduct that has led to these proceedings has materially contributed to Grocon’s financial position: UCPR, r 42.21(1A)(d);

2. the purpose of these proceedings is to help cure the financial position that INSW has caused and if Grocon is required to provide security (in tranches or at all) Grocon’s ability to continue these proceedings will be stifled: UCPR, r 42.21(1A)(f); and

3. there is a public interest in these proceedings: UCPR, r 42.21(1A)(g).

89. Grocon’s submission that INSW’s conduct materially contributed to Grocon’s impecuniosity requires Grocon to establish both the adequacy of their financial position before their dealings with INSW about which complaint is made in these proceedings and that INSW’s actions have caused or at least materially contributed to Grocon’s inability to meet an order for security for costs: Jazabas Pty Ltd v Haddad [2007] NSWCA 291 (Jazabas) at [94] – [96].

90. This must be established with relatively straightforward and unambiguous evidence of a fairly compelling nature, because otherwise the hearing of the issue of security might become a trial within a trial. It is not enough that INSW’s conduct is merely a contributing factor, Grocon has the onus to show that INSW’s actions was the material contributor to or cause of their impecuniosity: Jazabas at [94] – [96]; G E Dal Pont, Law of Costs (4^th ed, 2018, LexisNexis Butterworths) at [29.101]; Wollongong City Council at [33].

91. Grocon submits that the consolidated Financial Reports for Grocon and its controlled entries for the 2015, 2016 and 2017 financial years (Consolidated Reports) demonstrate that, prior to INSW’s conduct complained of in these proceedings, Grocon was in an adequate financial position, as it had significant net assets, including in June 2017 when over $20 million had been expended in connection with the CB Development tender process and they had been waiting six months for the issue of the Sight Lines Resolution Notice “pursuant to the terms of the CENDA”: Lenard Affidavit at [49].

92. The Consolidated Reports show that, over the 2014 to 2016 financial years, the Grocon Group reported aggregate losses of $26.375 million, comprising losses of $23.107 million and $9.705 million in each of the 2014 and 2016 financial years and a profit of $6.437 million in the 2015 financial year. They identify that the Grocon Group had significant net assets, of $71.511 million (2014 FY), of $74.911 million (2015 FY) and of $64.608 million (2016 FY). The Group’s current assets for those years also exceeded their current liabilities.

93. While accepting the asset position in the 2014 to 2016 financial years was strong, I am not persuaded by Grocon’s submission that it has demonstrated that the Grocon plaintiffs were in a viable and financially healthy position as at 30 June 2017: T47:19. In my view, the 2017 Consolidated Report indicates that, by 30 June 2017, the Grocon Group was in financial difficulty. As noted at [61]-[63] above, in that year, Grocon Holdings made a loss of $27.5 million and had current liabilities that exceeded current assets by $14.4 million, Grocon Investments had taken on a $40 million financing arrangement and there were doubts about the Grocon Group’s ongoing viability. The evidence also indicates that Grocon Developments was dependant on the Group’s support, as the bulk of its assets were related party receivables.

94. At the hearing, Grocon did not suggest that their dealings with INSW were the cause or material contributor to Grocon’s financial position as at 30 June 2017. I am also not satisfied that Ms Lenard’s affidavit evidence (at [49]) provides a basis for concluding that it did so.

95. The $20 million expended by Grocon by that time does not adequately explain the change in the Group’s financial position between 30 June 2016 and 30 June 2017 or the financial position of Grocon Developments at that time.

96. As for the CENDA, it had been placed in escrow until 15 November 2017. Grocon’s claims that INSW failed to issue the Sight Lines Resolution Notice and caused it loss were also put by Grocon as relating to the post-2017 period.

97. In submissions, Grocon contended that INSW’s conduct from 2017, in failing to issue the Sight Lines Resolution Notice “when it could have done so”, “shortly after the Supreme Court judgment, if not before” or “even as late as August or September 2019”, placed Grocon under significant financial stress as it led to:

1. Oxford terminating the Oxford Transaction and Grocon not receiving by 31 December 2018 the $116 million funds it expected to receive to enable it to repay its liabilities to MaxCap, Dexus and GPT: Lenard Affidavit at [35] and [38];

2. the standstill agreements with Dexus and GPT terminating, which in turn led to Dexus and GPT commencing enforcement action that resulted in proceedings in the Federal Court and Supreme Court of Victoria and GCV and GCQ being placed into voluntary administration: Lenard Affidavit at [34];

