Haskins Contractors Pty Ltd (in liq) v Sydney Airport Corporation Ltd

[2002] NSWSC 267

CITATION:	Haskins Contractors Pty Ltd (In Liquidation) v Sydney Airport Corporation Limited [2002] NSWSC 267
CURRENT JURISDICTION:	Equity Division Technology and Construction List
FILE NUMBER(S):	SC 55024/01
HEARING DATE(S):	3 and 4 April 2002
JUDGMENT DATE:	8 April 2002
PARTIES :	Haskins Contractors Pty Ltd (In Liquidation) (Plaintiff) Sydney Airport Corporation Limited (Defendant)
JUDGMENT OF:	Bergin J

COUNSEL :	S Donaldson SC leading G Carolan (Plaintiff/ Respondent) S G Finch SC (Defendant/ Applicant)
SOLICITORS:	Williams Love Lawyers (Plaintiff/ Respondent) Clayton Utz (Defendant/ Applicant)
CATCHWORDS:	(SECURITY FOR COSTS)- Pt 53 of the Supreme Court Rules and s 1335 of the Corporations Act 2001 (Cth) - Whether plaintiff's case has reasonable prospects of success - Whether defendant's conduct caused plaintiff's impecuniosity - Whether an order for secruity would stultify plaintiff's capacity to pursue litigation.
LEGISLATION CITED:	Corporations Act 2001 (Cth) Supreme Court Rules
CASES CITED:	Bell Wholesale Co Pty Ltd v Gates Export Corporation (No. 2) (1984) 2 FCR 1 J & M O'Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (1983) 7 ACLR 790 KP Cable Investments Pty Ltd v Meltglow Pty Ltd and anor (1995) 56 FCR 189 M A Productions v Austrama Television Pty Ltd and anor (1982) 7 ACLR 97 Newtons Travel Services Pty Ltd and anor v Ansett Transport Industries (Operations) Pty Ltd and anor (1982) 7 ACLR 556
DECISION:	Security ordered

- 20 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
Technology and
construction LIST

BERGIN J

8 APRIL 2002

55024/01 Haskins Contractors Pty Ltd (In Liquidation) v Sydney Airport Corporation Limited

JUDGMENT

1 This is an application by the defendant Sydney Airport Corporation Limited (SACL) for an order that the plaintiff, Haskins Contractors Pty Ltd (In Liquidation), (Haskins), provide security for the costs of SACL in the proceedings in the amount of $867,380 or security for the costs up to and including the filing and service of SACL’s statements of evidence and expert reports in the amount of $282,355. SACL also seeks an order that the proceedings be stayed until Haskins provides such security as is ordered.

2 SACL brings this application pursuant to Part 53 of the Supreme Court Rules and s 1335 of the Corporations Act 2001 which provides:

Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay proceedings until the security is given.

3 Haskins filed its Summons on 21 June 2001. On 6 July 2001 Frank Lo Pilato was appointed administrator of Haskins and administered the affairs of Haskins for the period 6 July 2001 to 2 August 2001. On 2 August 2001 the creditors of Haskins resolved to liquidate the company and it was placed into liquidation on that day.

4 SACL’s Notice of Motion was filed on 19 October 2001. The hearing of the motion took place on 3 and 4 April 2002. Prima facie this is a long delay between the filing of the motion and the hearing of it. However it is apparent that prior to the filing of the motion and between the date of filing and the date of hearing of the motion the parties were pursuing consensual extra-curial processes and pre-trial directions and orders were amended by consent. There is no issue of delay in bringing the motion for security in this matter.

The Contract

5 The main proceedings relate to a lump sum building contract between Haskins, as the building contractor, and SACL, as the principal, in relation to the upgrade of the car park and forecourt of the Sydney International Airport (the Airport). That contract was executed on 28 October 1999. The contract sum was $11,155,894 with a practical completion date of 30 weeks from the date on which Haskins was notified in writing that SACL had executed the contract. The short period of construction was driven by the need for upgrade of the car park and refurbishment of the forecourt to accommodate the anticipated increase in the use of the Airport in the period surrounding the Sydney Olympics in September 2000.

6 Clause 12.1 of the contract set out the contractor’s deemed knowledge and actions. It deemed knowledge to Haskins of all information relevant to risks, contingencies and other circumstances having an effect on the contract sum and also deemed that Haskins had satisfied itself as to the correctness and sufficiency of the contract sum (cl 12.1 (b) and (e)). It also deemed that Haskins had examined the neighbourhood surrounding of the site and ascertained all features of, or activities carried out, in the area which may potentially be disrupted, disturbed or damaged by the execution of the works (cl 12.1 (g)).

