Phoenix International Group Pty Ltd v Resources Combined No 2 Pty Ltd
[2012] VCC 1023
•25 July 2012 (revised)
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted |
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
BUILDING CASES DIVISION
Case No. CI-09-00781
Case No. CI-09-00782
Case No. CI-09-00783
| PHOENIX INTERNATIONAL GROUP PTY LTD (ACN 109 614 011) | Plaintiff |
| v | |
| RESOURCES COMBINED NO. 2 PTY LTD (ACN 108 925 999) (In Liquidation) and ZYGMUNT ZAYLER | Defendants |
and
| PHOENIX INTERNATIONAL GROUP PTY LTD (ACN 109 614 011) | Plaintiff |
| v | |
| JETOGLASS PTY LTD (ACN 006 256 239) and ZYGMUNT ZAYLER | Defendants |
and
| PHOENIX INTERNATIONAL GROUP PTY LTD (ACN 109 614 011) | Plaintiff |
| v | |
| GANTLEY PTY LTD (ACN 113 690 574) (In Liquidation) and ZYGMUNT ZAYLER | Defendants |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 July 2012 | |
DATE OF JUDGMENT: | 25 July 2012 (revised) | |
CASE MAY BE CITED AS: | Phoenix International Group Pty Ltd v Resources Combined No 2 Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1023 | |
REASONS FOR JUDGMENT
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BUILDING CONTRACT – practice – security for costs – whether order would prevent proceedings continuing - whether defendants’ conduct contributed to plaintiff’s financial position – security ordered – Corporations Act 2001 s 1335(1); County Court Civil Procedure Rules 0. 62 02 (1)(b)
COSTS - whether proceedings should be stayed until costs paid – County Court Civil Procedure Rules O.63.03 (3)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms J Turfrey | MCK Legal |
| For the First Defendant in proceeding CI-09-00782 and for the Second Defendant in each proceeding | Mr M Robins | Kliger Partners |
HIS HONOUR:
1 On 29 May 2009, Judge Shelton made orders that the plaintiff provide security for the defendants’ costs of these three proceedings up to the conclusion of the mediation and reserved leave for the defendants to apply for further security following the conclusion of the mediation, in the event that it was unsuccessful.
2 I will refer to the first defendants in the three proceedings as “Resources”, “Gantley” and “Jetoglass”.
3 The mediation was unsuccessful and the three proceedings are fixed for hearing on 24 September next. The relevant defendants, who are the second defendant in each proceeding, Mr Z Zayler, and the first defendant Jetoglass in the second proceeding, seek further security. I have to determine whether further security should be ordered on the material before me.
4 Resources and Gantley are now in liquidation. That has the effect of staying the proceedings between the plaintiff and them. There is an application in respect of the Gantley proceeding for leave to proceed, which is listed for hearing in the Supreme Court on 6 August, but little was said about that during the hearing.
5 The security that Judge Shelton ordered was not paid until November 2011, two and a half years later and only after applications were made for dismissal of the proceedings for want of prosecution.
6 The three proceedings by the plaintiff arise in respect of three construction contracts entered into with one or other of the three first defendants to build townhouses in Ballarat (Resources), Beaumaris (Jetoglass) and Hawthorn (Gantley) respectively. Each of the first defendants purported to terminate their particular contract in February 2009. The plaintiff’s claim in each proceeding is for large sums of money based on a quantum meruit and on claims under the Trade Practices Act 1974, in respect of variations said to have been requested by the second defendant. The backgrounds to the proceedings are set out in Judge Shelton’s judgment and in a judgment in Supreme Court proceedings in May 2010[1].
[1]Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106
7 The Court’s jurisdiction to make orders for security for costs is contained in Rule 62.02(1)(b) and Section 1335(1) of the Corporations Act 2001. The approach to the exercise of that jurisdiction was discussed by the Victorian Court of Appeal in Livingspring Pty Ltd (ACN 078 943 352) v Kliger Partners[2] where the Court stated:
“The phrase ‘reason to believe’ is the touchstone of jurisdiction. It requires a rational basis for the belief — and no more. … The section requires the making of a judgment, a risk assessment: is there a risk that the corporation will be unable to pay?”