3. Grocon incurring costs in excess of $37.5 million in preparing the various design and tender documents, entering into a new finance arrangement, and expending millions of dollars of additional revenue, fees and interests: Lenard Affidavit at [37];

4. Grocon being forced to transfer their development rights to the office component of the CB Development to Aqualand for $73 million, having previously been offered $150 million for those rights: Lenard Affidavit at [40];

5. Grocon having a “very large” or “gaping hole” in their finances (T47:37 – 46); and

6. Grocon now being in a very different and significantly worsened financial position which has been materially contributed to by INSW’s conduct: Lenard Affidavit at [44] and [51].

98. INSW submits that Grocon’s evidence, as set out above, is insufficient to establish that INSW was the cause of Grocon’s impecuniosity. It argues that the evidence comprises, in part, of statements that are unsupported by documentary evidence or financial records, conclusory assertions, and bare allegations. There is some force to that submission. Other than a one page extract from Grocon’s September 2018 cash flow forecast (2018 forecast) and the 2019 Unaudited Accounts, Grocon did not advance documentary evidence of the kind that might be expected to be adduced to demonstrate a causal link between the conduct complained of and the current financial position of each of the Grocon plaintiffs.

99. At the hearing, Grocon’s Senior Counsel submitted that it was a matter of “deduction” that INSW’s conduct materially contributed to Grocon’s current financial position, noting that INSW, rather than Grocon, asserts that there is reason to believe that Grocon is unable to pay costs. This was said to be on the basis of a comparison between Grocon’s previous position, as evidenced by the 2015, 2016 and 2017 financial year records, and Grocon’s position in 2019 and 2020 which, if the Court accepts gives rise to doubt as to their ability to satisfy a costs order, indicates a substantial negative change and deterioration, primarily because of lack of cash flow: T49:19-30. He also argued that there is no evidence that Grocon’s poor performance and deteriorating financial condition since 2017 has been caused by anything other than INSW’s conduct: T47:39-42.

100. I am not persuaded by that submission. As noted above, the 2017 Report demonstrates that Grocon was not in an adequate or strong financial position as at 30 June 2017, prior to the matters relied on by Grocon, as referred to at [96].

101. The 2018 forecast indicates that $116.8 million from the Oxford Transaction was needed for Grocon’s cash flow and was expected to be received in December 2018. But it also suggests that the funds were needed to pay out existing liabilities that are seemingly unrelated to INSW’s conduct the subject of these proceedings, namely the MaxCap facility and Brisbane lease liabilities. The 2018 forecast also records that Grocon’s cash flow management was dependent on receipt of other settlements and fees and that the base cash flow had to be revised.

102. It is Grocon’s onus to establish the causal connection between INSW’s conduct and Grocon’s current inability to satisfy an order for costs by straightforward and unambiguous evidence of a fairly compelling nature. The absence of the revised cash flow forecast, audited and up to date financial statements for the 2018 and 2019 financial years and other documentary evidence that demonstrates a clear deterioration in Grocon’s financial position corresponding and consistent with the losses Grocon claims to have incurred, particularly after December 2018, makes it difficult to accept that Grocon has satisfied their onus of establishing the relevant causal connection.

103. Grocon’s submission that INSW’s conduct caused them financial stress is also premised on INSW having been obliged under the CENDA to issue a Sight Lines Resolution Notice as soon as reasonably practicable. INSW argued that Grocon could not make good that submission for reasons including that INSW was not contractually obliged to issue a Sight Lines Resolution Notice, the Sight Lines Condition Precedent had been waived and aspects of Grocon’s pleaded case being at odds with the submission that the notice could have been issued in the period from December 2018 to September 2019. INSW also argued that the assertion that a Sight Lines Resolution Notice could and should have been issued by Grocon was in the nature of an allegation in a pleading, rather than evidence of the matters alleged, which is an insufficient foundation for establishing causation: In Re Pioneer Energy Holdings Pty Limited [2013] NSWSC 1366 (Pioneer Energy Holdings) at [14].

