J Group Constructions Pty Ltd v PGA Rendering Group Pty Ltd

[2015] NSWDC 438

District Court

New South Wales

Medium Neutral Citation:	J Group Constructions Pty Ltd v PGA Rendering Group Pty Ltd [2015] NSWDC 438
Hearing dates:	20 November 2015
Date of orders:	20 November 2015
Decision date:	20 November 2015
Jurisdiction:	Civil
Before:	P Taylor SC DCJ
Decision:	(1)   The plaintiff’s application for an adjournment is refused. (2)   Order that the plaintiff, within 28 days of today, provide security in the sum of $30,000 to be held in a joint account in the name of the solicitors of the plaintiff and the solicitors of the defendants or in such other account or form as may be agreed between the parties. (3)   Order that the plaintiff, at least 30 days prior to the hearing date to be set in respect of the matter, provide further security in the sum of an additional $30,000 to be held as in order (2). (4)   In the event the plaintiff is in default under order (1) or (2) herein, the proceedings are to be stayed. (5)   The plaintiff pay the defendants’ costs of the application.
Catchwords:	COSTS — Security for costs
Legislation Cited:	Buildings and Construction Industry Security of Payment Act 1999, s 32 Uniform Civil Procedure Rules 2005, r 42.21
Category:	Costs
Parties:	J Group Constructions Pty Ltd (plaintiff) PGA Rendering Group Pty Ltd (first defendant) Pedro Coutinho (second defendant)
Representation:	Counsel: Ms J D Williams (defendants)   Solicitors: Blackstone Waterhouse Lawyers (plaintiff) Carmody Lawyers (defendants)
File Number(s):	2015/221960
Publication restriction:	None

Judgment

1. J Group Constructions Pty Ltd (“J Group”) sues PGA Rendering Group Pty Ltd (“PGA”) and Pedro Coutinho in respect of defective building work.

2. The first defendant, PGA, previously obtained a judgment against J Group as a result of an adjudication. That judgment is largely unpaid. Success by J Group in these proceedings will extinguish or largely extinguish the amount owing.

3. The defendants apply for security for costs. They rely on a number of circumstances.

4. First, that the plaintiff's bank accounts or potential bank accounts were the subject of a garnishee, which produced only a very modest amount, yet there were several hundred thousand dollars in those accounts earlier in the year. I have no evidence of what caused the reduction in the bank accounts. The reduction occurred some months before the issue currently before the Court arose. This is not a weighty circumstance in favour of an order for security.

5. Secondly, the defendants rely upon the failure of J Group to meet a statutory demand for a sum of approximately $8,500. The circumstance that the formal demand was not met is some evidence that there is reason to believe that an adverse costs order may not be met.

6. The statutory presumption of insolvency arising from the unmet statutory demand is not a presumption applicable to a security for costs application and creates no additional reason for security.

7. The third matter relied upon by the defendants is that there are some costs arising from the earlier application to have the adjudication decision registered as a judgment and an argument about whether it should be set aside. Those costs were ordered against J Group and have not yet been paid. There was no evidence of the amount of those costs. Also, there are costs in other proceedings which may impact in favour of J Group. In those circumstances, I am not inclined to accord great weight to the circumstance that there remains some unquantified, unpaid costs.

8. Fourthly, reliance was placed upon the policy evident in the Buildings and Construction Industry Security of Payment Act 1999 that the risk of non-payment is to be borne by J Group pending the final determination of the proceedings. However, s 32 of the Act provides that the Act should not affect civil proceedings arising under the construction contract. In my view, this application is not to be determined by the judgment arising from the adjudication.

9. The fifth matter is that J Group has a small amount of paid up capital in the sum of $100 and its sole director and shareholder has not proffered or indicated any willingness to accept responsibility for any adverse costs order. Related to this, there has been no response to correspondence from the defendants seeking details of the financial position of J Group. The searches that have occurred indicate that there is no property held in the name of the plaintiff. There is also no evidence directed to the ability of J Group to meet an adverse costs order. The financial circumstances of the plaintiff, its assets and liabilities, its liquidity and the like are matters largely within the knowledge of the plaintiff. The plaintiff has been on notice of the defendants’ concern about the plaintiff’s solvency for more than two months and has failed to provide any material to potentially remedy that concern. The failure of J Group to provide any evidence of solvency enlivens a possible Jones v Dunkel inference, which I think in this case has application.