7 Haskins assumed the risk of all increased costs and expenses and all damages and other losses arising out of, or in any way connected with, the physical conditions and characteristics of the site and agreed that it had no entitlement whatsoever to any extension of time or extra costs or damages if it was delayed or disrupted as a result of the physical conditions or characteristics of the site (cl 12.2 and 12.4). Any delay in access to the site was deemed not to constitute a breach of contract nor to be a good ground for entitlement to any extra payment or compensation (cl 27.5).

8 Haskins agreed that within seven days of the date of the contract it would submit to SACL for its approval two copies of a Master Program for work under the contract. That Master Program for the work was to be based on a method of construction of the works proposed in Haskins’ tender consistent with the achievement of practical completion on the date specified. The contract provided that the Master Program did not form part of the contract and any approval of it did not relieve Haskins from any of its liabilities or obligations under the contract. Once approved by SACL, the Master Program was not to be amended in any way unless a direction was given by SACL for the submission of an amended Master Program with changes highlighted or an application in writing for such amendment was made by Haskins to SACL giving reasons for the change and submitting a Master Program (cl 34.1).

9 Haskins was required to proceed with the works under the contract at a rate of progress and in a manner satisfactory to SACL and to take all reasonable steps to minimize the delay of the work under the contract. Progress of the work under the contract in accordance with an approved Master Program was deemed to be a rate of progress satisfactory to SACL. If Haskins failed to maintain the progress in the approved Master Program SACL was able to direct Haskins to increase any or all of its labour resources, equipment resources, shift work and hours of work, and to make any other necessary arrangements to expedite the work at no additional cost to SACL. Haskins was required to promptly comply with any such direction and maintain the arrangements directed by SACL (cl 35.1).

10 When it became evident to Haskins that anything might delay the work it was required to promptly notify SACL in writing of the cause of the delay and the likely impact upon the progress of the works and the arrangements made by Haskins to expedite the work to regain any lost time (cl 36.4). Clause 36 placed a heavy burden on Haskins including giving verbal notice of delay to SACL within thirty minutes of the commencement of the delay and confirmatory written notice within twenty-four hours of the commencement of the delay. SACL submitted that this required Haskins to ensure detailed and careful contract administration.

11 Clause 41, Variations, provided relevantly as follows:

41.1 Variations to the Work under the Contract
(b) If, at any time during the progress of the Work under the Contract, the Corporation’s Representative determines that the Work under the Contract should be varied, the Corporation’s representative may order the Contractor to do all or any one or more of the following things:
(i) increase, decrease or omit any part of the Work under the Contract; or
(ii) change the character, quality or quantity of any material or Work; or
(iii) change the levels, lines, positions or dimensions of any part of the Work; or

(iv) execute additional Work.

(d) No variation will invalidate the Contract. The value of the variation must be taken into account in determining the Contract Sum. Each variation must be valued in accordance with clause 41.2 and unless otherwise directed by the Corporation’s Representative, such valuation must be determined before the Work to which the variation relates is commenced.
(e) No variation may be made by the Contractor without the Contractor first receiving from the Corporation’s Representative a written order in the form attached to the general conditions of the Contract in schedule 7 (or in another form satisfactory to the Corporation’s Representative) stating whether the order involves a variation and the effect of the variation to the Contract Sum. If the Contractor considers that a direction given by the Corporation’s Representative, which does not state that the direction involves a variation, does involve a variation, it must give notice in writing to the Corporation’s Representative to that effect prior to the start of the Work which is the subject of the direction. Notwithstanding anything to the contrary in the Contract, the giving of any such notice by the Contractor prior to the start of the Work which is the subject of the direction will be a condition precedent to the Contractor’s entitlement to maintain in any manner whatsoever that the direction was or ought to involve a variation.

12 Specification Part D to the contract included the sequencing of works (D3) and Composite Lots (D4). Paragraph D3.1 required Haskins to ensure that all functions of the existing facilities continued to be available to SACL during the works. To that end Haskins was required to construct such interim works as would effect that availability. Haskins was also required to ensure that the existing and new facilities were available to the relevant users in accordance with the Master Program in a safe condition which did not impede that use. A specific obligation on Haskins was to provide the interim works comprising Composite Lot 1 so as to ensure continuity of availability of coach and minibus pickup and loading (D3.1 (a) and (b)). Haskins was also required to provide interim works to ensure that car parking continued to be available to SACL, the public and the tenants of SACL, and the taxi, bus, coach and minibus parking spaces continued to be available to SACL as contemplated under the contract (D3.1 (c)).