104. The question of whether INSW was obliged to issue a Sight Lines Resolution Notice, and if so when, is a significant issue in dispute that raises issues of fact and law which will need to be determined at the final hearing. These include factual contests as to whether representations regarding the Sight Lines Negotiations and INSW’s contractual obligations to Crown and Lendlease were made by INSW and relied on by Grocon. There will also be a contest about the proper construction of documents, such as the CENDA, the Deed of Waiver and the letter of comfort, which will need to take into account the factual circumstances known to the parties at the time. In my view, it is not possible nor appropriate to make findings of fact or come to any view as to the legal effect of those documents at this stage of the proceedings, notwithstanding that the strength of Grocon’s claim is a relevant factor on a security application, particularly if INSW’s conduct is alleged to have materially contributed to Grocon’s financial position and stultification is asserted: Nonox Australia v Certain Underwriters at Lloyds Subscribing to Contract No CV0263CGL [2014] NSWSC 221 (Nonox Australia) at [17]-[18]; All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840 (All Class Insurance) at [76]; Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [99].

105. At the hearing, INSW did not press the submission it made in writing that Grocon’s prospects in the proceedings are weak and which might have weight in favour of making an order for security. INSW accepted, as did Grocon, that the Court would not seek to assess the strength or otherwise of Grocon’s claims but would deal with INSW’s security motion on the basis that Grocon’s claims are bona fide, have reasonably arguable prospects and that there are real issues to be tried: Pioneer Energy Holdings at [12]; Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664 at [37]–[39]; Jazabas at [83].

106. INSW also submits, and I accept, that the essence of Grocon’s claim is one of loss of profits or lost opportunity. As it was put at the hearing and set out at [97], Grocon asserts that INSW’s conduct led to Grocon having to sell the CB Development rights at a value that was less profitable than expected, such as with Aqualand for $150 million. The nature of Grocon’s claims of loss and damage, as outlined at [38], [39] and [43], also indicates that Grocon’s primary claim is one of loss of opportunity and profits.

107. Grocon’s failure to realise profits they could have earned if INSW had issued the Sight Lines Resolution Notice earlier and been held to the Representations may have left it with a “gap” in their finances to pay existing liabilities and, thus, failed to improve their financial position. But, without other evidence, the inability to realise anticipated profits does not establish that INSW’s conduct worsened Grocon’s existing financial condition or materially contributed to its impecuniosity: Fat-sel Pty Ltd v Brambles Holdings Ltd (1985) ATPR 40-544 at 46,428; Jazabas at [33]. To the extent that Grocon claims to have thrown away funds by incurring costs of $37.5 million by reason of INSW’s conduct, in my view, those funds were “recovered” on receipt of the payment of $73 million from Aqualand.

108. It follows that I am not persuaded that Grocon has established that INSW’s conduct has materially contributed to the impecuniosity of Grocon in a material respect.

109. Even accepting that Grocon had established that INSW’s conduct materially contributed to their declining financial position, there is the question as to whether ordering security would stultify or frustrate the proceedings, as Grocon contends it would.

110. It is well established that a powerful factor weighing against the making of a security for costs order is if the effect of making that order would stultify the proceedings: Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 at 545.

111. Grocon accepts that it is a matter for them to establish by the evidence that making a security for costs order would unduly stultify their ability to pursue the proceedings: Li v State of New South Wales [2013] NSWCA 165 at [45]. They rely on the evidence from Ms Lenard in the following terms:

I am informed by Daniel Grollo, and believe, that Grocon’s financial position has significantly worsened, and has been materially contributed to by INSW’s conduct. The loss and damage claimed by Grocon in these proceedings is for the purpose of helping cure this financial position.

As a result, I am also informed by Daniel Grollo, and believe, that if Grocon was required to provide security in the amount of $1,018,395.84, in stages or at all, Grocon’s financial capacity to continue with these proceedings will be significantly stifled to the point that it will result in Grocon being prevented from continuing with these proceedings unless it makes significant redundancies to its current workforce …

… if Grocon is compelled to provide security now, it will need to significantly cut costs, including by making the majority of its 87 employees redundant. It will effectively become a litigation shell.

112. INSW submits, and I accept, that this evidence is insufficient to establish that an order for security for costs will stultify these proceedings.

113. The likelihood that an order for security would stifle or stultify the proceedings is not made out by reference merely to the company’s impecuniosity but requires proof that those who stand behind Grocon are unable (not unwilling) to provide the requisite security for costs: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4; LRSM Enterprise Pty Ltd v Zurich Australian Insurance Limited [2014] NSWCA 88 (LRSM Enterprise) at [36].

