Kubic Pty Ltd v Dumayne Property Group Pty Ltd
[2015] VCC 23
•30 January 2015
| IN THE COUNTY COURT OF VICTORIA | Revised (Not) Restricted Suitable for Publication |
AT MELBOURNE
COMMERCIAL LIST
BUILDING CASES DIVISION
Case No. CI-13-05173
| KUBIC PTY LTD (In liquidation) | Plaintiff |
| v. | |
| DUMAYNE PROPERTY GROUP PTY LTD | Defendant |
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JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 January 2015 | |
DATE OF JUDGMENT: | 30 January 2015 | |
CASE MAY BE CITED AS: | Kubic Pty Ltd v. Dumayne Property Group Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 23 | |
REASONS FOR JUDGMENT
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Catchwords: Practice and procedure - Application for security for costs – Whether a fund available sufficient to meet an order for the defendant’s costs – Whether the Court should exercise its discretion against the grant of an order – Quantum of security to be ordered.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T. Greenway | Harrick Lawyers |
| For the Defendant | Mr M. J Kenny (Solicitor) | Kalus Kenny Intelex |
HIS HONOUR:
1The defendant seeks security for its costs of the proceeding, up to but not including the first day of trial, in the sum of $47,000.
2The plaintiff disputes the application on the basis that:
a.the defendant has not satisfied the jurisdictional requirements for such an application;
b.discretionary matters militate against the provision of security;
c.the quantum of security claimed is excessive,
Background to the proceeding
3The proceeding was commenced by writ issued 8 October 2013. The plaintiff carried on business as a building contractor. Pursuant to a written contract dated 16 December 2011, it agreed to construct 5 residential apartments in Toorak for the defendant, a property developer.
4The plaintiff’s claim was for a progress claim of $137,746.88 pursuant to the Building and Construction Industry (Security of Payment) Act (Vic) 2002, for the release of retention moneys of $118,705 due on practical completion and the securing of the balance of retention moneys in a similar sum.
5The defendant, in its defence and counterclaim, claimed that the cost of rectifying defective and incomplete work exceeded $1 million. The counterclaim also sought damages for delay and the repayment of overpaid progress claims.
6The plaintiff was placed in voluntary administration on 16 May 2014 and into liquidation on 28 July 2014. A report to creditors on 16 June 2014 noted assets of $116,981 and liabilities of $3,665,406.
7The action is being pursued by the liquidators. Earlier trial dates on 17 June 2014 and 1 October 2014 were vacated. The proceeding is currently fixed for trial on 25 March 2015 with an estimate of 5 sitting days.
8In an earlier proceeding in this Court, the plaintiff had obtained summary judgment on 11 July 2013 in respect of an earlier progress payment. The plaintiff issued a statutory demand against the defendant. The defendant made application in the Supreme Court to set aside the demand and, in a separate proceeding, for the removal of caveats lodged by the plaintiff and to stay further execution on the judgment.
9The Supreme Court proceedings, the early County Court proceeding and part of the present proceeding were compromised by terms of settlement dated 6 February 2014. The defendant agreed to pay the plaintiff the sum of $500,000 in full satisfaction of the County Court judgment in the earlier proceeding and the claim for the progress claim in the present proceeding and to resolve the execution and caveat issues raised by the Supreme Court litigation.
10Relevantly, to the present application, the terms provided:
a.in paragraph 7, that “the sum of $118,750 (representing the first 50% of retention moneys held by [the defendant] under the Contract) shall be paid into an interest bearing account in the joint names of the solicitors for each of [the parties]”;
b.in paragraph 8, that the defendant provide “written evidence…of the holding by [the defendant] of the further sum of $118,750 (representing the second 50% of retention moneys held by [the defendant] under the Contract)”.
11Paragraphs 7 and 8 of the terms of settlement were complied with. The plaintiff seeks the recovery of both those sums, although it was said that this may necessitate a further amendment to the statement of claim.
12The defendant has not sought leave under the Corporations Act 2001 (Cth) to proceed with its counterclaim. It is limited, therefore, to reliance upon its defence, including matters of set-off.
13I was informed that the Building Contract provided that retention moneys were to be paid to the plaintiff, as to 50%, upon the granting of a certificate of practical completion, and as to the remaining 50% upon the completion of the defects liability period.