13 Specification Part D required Haskins to commence work on Composite Lots 1 and 5 and such part of Composite Lots 2 and 8 as may be acceptable to SACL. The sequence of the lots upon which Haskins was able to commence was fixed in D3.2 (b) or Specification Part D. Each of the lots 1 to 10 related to specific activities within the car park. Lot 1 related to interim coach and minibus parking areas; Lot 2, arrivals road and connection to Gate 25 roadway; Lot 3, taxi pickup; Lot 4, taxi holding area, limousine parking, courier and agency parking area; Lot 5, rental car parking; Lot 6, coach/ bus area; Lot 7, piazza; Lot 8, car park; Lot 9, access road around the Central Services Building and adjacent area and Lot 10, coach and bus parking.

14 Haskins was able to apply to SACL for approval to adjust the contents of any two adjacent Composite Lots. If SACL was satisfied that such adjustment resulted in improvements to staging, SACL was able at its discretion to adjust the scope and the price of each of the Composite Lots and advise Haskins of any such adjustment, with the contract sum remaining the same (D4.11).

The Summons

15 The first claim made by Haskins, pleaded in paragraph C4-C34, alleges that SACL engaged in misleading and deceptive conduct. It alleges that on 24 August 1999, by letter, SACL invited Haskins to tender for the contract on the basis of certain tender documents including conditions of tendering, general conditions of contract and specifications and drawings. Further drawings and specifications, a bill of quantities and tender addenda were provided in August and September.

16 The Summons claims that Haskins submitted its tender on 21 September 1999 and was invited to present its tender submission at a meeting on 8 October 1999. Haskins alleges that it was apparent to both Haskins and SACL that the size, nature, location and number of Composite Lots, together with the sequence and timing of their availability were critical to Haskins’ ability to plan the work, to price the work and to perform the work for the price contracted.

17 Haskins claimed (C25) that SACL represented to it, inter alia, that the work areas, sequencing and timing of the work proposed in the tender documents and contract documents were appropriate and feasible; that SACL genuinely intended and proposed that the work would be carried out substantially in the manner shown in those documents and did not intend or propose substantial departure therefrom. Haskins claims (C26) that what was proposed in the documents was neither appropriate nor feasible and that SACL did not genuinely intend or propose that the work would be carried out substantially in the manner shown in the documents and in fact intended substantial departure therefrom.

18 Haskins claims (C30) that immediately after SACL executed the contract on 28 October 1999 its representatives sought an urgent meeting with Haskins on 4 November 1999 to discuss planning. Haskins claims that at this meeting SACL issued to it a new plan and arrangement of Composite Lots dated 18 October 1999 which showed a sequence of work totally different from that shown in the tender and contract documents. Haskins claims that SACL “directed” it to revise its work areas, sequencing and program in line with the program dated 18 October 1999.

19 Haskins also alleges that for the first time at the meeting on 4 November 1999 SACL made known to Haskins that it would be difficult to carry out the work in accordance with the Composite Lots, work sequence and program in the tender and contract documents. Haskins claims that SACL informed it that this information had been withheld from it until a contractor had been appointed so as to avoid delaying the start of the project. It alleges that SACL directed it to commence the work in remote areas of the car park and not, as Specification Part D required, in Composite Lot 1. It alleges that this work involved entirely different work to that which would have been involved in Composite Lot 1.

20 Haskins alleges that at a site meeting on 9 November 1999 it, Haskins, “tabled a Revised Master Program and a Revised Works Layout.” It alleged that such documents gave “effect” to the new plan and arrangement dated 18 October 1999 provided to it by SACL on 4 November 1999. It also alleges that SACL “directed” Haskins to make further numerous and substantial changes to the Revised Works Layout and Revised Master Program. Haskins claims that it incurred additional costs and incurred losses by reason of what it claims was SACL’s misleading and deceptive conduct.

21 The second major claim brought by Haskins against SACL is contained in paragraphs 35 – 43 of the Summons. This is a claim that SACL represented to Haskins that Haskins would be paid a reasonable price for the additional work caused by the changes to the work areas, sequence and timing. Haskins alleges it relied upon that representation, in continuing to perform the additional work and to accommodate the changes to the work areas and the sequence. There is an alternative claim that such statement was promissory and that the conduct of Haskins in continuing to provide the additional work was in consideration of that promise.