[2](2008) 66 ACSR 455
8 If satisfied of that risk, the Court has to exercise a discretion to determine whether security should be ordered. Counsel for the plaintiff referred to a number of authorities that emphasise that point.
9 The material before me satisfies me that, within the terms of Rule 62.02(1)(b), that the plaintiff sues for the benefit of another person and that there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant, if ordered to do so. I am also satisfied, to use the words of the Corporations Act, that it appears by credible testimony that the plaintiff will be unable to pay the costs of the defendants if they are successful in their defences.
10 The plaintiff has 100 shares and only one shareholder, Beijing Garden Resort Pty Ltd, which owns a property, which is said to have two caveats over it. The plaintiff does not own land. The other matters that suggest that the precondition for an order for security of costs is established are: the time it took the plaintiff to pay the security previously ordered; the failure of the plaintiff to pay the costs ordered on 27 June 2012, despite the solicitor’s affidavit saying that it would do so and that there is no description of the assets of Beijing Garden Resorts Pty Ltd and no affidavit giving details of assets of the plaintiff.
11 The question then is whether the discretion should be exercised to order security for costs. I take into account that an order for security may present a significant obstacle to the plaintiff proceeding with this litigation. It has pointed to, what it says is, a great imbalance between its position and that of the defendants. It says the townhouses have been sold and the defendants obtained money from their sale.
12 If the plaintiff succeeds in its proceedings, it has an individual defendant, Mr Zayler, against whom it can seek to recover costs.
13 I am not satisfied that the plaintiff has established that it will be unable to continue the proceedings, if the security is ordered. Whether that occurs will depend, in part, on what net assets Beijing Garden Resorts Pty Ltd has and, whether a decision is made to draw on those assets, and on whether anyone else provides funds to the plaintiff.
14 The other matter argued was that the plaintiff’s impecuniosity was caused by the defendants’ actions. The onus of proving those contentions is on the plaintiff. The plaintiff contends that it completed, at least substantially, the construction work required by each contract. The relevant defendants dispute the contention that the works were completed and the assertion that the plaintiff is entitled to the amounts it claims.
15 There is also a dispute as to the manner in which variations to the construction contract were sought, and as to the details of those variations and their quantum.
16 These disputed matters are issues to be argued at the trial and it is not possible for me to be satisfied as to their outcome.
17 The plaintiff alleges that the defendants in each of the proceedings has improperly elected and, decided without court direction and/or consent, to withhold the sum of $451,902 of the plaintiff’s moneys. This sum includes retention moneys of $114,423 in respect of the Gantley project, a third party bank guarantee of $100,000 that the plaintiff had to provide to obtain that retention money, the amounts of progress claims, first in the Gantley project of $80,806, and secondly in the Resources project of $140,800. It also includes half the adjudicator’s fees of $15,873.
18 The plaintiff argues that Gantley and Resources have been placed into liquidation after having received substantial income from the works that it performed.
19 The defendants point to the fact that a subsequent certificate in the Gantley project reduces the amount of the project claim to the sum of $50,558.
20 I am not satisfied, for present purposes that the first defendants were obliged to hold the retention moneys in the name of the plaintiff[3]. I am not satisfied, on the material before me, that for present purposes, I can conclude that there has been any invalid withholding of moneys due to the plaintiff. However, I obviously do not make any final findings about these matters.
[3]Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248 at [26]-[27]
21 Mr Cain, the relevant defendants’ solicitor, states that Gantley lawfully exercised its right of set-off under the contract following the superintendent’s assessment of its entitlement to liquidated damages. The superintendent was Mr Zayler and he issued a certificate, the effect of which was, that Gantley was entitled to be paid the sum of $285,193. I do not refer to that fact to suggest that that the claim to a set-off will necessarily be found to be accurate, but to again note, that most of the matters relied on by the plaintiff are the subject of contest by the defendants.