114. As noted by Barrett JA (with whom McColl and Macfarlan JJA agreed) in LRSM Enterprise at [37]:

It is the ability of the plaintiff to meet an order for security that is in issue; and, just as the inability of persons standing behind it to give it financial support will be relevant to the inquiry, so too may be unwillingness of those persons (despite ability) and all other reasons for the unavailability of their support. A finding of stultification becomes available only to the extent that the reasons of relevant persons other than the plaintiff itself for not giving financial support truly reflect an inability, rather than unwillingness, of the plaintiff to marshall the relevant financial resources. It is for this reason that unwillingness of other persons is viewed differently from their inability.

115. The entities and persons standing behind Grocon are Grocon Investments, Twenty Twenty2, Mr Grollo and Ms Grollo.

116. Grocon led no evidence as to the financial position of Grocon Investments, Twenty Twenty2, Mr Grollo and Ms Grollo or their ability (or willingness) to assist Grocon in meeting any order for security. Nor has any evidence been led that Grocon or those standing behind them have sought but not been able to obtain finance or litigation funding to enable security for costs to be provided. Ultimately, Mr Grollo and Mrs Grollo stand to benefit from Grocon’s success in the proceedings and it is reasonable to expect them to support the conduct of the claims: Pioneer Energy Holdings at [16].

117. At the hearing, Senior Counsel submitted that it would be a perverse and odd result if those standing behind Grocon have the wherewithal to provide security and have decided not to do so with the result that employees are made redundant (T51:22-35). To the extent this was intended to suggest that the Court should infer that those standing behind Grocon are unable to provide security (as employees might be made redundant), I reject that submission. In my view, the absence of any evidence leaves it open to the Court to infer otherwise, particularly as it may be inferred that some entity or person is funding these proceedings for Grocon: MHG Plastic Industries Pty Ltd v Quality Assurance Services Pty Ltd [2002] FCA 821 at [22].

118. Grocon also submits that the evidence demonstrates there are practical and commercial difficulties and consequences of providing security, namely the redundancy of employees, and that they are relevant to whether the action would be stultified or, alternatively, if not establishing stultification, are a discretionary matter that the Court should take into account.

119. In supplementary submissions, Grocon drew my attention to Ariss v Express Interiors Pty Limited (In Liq) [1996] 2 VR 507 (Ariss), Adelaide (SA Pools and Spa) Manufacturing and Installation Pty Limited v Westcourt General Insurance Brokers Pty Limited [2016] SASC 60 (Adelaide Manufacturing) and Duke Holdings Limited (In Liq) v Duke Group Limited (In Liq) [2009] SASC 245 (Duke Holdings), which Grocon claims to support their submission that Ms Lenard’s evidence establishes that commercial impracticability. I disagree.

120. As INSW noted in its supplementary reply submissions, in each of Ariss, Adelaide Manufacturing and Duke Holdings, the court examined the extent to which the plaintiff could, as a matter of commercial practicability, call upon the resources of those who stand behind and benefit from the litigation. The commercial impracticality referred to was the impracticability of obtaining the support of creditors of a plaintiff company in liquidation or administration to contribute to the costs of the litigation or security: Ariss at 515-516; Adelaide Manufacturing at [52]; Duke Holdings at [36]. In each case, the court emphasised the importance of establishing, as a matter of evidence, that there was an approach made to creditors with a request for support (Adelaide Manufacturing at [53]; Ariss at 516), or by adducing cogent evidence explaining why commercial litigation funding was either unavailable or inappropriate (Duke Holdings at [40]).

121. In Ariss, Phillips JA considered whether commercial impracticability had been made out based on evidence from the plaintiff’s liquidator in which he asserted that it was most unlikely the plaintiff would be able to provide security as there was no one creditor with sufficient amount to gain such that it would be prepared to fund the proceedings and it was commercially impracticable to obtain security from all the plaintiff’s creditors. While accepting the concept as relevant, His Honour concluded that the liquidator’s evidence did not sufficiently establish commercial impracticability as there was no evidence he had approached all creditors with a request for support. Nor had the liquidator expressed any opinion about the possibility of obtaining security from the larger creditors who stood to gain the most: Ariss at 516.