22 Haskins makes an allegation (C38) that SACL agreed, whether by variation of the contract or otherwise, and is estopped from denying that it agreed, to pay Haskins a reasonable price for the additional work. There is an alternative claim that SACL’s conduct in making the representation or promise was misleading or deceptive and that Haskins has suffered loss and damage.

23 The third claim (para 44-45) is in the nature of a quantum meruit claim. The balance of the claims made in the Summons are alternative claims under the contract and for breach of contract. These include claims for variations (para 53-64), extensions of time (para 75-82) and delay costs (para 83-85).

24 There is a final claim which alleges an agreement in December 1999 that SACL informed Haskins that if Haskins ceased claiming and notifying breaches of contract and contractual entitlements, SACL would ensure that Haskins “was treated fairly in the administration of the contract”. It is alleged that this contract was oral and promissory and made in consideration of Haskins agreeing to cease claiming and notifying breaches of contract and contractual entitlements. Haskins alleges that pursuant to this agreement it ceased claiming and notifying breaches of contract and contractual entitlements. It claims that SACL did not treat Haskins fairly in the administration of the contract.

The Motion

25 This motion was heard on 3 and 4 April 2002 when Mr S G Finch SC appeared for SACL, the applicant on the motion, and Mr S Donaldson SC, leading Mr G Carolan of counsel, appeared for Haskins.

26 SACL relied upon the affidavit evidence of Mano Nugapitiya, a Project Manager employed by Australian Pacific Projects Corporation Pty Ltd (APP) (affidavits sworn 26 October 2001 and 8 May 2002); John Horder, an accountant with MSM Loss Management (affidavit sworn 11 March 2002 and report dated 8 March 2002); Francis Peter Bannon, solicitor (affidavits sworn 26 October 2001, 8 March 2002 and 2 April 2002) and Deborah Susan Vine-Hall, solicitor and legal cost consultant (affidavit sworn 26 October 2001). Mr Nugapitiya and Mr Horder were both cross-examined.

27 Haskins relied upon the evidence of Ronald John Eiszele, formerly employed by Haskins as a Project Manager (affidavit sworn 15 November 2001); Andrew Dempsey, formerly employed by Haskins as Site Manager on the project (affidavit sworn 15 November 2001); Frank Lo Pilato, official liquidator (affidavit sworn 27 November 2001); Graeme Plane, the former Financial Controller and Company Secretary of Haskins (affidavit sworn 15 November 2001) and Stephen Sherwin, formerly employed by Haskins as the traffic management/ work plan consultant (affidavit sworn 15 November 2001). Mr Eiszele and Mr Plane were cross-examined.

28 The cross-examination of the various witnesses was directed mainly to the relative strength or weakness of Haskins’ case and the allegation that Haskins makes that SACL’s conduct caused Haskins’ impecuniosity.

Strength and bona fides of Haskins’ case

29 In KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Beazley J referred to the “general rule” that where a claim is prima facie regular and discloses a cause of action, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success “in the absence of evidence to the contrary” (at 197). SACL relies upon the evidence called on the Motion to submit that there is evidence to the contrary in this case and the court would not conclude that Haskins has reasonable prospects of success.

30 This submission is directed to Haskins’ primary claims, that is the first and second claim, to which I have referred earlier. They are the alleged representations before and at the time of entry into the Contract in October 1999 and the alleged representations in February 2000 that Haskins claims amounted to misleading and deceptive conduct upon which it relied and as a result of which it claims it is entitled to damages in the amount of approximately $12 million. The quantum meruit claim and the alternative claims under the contract and for breach of contract have been treated by both parties as having a neutral position to the matters to be decided on this Motion.

31 Haskins relies upon the statements allegedly made by SACL representatives, in particular Mr Faber, at a meeting of 4 November 1999 to claim that SACL “directed” Haskins to revise its work areas, sequencing and program in line with the program dated 18 October 1999. It relies upon the presentation of the 18 October plan and the statements as evidence that SACL never intended Haskins to proceed with the works as sequenced in the tender documents and the Contract and also relies upon them as evidence that it “directed” Haskins to comply with the 18 October plan.

32 Mr Nugapitiya was SACL’s representative under the terms of the Contract. He attended the tender committee meetings as an observer and was present at the meeting on 4 November 1999. Mr Faber was his superior but was also working as project co-ordinator of the upgrade of the Airport generally. To assess the veracity of Haskins’ claims of what occurred at the 4 November 1999 meeting it is necessary to deal with some earlier meetings between the parties.