22 The plaintiff relied on an adjudication certificates granted in its favour, but they were set aside by the Supreme Court in proceedings decided in May 2010, with Vickery J stating:
“Because the payment claims were invalid the adjudicator had no power to determine each of the adjudication applications before him in each matter.”[4]
[4]Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106 at [272]
23 As the adjudication certificates have been set aside, then the obligation to pay half of the adjudicator’s fees will require consideration at trial.
24 The plaintiff alleged that Mr Zayler had unilaterally amended the Gantley contract by crossing out the provision dealing with the contractor’s security. Mr Cain, on Mr Zayler’s instructions, denies that allegation. It Is not possible to determine that contest of fact on the material before the Court.
25 The allegations of breach of trust made against the defendants have not been pleaded and in the nature of such allegations, are likely to require careful consideration by the Court.
26 For these reasons, I am not satisfied that the plaintiff has established that any impecuniosity from which it suffers, has been caused by the defendants’ conduct. I emphasise, of course, that what I say in this decision will not bind the judge who hears the case. My observations are made on the affidavit material before me and made to determine this interlocutory application.
27 I also do not consider that a conclusion can be drawn about any parties’ prospects of success at trial.
28 I therefore consider that an order for security should be made.
29 I then have to determine the quantum of security that should be ordered. I apply the framework used by the parties’ costs consultants: Mr Ger on behalf of Jetoglass and Mr Zayler and Ms Terranova on behalf of the plaintiff.
30 There were two main differences between their estimates. One was in respect of counsel’s fees and the other was in respect of the number of experts, who will be required to give evidence. I consider that the nature of the matters raised in the litigation are reasonably complex and, that I should include in the amount of security, counsel’s fee at the higher end of the scale. The amount of $4,385 per day adopted by Mr Ger is appropriate. I also consider that because of the nature of the matters raised in the proceedings, that I should include in the amount of security to be provided, the fees of two experts, one being a building construction expert and the other being a forensic accounting expert.
31 I also consider it appropriate to include in the amount of security for the pre-trial period, an amount in respect of a further interlocutory application. For that purpose, I include the sum of $6,940, which was the estimate of Mr Ger.
32 I therefore order that the following amounts of security be provided by the plaintiff in respect of the pre-trial period by 15 August 2012. In respect of the Resources proceeding, the sum of $13,557, in respect of the Jetoglass proceeding, the sum of $7,640, and in respect of the Gantley proceeding, the sum of $21,005. These amounts total $42,202.
33 In respect of the trial, I will order that by a specified date, that security be provided for the first week of the trial, it being a trial that is estimated to last for fifteen to twenty days as the plaintiff submit, or thirty days as the relevant defendants submit. I consider that an appropriate figure for each day of the trial to be provided by way of security, is $7,000. I therefore order that security for the relevant defendants’ costs of the first week of the trial in the total sum of $35,000 be provided as follows: for Resources $10,500, for Jetoglass $7,000 and for Gantley $17,500. Those sums should be provided in a form acceptable to the Registrar by 10 September 2012, which is two weeks before the commencement of the trial.
34 The relevant defendants also sought orders, that unless the costs, totalling $6,000, that I ordered on 27 June 2012 to be paid by the plaintiff, are paid by a specified date, the proceeding be stayed.
35 I do not propose to make such orders. I do have power to make it under Rule 63.03(3). The effect of that Rule was considered by the Victorian Court of Appeal in Goa v Zhang[5], where Ormiston JA said:
“Finally, at least for the present, if an order of this kind is to be made, there must be seen to have been some conduct on the part of the party in default which falls for condemnation to the extent of making so draconian an order.”[6]
[5](2005) 14 VR 380
[6]Supra [17]
36 His Honour had at an earlier point in his judgement, reminded Judges that the power under Rule 63.03(3) should be treated, if exercised, as possibly having the effect of bringing to an end litigation without the benefit of the trial, to which the litigant is ordinarily entitled.
37 The exercise of the power to stay proceedings for not paying costs is quite separate from the question of whether to order security for costs. This proceeding has been on foot for a long time and is now two months from trial. I see no relevant conduct of the plaintiff justifying an order that the proceeding be stayed if the costs ordered to be paid on 27 June 2012 are not paid.
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