14By clause 10.13 of the Contract, retention moneys were to be paid less “any sum due to the proprietor”. Practical completion was certified by the defendant as having been reached on 13 May 2013. The defects liability period was to conclude on 13 May 2014. The certificate of practical completion noted that, “In accordance with the Contract, the contractor is entitled to the release of 50% of the security retention”.
Jurisdictional issue
15I must first determine whether there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if it were to be successful in defending the claim made against it.
16Mr Greenway, plaintiff’s counsel, submitted that:
a.the retention moneys held in the joint bank account was a fund which would remain available to meet the defendant’s costs of the proceeding, if the plaintiff became liable to pay the costs;
b.“at this stage of the proceeding, it is premature for the Court to make any determination as to the likelihood of success on either claim [or defence]”, although “the distribution of the Fund is contingent on the Court’s determination in the proceeding”.
17Mr Greenway relied upon the decision of the Court of Appeal in ANZ & Ors v Oswal [2013] VSCA 156 (“Oswal”). In Oswal, the Court accepted that “the proceeds of the sale of shares held in escrow are tangible security for the defendants’ costs because [the respondent] has an equitable or beneficial interest in those proceeds” (per Priest JA at paragraph 117, and see also Redlich JA at paragraph 10).
18It should be noted however that in Oswal:
a.jurisdiction was founded to make an order for security for the defendants’ costs, because the plaintiffs “are ordinarily resident out of Victoria” (paragraph 112);
b.the question of whether there was “a fund available or sufficient to meet an order for costs” was a factor relevant as to whether the Court should exercise its discretion to make an order for the provision of security;
c.ordinarily, such a fund would only be relevant if there was an “asset of the respondent in existence…available within the jurisdiction upon which the applicants, if successful parties, could have enforced any judgment for costs” (paragraph 9);
d.there is no requirement that “an asset within the jurisdiction be necessarily immediately available and accessible when there is no imminent likelihood that the applicant will obtain a costs order which it will seek to enforce. What is required is that the applicants have ready and certain access to the amount secured if and when entitlement to claim it arises” (paragraph 12);
e.it could not “be doubted that, although Mrs Oswal and Mr Oswal have no immediate right to the proceeds of sale of shares held in escrow in the Holdback Amount they currently have a beneficial interest in those proceeds, subject to the prior claims of Yara, Apache, ANZ and the Receivers” (paragraph 117).
19I consider that in the present application, the Court has jurisdiction to make an order for security for the following reasons:
a.the plaintiff is hopelessly insolvent. If it succeeds in its claim against the defendant, the amount it recovers would result in the payment of a dividend to creditors of no more, and likely substantially less than, 10 cents in the dollar;
b.if the defendant were to successfully defend the claim, the plaintiff would have no entitlement to the retention sums presently held to abide the result of the present proceeding;
c.whilst it is not generally appropriate to consider the merits of the respective claims of the parties, it is appropriate in my view to take account of the plaintiff’s entitlement to the fund in the circumstances in which the defendant would become entitled to its costs of the proceeding.
Discretionary matters
20Mr Greenway submitted that the following matters should persuade the Court to exercise its discretion against the making of an order for security:
a.the availability of the retention funds which would provide a source for the defendant to recover its costs, if successful.
This would, however, significantly reduce the amount of the funds which would ordinarily be paid out to the defendant, if it were successful in defending the plaintiff’s claim.
The Building Contract makes it clear that the plaintiff has no entitlement to the retention funds if “any sum due to the proprietor” exceeds the amounts held in the retention funds.
The defendant claims that the amount due to the defendant as proprietor is over $1 million. It cannot recover this sum, but may simply establish by a successful defence of the claim that the plaintiff has no entitlement to the retention moneys.
If the action goes to trial, the defendant would incure the costs of the trial, which has a present estimate of 5 sitting days, and these costs are therefore not insubstantial;
b.there were “common issues” in relation to both the claim and counterclaim.
However, the defendant is not proceeding with its counterclaim. The defendant’s response to the proceeding is essentially “defensive as the defendant must show that moneys are due to it (to complete or rectify the plaintiff’s works) in order to defend the claim for payment of the retention moneys to the plaintiff”.