33 On 8 October 1999 Mr Nugapitiya and Mr Faber were present with Haskins representatives at a meeting for the presentation of the Haskins tender. At that meeting Mr Faber asked whether Haskins would be able to offer any time and costs savings if some of the constraints were relaxed. Mr Eiszele accepted in his cross examination (tr. 41) that “something like that” was said and that he replied that there would be no time or costs savings but that such a relaxation would give greater certainty to completing the works within the specified time frame.

34 There was a further meeting between the parties on 18 October 1999. In that meeting Mr Faber said that to assist SACL in looking at the issue of potential relaxation of the constraints in the Contract a program for SACL’s own use had been prepared and that SACL were happy to share that with the successful tenderer. He advised that such a program involved working in multiple areas concurrently and asked whether Haskins would be prepared to work in that way. Mr Nugapitiya gave evidence that Mr Eiszele said that Haskins was happy to work in multiple areas to get several areas done concurrently. Mr Eiszele accepted in his cross examination (tr. 44) that a conversation in these terms “possibly took place”.

35 After the Contract was signed a further meeting was arranged for 4 November 1999 at which the Haskins representatives were asked about the Master Program Haskins was required to produce within 7 days of the notification that the Contract had been signed. Mr Eiszele stated in his affidavit that Mr Faber produced a program (MN 7) and said “this is a new program I have devised myself, if we were to remove the constraints how much time could you give me back?” to which he claims he responded “none, we can’t give any time back, we can only give more certainty to the dates that are already there”.

36 Mr Nugapitiya’s affidavit evidence of this meeting was more detailed. He stated that after Haskins were asked for their program and they informed SACL that it would not be ready until 9 November 1999, the following conversation took place:

Faber: As we’ve discussed with you before, we’ve prepared a program internally done on the basis of relaxed operational restraints. If you’d like we’d be quite happy to share that information with you.

Eiszele/Sherwin: We’d like to hear about any ideas you might have.

37 The program was then discussed between the representatives and Mr Faber said “we’re prepared to release a copy of this program to you if you think it might be beneficial to your planning of the work” to which Mr Sherwin responded “we’d like to have a copy”.

38 The only notes made at the meeting of 4 November were made by Mr Nugapitiya. Mr Nugapitiya denied that anything was said by way of direction or at all that Haskins was required to revise its work areas, sequencing and programming to give effect to MN7. The notes do not appear to contain any material that I could conclude amounts to a direction under the contract. Mr Eiszele admitted in cross-examination that he made no notes of any alleged direction given to Haskins by SACL. Not only was there no note made of the alleged direction but there was no claim made at that time for a variation as was required by the contract if Haskins was of the view that there had been a direction which amounted to a variation. Indeed no such claim was made until the day before practical completion, seven months later.

39 Mr Eiszele also agreed in cross-examination that Haskins was specifically asked by SACL not to simply take the plan dated 18 October away and bring it back as a Master Plan but was asked to do its own work and present it to SACL on 9 November 1999 at a meeting planned for that day. Haskins did produce a plan on 9 November 1999 (MN 9) and a comparison of the plans produced by Mr Faber (MN7) and the plan produced by Haskins (MN 9) permits a conclusion that Haskins did provide its own Master Program and did not slavishly follow that which was contained in SACL’s 18 October plan. It is also apparent from the evidence that Haskins amended the plan a number of times subsequent to the 9 November meeting.

40 As to the second claim made by Haskins of the alleged agreement or representation made in February 2000 Mr Nugapitiya denied such representations. The statement alleged by Mr Eiszele at this time was that SACL representatives said, “There is money in the tree, it depends on how you shake it.” SACL submitted that at its highest, even if this statement was made in the form alleged, it is inadequate to support a claim of misleading and deceptive conduct. Indeed Mr Eizsele agreed in cross examination (tr. 58) that such a statement was “a colourful way of saying that if you make an application for the work you’ve done you might get paid for it, if it is a good one”.

41 SACL submitted that on the evidence available on this Motion I would conclude that Haskins prospects of success on its main claims are weak. Haskins on the other hand submitted that the Summons discloses a proper cause of action and that its claim is bona fide with reasonable prospects of success.