115. Grocon also referred me to the recent decision of Burley J in Hardingham v RP Data Pty Limited [2020] FCA 1062 (Hardingham). In that case, his Honour accepted that evidence from the sole director of the company from whom security was sought was sufficient to establish stultification. Relevantly, the director gave evidence that the company’s business had been significantly disrupted as a consequence of the COVID-19 pandemic, there was a funder who was responsible for legal fees incurred by the company and the director but which did not extend to costs orders, the company had no assets or means of raising funds to provide security and that, if an order for security was made, the company would be insolvent and the director would have no alternative but to place the company in liquidation and to personally apply for bankruptcy. His Honour also accepted there was little prospect of creditors funding the proceedings if the company went into liquidation given the nature of the business, namely a real estate marketing company: at [19].

116. The position in this case is very different to that in Arris, Adelaide Manufacturing, Duke Holding and Hardingham. As noted above, there is no evidence as to the financial position and capacity of those standing behind Grocon to provide support. Nor is there any evidence of any attempt to arrange for them to do so.

117. The evidence relied on by Grocon in support of its claim of stultification and commercial impracticability comprises, in essence, general statements made on information and belief that Grocon does not financial capacity to continue with these proceedings if security is ordered and Grocon might be compelled to make the majority of its 87 employees redundant. Those statements are unsupported by evidence of relevant matters, such as the roles of the employees, what company(s) they are employed by, the costs associated with them and why those standing behind Grocon are unable to provide or arrange security in this case. In my view, the evidence is far removed from that which a Court would consider as sufficient to establish commercial impracticability or that the proceedings will be stifled if security was to be ordered.

118. The absence of evidence from those standing behind Grocon weighs heavily in favour of making an order for security in circumstances where I am satisfied that the threshold question has been established. I am also unpersuaded that the evidence demonstrates that the making of an order for security will stultify the main proceedings, which is a fundamental element relevant to the exercise of the discretion in favour of Grocon: Jazabas at [91].

119. The other matters raised by Grocon as relevant to the exercise of the Court’s discretion, and which are said to weigh against the grant of security, are the public interest in the proceedings continuing and the impact of the COVID-19 pandemic on Grocon’s financial position.

120. Grocon submits that there is a public interest in these proceedings continuing as they concern the appropriateness of INSW’s actions and raise issues about the ability of a government authority to make representations and “ignore contractual obligations”. They submit that it is “axiomatic that the Australian public has an interest in its governments acting fairly, adhering to best practice tender principles and being held accountable in dealings with private companies”.

121. During oral submissions, Grocon’s Senior Counsel also described the case as a “David v Goliath” situation, with Grocon, as David, not having deep pockets, and INSW, a New South Wales Government entity with “near unlimited funds to fight legal battles”, standing in the place of Goliath.

122. INSW submits that this is not public interest litigation in the usual sense. I tend to agree.

123. In my view, this case is better characterised as a large commercial dispute in which private parties are seeking to recover money from another party who happens to be a NSW Government agency. To my mind, the case does not raise any broader matters of public importance, such as the internal workings of government, the interpretation of legislation that may affect the public more broadly, or lead to an outcome from which other members of the public will derive some tangible benefit.

124. I accept there is a public interest in holding INSW to account for the consequences of any wrongdoing. But public interest is likely to be a significant factor in circumstances where a prima facie case of stultification has been made out: Pioneer Park Pty Limited (In Liq) v Australian and New Zealand Banking Group Limited [2007] NSWCA 344 at [57]-[58]. In this case, it has not.

125. The courts recognise that it may be inappropriate to make an order for security when the effect would be to shut out a small company from making a genuine claim against a large, well-resourced and amply funded body such as the state, a council or a major corporation: Jazabas at [75]; KP Cable at 197.

126. Grocon is not a small company; they describe themselves “as one of Australia’s largest and best known privately owned construction and development group of companies”. INSW is also in a position of a party faced with defending a large and complex case at considerable cost, although I accept it may have funding more readily available to it than Grocon.

127. As to the impact of the COVID-19 pandemic on Grocon’s financial position, that factor might have tended against an order for security for costs if Grocon’s evidence had addressed the issue and identified what impact it has had on their position: cf Hardingham at [5], [20].

Conclusion on security motion

135. Taking into account all of the circumstances, the conclusion I have come to is that the discretionary factors weigh in favour of INSW and an order for security for costs should be made. This is primarily because I am not satisfied that Grocon has established that making an order for security would stultify the proceedings or render them being unable to pursue their claims.

Quantum of security

136. As noted above, Grocon does not contest the quantum of security sought or take issue with the calculations made by Mr Delaney in support of INSW’s claim for security in the amount of $1,018,395.84 for the period up to the conclusion of expert evidence and mediation.