10. The threshold test for security for costs is that there is reason to believe that the plaintiff will be unable to meet an adverse costs order. The onus rests upon the applicants/defendants. However, the absence of any assets in the name of the plaintiff and the small amount of paid up capital are matters suggesting an inability to meet an adverse costs order. The absence of any response or evidence from the plaintiff to indicate otherwise allows the inference that such material, as would be available, would not assist the plaintiff. I am inclined to draw that inference.

11. The circumstance that J Group has a small paid capital and has provided no evidence of its solvency allows me more readily to draw the inference that there is reason to believe that J Group may be unable to pay the costs of the defendants if ordered to do so.

12. J Group submitted that there were no financial records before the Court. But that is not a matter in favour of the plaintiff on this application. Nor is the circumstance that J Group may possibly be the beneficiary of a costs order in the Supreme Court proceedings. The costs order may be in favour of the defendants. The mere possibility of a favourable order elsewhere is unhelpful to remove a reason to believe that J Group might be unable to pay the costs of these proceedings.

13. That J Group has a genuine cause of action is of itself insufficient to cause me to refuse an order for security for costs. The purpose of security for costs is not simply to provide security for a defendant who is destined to succeed in the proceedings.

14. No other factors referred to in r 42.21(1A) of the Uniform Civil Procedure Rules 2005 are submitted by J Group to be a reason why security should not be given. There is, for example, no evidence that an order for security would stifle the plaintiff’s claim in the proceedings, or that the plaintiff is impecunious and otherwise unable to meet a security order.

15. For the reasons given, especially the small paid up capital, the absence of relevant financial evidence from J Group, and the absence of any natural person who accepts responsibility for the costs, I am satisfied that the threshold test is satisfied, and that an order for security should be granted.

16. The costs of the proceedings to the conclusion of the hearing will amount to the sum of $90,250. There is evidence that 90% of disbursements are likely to be recoverable on an assessment and 70% of the solicitor's costs. J Group accepted that most disbursements may be recoverable at 90%, but submitted that a lesser percentage of Senior Counsel's fees would be recoverable and that only 55% of solicitor's fees would be recoverable.

17. A significant component of the dispute is whether rendering done by the defendants was defective. The value of the claim might be less than half of the $330,000 claimed. These matters might indicate a doubt about whether Senior Counsel's fees are largely recoverable. However, on the other hand, I am inclined to think that 55% of solicitor's fees is lower than what would be the usual recovery on assessment.

18. The defendants seek an amount of $73,575 as security, whereas ultimately the plaintiff made a submission that $50,000 should be the appropriate amount. For the reasons given, I propose to order an amount of security of $60,000, half of which I propose to order to be paid within a short period, otherwise the proceedings be stayed in accordance with r 42.21 of the Uniform Civil Procedure Rules 2005. The further $30,000 is to be paid 30 days prior to the date set for hearing, otherwise the proceedings be stayed in accordance with r 42.21.

19. There shall be an order for costs of the motion in favour of the defendants.

20. The orders of the Court are that:

1. The plaintiff’s application for an adjournment is refused.

2. Order that the plaintiff, within 28 days of today, provide security in the sum of $30,000 to be held in a joint account in the name of the solicitors of the plaintiff and the solicitors of the defendants or in such other account or form as may be agreed between the parties.

3. Order that the plaintiff, at least 30 days prior to the hearing date to be set in respect of the matter, provide further security in the sum of an additional $30,000 to be held as in order (2).

4. In the event the plaintiff is in default under order (1) or (2) herein, the proceedings are to be stayed.

5. The plaintiff pay the defendants’ costs of the application.

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Decision last updated: 09 August 2018