42 When Mr Eizsele was asked in cross examination to identify the evidence in his affidavit from which it could be inferred or concluded that SACL had given a direction to Haskins at the 4 November 1999 meeting he said there were no such words in his affidavit (tr. 50.44). On being pressed further by Mr Finch he accepted that such evidence was fundamental to the issue of who it was who allegedly told Haskins to depart from the contractually agreed schedule of works (tr. 50).

43 Mr Finch then took the forensically successful step of giving Mr Eiszele the opportunity to provide that evidence in the witness box. Mr Eizsele struggled to find the words and was in my view unable to provide any evidence from which I could be satisfied that there are reasonable prospects of Haskins succeeding on this aspect of its claim (tr. 51). He described Mr Faber’s seniority in SACL and then said that the 18 October plan “was presented in the context to help us”. He also said that Haskins “needed all the help we could get”.

44 He accepted that it would be prudent to make a note of a direction of the type alleged and yet he made no note of it and made no claim in relation to it within the time frames of the contract. I am satisfied that Mr Eizsele was doing his best to be truthful in his evidence however he was not assisted by any notes. In my view it is clear that, at least in respect of the discussion about whether Haskins could give back any time or costs savings, he has transposed what happened at the meeting of 8 October 1999 into the meeting of 4 November 1999. In my view his evidence was very much less reliable than that of Mr Nugapitiya.

45 Mr Dempsey’s affidavit evidence does not impact upon the conclusion I have reached. For one thing he was not working on the Airport project until January 2000 and for another, the only relevant conversation he gives evidence of in February 2000 repeats the words of which Mr Eizsele gave evidence about shaking the money out of the tree. He does allege that additional words, “we will fix you up”, were said but I am satisfied that such do not provide a firm basis of a case for misleading and deceptive conduct, particularly in the light of Mr Eizsele’s quite disarming admissions in his cross examination.

46 On the evidence on this Motion I am of the view that the prospects of Haskins succeeding on its primary claims are weak. I am not of the view that the prospects could be described as reasonable.

47 Of the other factors relevant to be taken into account on such an application two matters require consideration. They are firstly whether the making of an order for security would unduly stultify the plaintiff’s ability to pursue the proceedings and secondly whether Haskins’ impecuniosity has been caused by SACL’s conduct.

Would an order stultify the litigation?

48 Mr Lo Pilato stated in his affidavit:

In my opinion, it would not be in the best interest of the creditors to agree to post security for costs in these amounts because to do so would commit substantial assets available to me as liquidator of the Company to only one aspect of the liquidation. Management of the assets of the Company in liquidation requires me to exercise caution and prudence in relation to the allocation of available funds, given that several projects entered into by the Company are still the subject of finalization and given that not all of the assets of the Company have yet been liquidated. At the same time, legal analysis of the Company’s claim against SACL lead to the conclusion that to abandon the claims by the Company against SACL would not be in the creditors’ interests.

49 Mr Lo Pilato does not claim that an order for security for costs would stultify the litigation. It is submitted that Haskins’ affidavit evidence refrains from stating that it would not be able to maintain the litigation and in fact, implies that it would continue with the proceedings. On this aspect SACL relied upon the decision of the Full Court of the Federal Court in Bell Wholesale Co Pty Ltd v Gates Export Corporation (No. 2) (1994) 2 FCR 1 at 4:

In our opinion a Court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.

50 Haskins submitted that SACL’s submission did not fairly state the liquidator’s position and that Mr Lo Pilato’s affidavit should be read as meaning that an order for security of the magnitude sought by SACL would impede Mr Lo Pilato’s capacity to conduct the administration of the winding up and his ability to recover contingent assets. However there was an important submission made by Haskins in the following terms:

Although it is uncertain whether an order for security will stultify the proceedings, it is likely to place the liquidator in the position of being unable to pursue recovery of all assets potentially available to creditors and to the shareholders in the event of a surplus. For the purpose of the exercise of a discretion to order the provision of security, the distinction between preventing the plaintiff from obtaining remedies in this litigation or other litigation is not material.

51 This is an important concession that the position is “uncertain”. In adopting the approach in Bell Wholesale Co Pty Ltd v Gates Export Corporation, I am satisfied that the burden of proving that such an order would stultify Haskins’ capacity to pursue the litigation was upon Haskins and it has not discharged that burden.