137. Given there is no debate on quantum, I have dealt with this aspect in a more summary way. I have reviewed Mr Delaney’s evidence and supporting documents in Exhibit A and satisfied myself of the reasonableness of his approach and calculations, taking into account that these proceedings will involve significant time on factual inquiries into events which span several years.

138. Mr Delaney estimates that INSW’s overall costs of the proceedings up to and including a four week trial will be $3,812,726.53 (excluding GST), made up of legal costs and disbursements incurred to 21 May 2020 of $418,185.80 (excluding GST) and future legal costs and disbursements to be incurred of $3,394,540.73 (excluding GST).

139. As INSW’s application was brought promptly, the security order may extend to those costs which have already been incurred, as well as future costs: Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 at [69].

140. Mr Delaney’s estimate for future legal costs is arrived at by calculating the work required to be done by reference to 15 different phases and work categories. He breaks down each phase by task and estimates the amount of time each lawyer will require as calculated on a daily basis at hourly rates, as well as the amount of time that Senior and Junior Counsel will require. His estimate of disbursements includes witness expert expenses and printing and filing fees. Mr Delaney’s estimate is based on the following assumptions:

1. managing a documentary database containing slightly less than 1 million documents and undertaking a manual review of around 50,000 documents for INSW’s discovery;

2. interviewing at least six individuals about conversations, emails, text messages, meetings and other matters occurring over the course of several years, but preparing witness statements in respect of at least three lay witnesses;

3. a trial length estimate of 4 weeks. I note that, at the hearing, Grocon’s Senior Counsel indicated that it would probably be a six or eight week case;

4. one interlocutory application being commenced by the plaintiffs;

5. no witness expenses, other than for expert witnesses;

6. discounted hourly charge rates for INSW’s solicitor’s based on the rates set out in the panel agreement with the NSW Government; and

7. senior counsel not being engaged by INSW until the pre-trial preparation phase of the matter.

141. For the purposes of INSW’s application for security, Mr Delaney does not include an amount of $144,000 in retaining Junior Counsel to assist INSW’s current Junior Counsel (Mr Barnett) or $42,217.63 attributable to the estimated costs of an interlocutory application filed by Grocon. He also applies a discount rate of 65% for recovery on a party-party basis, rather than 70% based on what he estimates would be recoverable if INSW was successful in the defence of the proceedings. This results in a figure of $2,357,230.78 for security for all costs to the end of trial.

142. INSW seeks security in tranches, with the first tranche of security sought relating to its costs incurred to date and costs to the close of evidence and mediation. Mr Delaney’s estimate of the security for the first tranche is $1,018,395.84, comprising costs to date and estimated future costs to the conclusion of evidence and mediation. INSW submits that the appropriate amount for the first tranche is $1 million (rounded).

143. Based on Mr Delaney’s evidence, I am satisfied that security in the sum sought of $1 million should be ordered. While a very significant sum, the quantum is not disputed and is supported by Mr Delaney’s very comprehensive and detailed calculations.

144. INSW’s motion seeks security to be paid within 14 days of the date of these reasons. Given Grocon’s foreshadowed application to amend the CLS, I accept Grocon’s submission that further time should be provided for the security to be paid. Given the sums involved, I also propose to order that security in the amount of $1 million be provided in two tranches; the first in the amount of $500,000 within 28 days of the making of the orders (by 2 October 2020) and the second tranche of $500,000 six weeks later (by 13 November 2020).

Suppression order

145. At the hearing, I made an interim order pursuant to s 10(1) of the Suppression Act in relation to Confidential Exhibit B and directed Grocon to file any evidence in support of a longer term suppression order by 31 August 2020. I said I would deal with the merits of Grocon’s application for a longer term order under ss 7 and 8 of the Suppression Act as part of these reasons.

146. Grocon makes an application for a suppression order over those parts of Confidential Exhibit B which comprise the 2019 Unaudited Accounts and those parts of two letters dated 16 April 2020 and 30 April 2020 (2020 letters) which refer to the content of the 2019 Unaudited Accounts, as identified by redactions. The application is made by Grocon on the grounds that the order is necessary to prevent prejudice to the proper administration of justice and that it is otherwise necessary in the public interest for the order to be made and that public interest significantly outweighs the public interest in open justice.

147. In support of its application, Grocon relies on an affidavit of Asia Lenard sworn 31 August 2020. Ms Lenard gives evidence on information and belief from Angela Farbridge-Currie, the Chief Financial Officer of the Grocon Group.