Whilst the determination of the proceeding will decide the issue of whether the retention funds should be paid to the plaintiff or the defendant, the litigation essentially involves the plaintiff’s claim and the defence to that claim.
Mr Greenway conceded that if the defendant were successful at trial, it would be entitled to the moneys in the retention funds;
c.there has been delay in the bringing of the application.
There has been a good deal of uncertainty in the plaintiff’s conduct of the proceeding, most recently resulting from the company’s liquidation on 28 July 2014 and the vacation of the second trial date of 1 October 2014.
The defendant’s solicitors were informed by the liquidators that they would pursue the plaintiff’s claim. On 21 October 2014, the solicitors gave notice that the defendant would seek security for its costs. The plaintiff’s solicitors did not respond to the letter and, on 2 December 2014, the summons seeking an order for security for costs was filed.
In these circumstances, it cannot be said that there has been the sort of delay which would deprive the defendant of an order for security, if otherwise entitled. The security sought by the defendant is in respect of the pre-trial costs not yet incurred;
d.if an order for security for the defendant’s costs is made, this would be likely to stultify the proceeding. If the proceeding were stayed, unless and until security were provided, the moneys presently in the retention funds may simply sit there, and this would not be in the interests of the defendant.
I consider that this is not a valid basis for refusing to make an order and that it is likely the Court (perhaps with the assistance of a Court with powers under the Corporations Act) would resolve any impasse.
21It is clear from the evidence that:
a.the defendant’s conduct did not cause the plaintiff’s financial position;
b.there is no evidence that the creditors of the plaintiff, who stand to benefit from the litigation, have been asked to contribute to the costs of the litigation or to provide security for the defendant’s costs.
22I consider, in the circumstances, that an order for security for the defendant’s costs should be made.
Quantum
23The defendant seeks security for the remaining pre-trial work in the total sum of $47,000. The plaintiff disputes certain parts of the claimed items:
a.the $3,000 claimed for discovery, on the basis that “the defendant has already filed an affidavit of documents dated 16 May 2014”.
The plaintiff has not yet made discovery and has not inspected the documents discovered by the defendant. It is likely that the documents of the plaintiff, the defendant will be required to inspect, will be considerable. In my view, the estimate of $3,000 is not excessive;
b.the $10,000 claimed for expert evidence, on the basis that the defendant has already filed two reports dated 8 August 2013 and 7 November 2014.
The second report was served after the defendant’s solicitors gave notice of the intention to make the present application, although it is likely that part of the cost of the report would have been incurred prior to the letter being sent. It is probable that the plaintiff will file expert reports which the defendant will need to consider and to which the defendant’s experts may need to respond. The estimate of $10,000 is likely to be conservative;
c.the $2,000 claimed for a directions hearing on the basis that “a further directions hearing is not required”.
Consent directions were made “on the papers” by order dated 20 November 2014. To ensure that the trial proceeds on 25 March 2015, there are significant steps required to be taken by the parties. I consider it unlikely that the action will proceed to trial without a further directions hearing;
d.the $20,000 claimed for preparation for trial, on the basis that “the plaintiff’s claim is a simple debt claim” whereas “in contrast, the defendant’s counterclaim involves complex facts requiring expert evidence and is likely to require preparation for trial in accordance with Mr Kenny’s estimate”.
This comment in the affidavit of the plaintiff’s solicitor is misconceived insofar as it confuses the defendant’s counterclaim (which is not proceeding) and the defence to the plaintiff’s claim. It therefore involves an admission that the amount claimed is reasonable to prepare the defendant’s case for trial.
Orders
24Accordingly, I consider that the following orders should be made:
1. Unless the plaintiff provides security for payment of the defendant’s costs of the proceeding for the pre-trial preparation in the total sum of $47,000, the proceeding will be stayed.
2. The plaintiff must provide the security as follows:
a.by 4pm on 27 February 2015, paying the said sum to the Registrar of the County Court to be held in court pending the determination of the proceeding or further order; or
b.by 12 noon on 26 February 2015, obtaining the written consent of the defendant or its solicitors for the provision of alternative security.
25I will hear further from the parties as to the form of the orders and as to the costs of the application.
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Certificate
I certify that these 8 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 30 January 2015.
Dated: 30 January 2015
Catherine Kusiak
Associate to His Honour Judge Anderson
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