Whether SACL caused Haskins’ impecuniosity

52 The other matter for consideration in this application is whether Haskins’ impecuniosity has been caused by SACL. Needham J in M A Productions v Austrama Television Pty Ltd (1982) 7 ACLR 97 said at 100 that the court “can consider whether the want of assets experienced by the plaintiff is caused by the default of the defendants”. It seems on the authorities that it is not enough that the conduct be merely a “contributing” factor – it must be the material contribution or cause of the impecuniosity: J & M O’Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (1983) 7 ACLR 790 at 795.5; KP Cable Investments v Meltglow at 197. In Newtons Travel Services Pty Ltd v Ansett Transport Industries (Operations) Pty Ltd (1982) 7 ACLR 556 Smithers J said at 558 that a relevant factor for consideration was “whether the impecunious state of a plaintiff company could be said to be due to some material extent to the conduct of the company itself”.

53 Mr Horder reported that based on a review of the financial records available to him Haskins’ financial position improved between the date of practical completion and February 2001. Mr Horder also concluded from the records that SACL had paid progress claims on a timely basis in excess of the contract value. A feature to the progress claims includes the fact that Haskins did not make any claim for variations until the day before practical completion. There has been no proper explanation given in the evidence as to why claims for variations were not made within the timeframe fixed by the contract.

54 Mr Plane’s affidavit evidence included the following in paragraph 9:

The effect of the Project on the Company’s financial position was almost immediate. The Project created a drain on the Company’s financial resources and ultimately on its ability to obtain security required for new projects and for pre-qualification on tender panels... The situation became particularly difficult after July 2000 when it became apparent to me that SACL was unwilling to meet the Company’s claims for payment for work done on the Project. The position was exacerbated by continuing claims from Project sub-contractors and consultants which the Company did its best to accommodate.

55 Mr Plane’s affidavit evidence also referred to projects that continued to support Haskins operation but that practical completion on a number of those projects coincided with the completion of the Airport project. Mr Plane claimed that Haskins provided additional physical resources to the Airport project to ensure its completion by the estimated practical completion date which he claimed had a negative effect on other projects being undertaken such as Lisarow Gardens Retirement Village and the Bayview Heights sub-division.

56 In cross-examination Mr Plane admitted that there were other projects in which Haskins were involved which ran at a loss. The cross examination on this topic in my view exposed an unsatisfactory approach by Haskins to this application. That cross examination was as follows:

Q. You netted up the effects of the whole of the operations of the company and then chose to ascribe the change of fortunes of the company to one as the loss-making company?

A. Yes, that is correct.

Q. You neglected to inform her Honour of the existence of other projects that were also making losses?

A. Yes, as well as other projects making profits

Q. And there were many other loss making projects?

A. Yes, but they would have been the major ones.

Q. And you also did not disclose to her Honour those loss-making projects as being behind the driving changes in the fortunes of the company, did you?

A. No.

(tr. 76)

57 This is a very different position to that stated in paragraph 9 of Mr Plane’s affidavit extracted above. Mr Horder detailed some of the loss making projects in paragraph 7.22 of his report. Mr Plane was questioned about these particular projects and admitted (at 75) they were all loss making projects and that one in particular “was not a good project for the company”.

58 A further feature to Mr Plane’s evidence was the way in which Haskins valued work in progress. That valuation is not on the basis of work done less progress claims made and paid but on a basis that the company values the prospect of payment for work either claimed but not yet paid or performed and not yet billed or not yet performed or billed. There is no indication from Mr Plane’s evidence as to the criteria used or the basis upon which the company made such an assessment. It therefore makes it very difficult for Haskins to rely on this type of evidence to persuade me that the impecuniosity suffered by Haskins has been caused by SACL’s conduct.

59 An important feature to the contribution to the financial detriment of Haskins is the failure by Haskins to lodge its claim for variation until the last week of June 2000. That conduct invited disputation as to the entitlement to make the claim, whatever be the merits of the claim had it been made within the timeframes provided for in the contract. I do not know whether the same tardy approach was adopted to making claims in the other projects but Mr Plane’s evidence about the way in which he analysed, or more accurately did not analyse, unpaid progress claims of the company would not enable me to have very much confidence in Mr Plane’s evidence. He said he relied on the project manager of Haskins to tell him the figure of the unpaid progress claims. He did not go to the actual documents and he admitted he did not know what the actual unpaid progress claims were from time to time (tr. 70-71).

60 It is important to take into account that this project represented 6% of Haskins’ business in the latter part of 1999 and 7% of Haskins’ business in mid-2000.