148. The suppression order is sought on the basis that the 2019 Unaudited Accounts are confidential to Grocon. They were prepared for and have only been disclosed to certain bondholders on the basis that they were to be used for the limited purpose of reporting as required under facility agreements and were to be kept confidential. They have also been provided to INSW’s solicitors as part of these proceedings on the basis that INSW will keep them confidential and only use them for the purpose of assessing Grocon’s ability to meet an adverse costs order.

149. According to Ms Lenard’s evidence, the 2019 Unaudited Accounts are not representative of and do not provide a complete picture of Grocon’s financial position for the full year ending 30 June 2020 as they report an interim result for the first six months, do not reflect the last six months and are subject to change.

150. Ms Lenard gives evidence that, to the extent that they may understate the robustness of Grocon’s financial position, Grocon will be prejudiced if they are disclosed because Grocon is currently seeking litigation and working capital finance and potential financiers may not be prepared to lend Grocon funds, or will only loan funds on less advantageous terms and conditions, if they obtain access to incomplete, outdated and/or misleading information. Grocon is also concerned that financier access to them may unfairly reduce Grocon’s opportunities and stifle the litigation as a result.

151. Ms Lenard also gives evidence that Grocon may be prejudiced if the 2019 Unaudited Accounts are not suppressed as sub-contractors, suppliers and other vendors may alter the terms on which they agree to work with Grocon, or refuse to work with Grocon at all, and the media may misinterpret the 2019 Unaudited Accounts at a highly sensitive time.

152. Grocon also says that, to the extent the 2019 Unaudited Accounts may overstate the robustness of Grocon’s financial position, it is not in Grocon’s or the public interest that the capital and construction and development markets operate on outdated or incomplete information as to Grocon’s ability to service debt.

153. INSW does not oppose the making of the suppression order.

Consideration

154. In deciding whether to make a suppression order, the Court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice: Suppression Act, s 6.

155. Section 8(1)(a) of the Suppression Act requires the Court to be satisfied that a suppression order is necessary to prevent prejudice to the proper administration of justice.

156. Section 8(1)(e) of the Suppression Act requires the Court to be satisfied that it is otherwise necessary in the public interest for the order to be made and that public interest significantly outweighs the public interest in open justice.

157. The operative condition for the making of a suppression order is that the order is necessary. That is not a matter of discretion. It requires the Court to reach the stage of satisfaction that the order is necessary to achieve the legislative intention of the Suppression Act. It has also been said that orders should only be made in exceptional circumstances: Hogan v Australian Crime Commission (2010) 240 CLR 651; [2010] HCA 21 at [30]; Rinehart v Welker (2011) 93 NSWLR 311; [2011] NSWCA 403 (Rinehart) at [27]; Wright Prospecting Pty Ltd v Hamersley Iron Pty Ltd (No 3) [2013] NSWSC 1069 at [42].

158. The phrase “necessary to prevent prejudice to the proper administration of justice” does not mean that if the suppression order is not made, the proceedings will not be able to continue. The basis of the implication is that if the kind of order proposed is not made, the result will be, or at least will be assumed to be, that particular consequences will flow, that those consequences are unacceptable, and that therefore the power to make orders which will prevent them is to be implied as necessary to the proper function of the court: Wilson v Basson [2020] NSWSC 512 at [17]; John Fairfax Group Pty Ltd v Local Court of New South Wales (1991) 26 NSWLR 131 at 161; Rinehart at [40].

159. The weight to be given to the public interest in open justice may vary depending on the nature and stage of, and the issues in, the proceedings. It will often be relevant to consider whether the proceedings are criminal or civil, whether they involve questions of public or private law and whether they involve disputes that impact on the public or only the parties: Welker v Rinehart [2011] NSWSC 1094 at [17] (Welker).

160. Based on the evidence from Ms Lennard, I am satisfied that the 2019 Unaudited Accounts are confidential to Grocon and that it is appropriate to make a suppression order in respect of them and those parts of the 2020 letters which identify data from the 2019 Unaudited Accounts or statements based on their contents.

161. It seems to me to be necessary to prevent prejudice to the proper administration of justice for Grocon to gain some protection for their confidential information that was relevant evidence at the hearing and could cause prejudice to Grocon if no suppression order is made.