61 Mr Horder also reported (para 5.8 and 5.9) in relation to Haskins’ debtors and a related party loan owing to Haskins that he concluded may well have caused Haskins decline in financial position. Mr Horder was only provided with statements up to February 2001. The administrator reported on 25 July 2001 that the debtors arising from outstanding progress claims at the time of his appointment were $1.5 million and that contingent claims possibly due to Haskins totalled approximately $18 million, of which SACL represented approximately $12 million. Mr Horder noted the significant difference from the most recent statement provided to him as at February 2001 which indicated total debtors of $8.45 million, $4.518 million of which related to the SACL project.

62 Mr Horder concluded that the extent of the reduction of the realizable value of trade debtors suggested that debtors recorded in the financial statements of Haskins were overstated or that progress claims were perhaps only contingent in nature in the period of the administrator’s appointment.

63 Mr Horder emphasized that as at February 2001 Haskins presented a positive net asset position in excess of $3.7 million after meeting unsecured creditor claims which was an increase from $1.88 million in June 2000. Mr Plane referred to a term debt in the secured liability section of the schedule Mr Horder prepared that he said should have been allocated to a related company. He also pointed out an arithmetical error in the secured assets portion of the schedule. That seems to have been present for the period October – December 1999. In any event neither of these factors affects Mr Horder’s conclusion adversely.

64 Mr Horder also reviewed the documents relating to the payment of progress claims during the project. He concluded that SACL assessed Haskins’ claims for progress payments and processed those claims within a maximum of thirty-four days. He also noted that the number of days taken by SACL to assess and process Haskins’ progress claims decreased during the project from an initial twenty-seven days (November 1999) to five days (April 2000). One claim submitted after the date of practical completion was assessed and processed within twenty days.

65 Mr Horder referred to an entry in Haskins’ financial records described as “Unpaid Progress Claims” on the project of $4.518 on practical completion. That amount was recorded in Haskins’ records until January 2001. The administrator’s report shows the contingent claim of $12.5 million in respect of the project as at 25 July 2001. That amount accords with the quantum claimed in these proceedings. Mr Horder concluded that no specific provision appeared to have been made in Haskins’ balance sheet as at 30 June 2000 for claims in excess of $4.518 and there was no reference to any contingent asset within the audited financial statements as at 30 June 2000. Mr Plane’s explanation for including and retaining this amount in the financial statements of Haskins related to his uncertainty of the impact of the GST legislation. As I have already said, Mr Plane admitted in cross-examination that he did not know the value of the unpaid progress claims from time to time.

66 There were a number of projects that Haskins was involved in that were loss-making projects. It is significant that on an analysis of Haskins accounts Haskins’ financial position improved between the date of practical completion and February 2001. Mr Plane gave some telling evidence when being pressed by Mr Finch as to why he had not disclosed the loss-making projects in his affidavit. He said: “if you look at the profits reported in the year ended June 2000 and the accounts to May 2001, overall the company made significant profits without excluding the Sydney Airport project” (tr. 76). I am not satisfied that SACL’s conduct has caused Haskins’ lack of funds.

Would Haskins be able to satisfy a costs order?

67 In his report to creditors dated 25 July 2001 Mr Lo Pilato anticipated unsecured creditors would receive a distribution of approximately 29 cents in the dollar before allowing for any possible recovery of contingent claims disputed as owing to Haskins. Mr Horder expressed the view that having regard to the uncertainties associated with the nature of the disputed contingent claims, the legal costs and the liquidator’s costs to be incurred in pursuing the contingent claims, the realizable value of contingent claims would be substantially less than the gross value of the claims reported by the administrator. That led Mr Horder to the conclusion that any distribution is unlikely to be any more than 29 cents in the dollar. On that basis, Mr Horder concluded, as I do, that Haskins would not be able to satisfy a costs order against it and would most likely be only able to pay 29 cents in the dollar.

68 Having regard to all of these factors and with specific reference to the evidence of Mr Bannon and Ms Vine-Hall in relation to the projected and expected costs of this litigation I am satisfied it is appropriate to make an order for security up to the time of the filing of all SACL’s witness statements and experts reports. SACL may, if it wishes, make a further application after the filing of that proposed evidence. I will also stay the proceedings until such security is provided.

69 I make the following orders:

1. The plaintiff is to provide security for the costs of the defendant in the proceedings up to and including the filing and service of the defendant’s statements of evidence and expert reports in the amount of $282,355.

2. The proceedings are stayed until such time as the security as ordered has been provided by the plaintiff.

70 If the parties are unable to agree on a costs order in relation to the Motion I will hear argument on a date to be fixed.

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Last Modified: 04/09/2002