162. It is also relevant that the current proceedings involve claims made by private companies for damages and equitable compensation and, in my view, do not raise matters of broad public importance. The 2019 Unaudited Accounts are also only one aspect of the evidence going to Grocon’s financial position tendered on the security for costs motion. Much of that evidence, over which no suppression order is sought, is referred to in these reasons. In that context, the balancing exercise required by the Suppression Act makes the public interest in open justice of a lesser weight in this case: Welker at [17].

163. As to the duration of the order, Grocon seeks for it to apply “until further [order] of the Court”.

164. In deciding the duration of the order, the court has to ensure that it operates for no longer than is reasonably necessary: Suppression Act, s 12(2). While the duration may be specified by reference to a fixed or ascertainable period or by reference to the occurrence of a specified future event, it is far from clear that making an order “until further order” is consistent with the obligations under the Suppression Act: Suppression Act, s 12(3); DRJ v Commissioner of Victims Rights [2020] NSWCA 136 at [47].

165. In my view, the order should apply up until 31 December 2021 or the time at which Grocon’s claims in the proceedings are finally determined, whichever is the earlier. It is to be expected that the contents of the 2019 Unaudited Accounts will no longer be of commercial sensitivity and should have lost any character of confidentiality by 31 December 2021, as more recent and up to date accounts would have been prepared by that time.

166. While it is anticipated that the proceedings may require a hearing of six to eight weeks, based on their status in the commercial list and Grocon being required to serve their lay evidence this week, the proceedings might also be completed within that timeframe. Of course, a further application can be made if a longer period is needed, including at the final hearing.

Costs and orders

167. As INSW has succeeded in obtaining an order for security for costs and that order was contested by Grocon, I see no reason why costs should not follow the event in relation to INSW’s security motion and will make an order accordingly.

168. As to Grocon’s application for a suppression order, Grocon seeks, and no objection was made by INSW, for the costs of that application to be reserved.

169. For these reasons, I make the following orders:

1. Pursuant to r 42.21(1) of the Uniform Civil Procedure Rules (2005) (NSW) or s 1335(1) of the Corporations Act (2001) (Cth), the plaintiffs give security for the defendant’s costs up to the conclusion of expert evidence and mediation in a sum of $1 million, which security is to be provided by way of tranches as follows:

1. the first tranche of $500,000 by no later than 2 October 2020; and

2. the second tranche of $500,000 by no later than 13 November 2020.

2. The security required by Order 1 is to be provided by way of:

1. payment of funds into Court;

2. the provision of an unconditional guarantee from an Australian owned bank in favour of the Principal Registrar of the Supreme Court of New South Wales, which security is to be held by the Principal Registrar of the Supreme Court of New South Wales; or

1. some other form as agreed between the parties.

3. If the plaintiffs fail to provide security in accordance with Orders 1 and 2 above, the proceedings be stayed until the security required is provided.

4. The plaintiffs to pay the defendant’s costs of the notice of motion seeking security for costs filed on 27 May 2020.

5. Pursuant to s 7 of the Court Suppression and Non-publication Orders Act 2010 (NSW) (Suppression Act), and on the grounds referred to in s 8(1)(a) and (e) of the Suppression Act, a suppression order prohibiting the disclosure, by publication or otherwise, of the following parts of Confidential Exhibit B, being Confidential Exhibit SPD-2 to the Affidavit of Samuel Delaney sworn 27 May 2020: the Half Year Unaudited Management Accounts for the six months ending 31 December 2019 for Grocon Group Holdings Pty Ltd and its controlled entities (Management Accounts) which appear at pages 7-13, and those parts of the letters dated 16 April 2020 and 30 April 2020 which refer to information from the Management Accounts that are the subject of redactions notified to the defendant and the Court on 1 September 2020.

6. Pursuant to s 11 of the Suppression Act, Order 5 is to apply throughout the Commonwealth.

7. Pursuant to s 12 of the Suppression Act, Order 5 is to operate until 31 December 2021 or until these proceedings are finally determined, whichever occurs first.

8. Orders 5, 6 and 7 be entered forthwith.

9. Direct the plaintiffs to confer with the defendant about the redactions to be made to the public version of these reasons and to send to the Associate to Henry J an agreed version of these reasons for publication by 4 pm on 11 September 2020.

10. The costs of the plaintiffs’ application for a suppression order be reserved.

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Endnote

Amendments

14 September 2020 - Typographical error with the date on the cover sheet "04 September" should be "4 September".

14 September 2020 - On cover sheet Date of hearing should read "4"