Stamford Bridge SW6 Pty Ltd v Blaise Building Services Pty Ltd

[2023] NSWSC 50

Supreme Court

New South Wales

Medium Neutral Citation:

Stamford Bridge SW6 Pty Ltd v Blaise Building Services Pty Ltd [2023] NSWSC 50

Hearing dates:

1 February 2023

Decision date:

08 February 2023

Jurisdiction:

Equity - Technology and Construction List

Before:

Ball J

Decision:

(1)   The plaintiff’s notice of motion filed on 22 November 2022 is dismissed with costs;

(2)   Order that the plaintiff provide security for the first defendant’s costs in the sum of $150,000 to be provided in the following tranches:

(a)   $50,000 within 28 days of the date of this judgment;

(b)   $50,000 within 28 days after the date on which the matter is set down for final hearing;

(c)   $50,000 at least 28 days before the first day of the final hearing;

(3)   Order that security be provided by paying the relevant amounts into Court or otherwise in a form that is satisfactory to the first defendant;

(4)   Order that the proceedings be stayed if security is not provided in accordance with order (2);

(5)   Order that the plaintiff pay the first defendant’s costs of the first defendant’s notice of motion filed on 9 November 2022;

(6)   Stand the matter over for directions on 17 February 2023.

Catchwords:

COSTS — Security for costs — Relevant factors — where outstanding judgment debts under Building and Construction Security of Payment Act 1999 (NSW) — where directors offer an undertaking to be personally liable for costs – Security ordered

Legislation Cited:

Building and Construction Security of Payment Act 1999 (NSW)

Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law

Corporations Act 2001 (Cth)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Jazbas Pty Ltd v Haddad [2007] NSWCA 291

Category:

Procedural rulings

Parties:

Stamford Bridge SW6 Pty Ltd (Plaintiff | Applicant)
Blaise Building Services Pty Ltd (First Defendant | First Respondent)
Robert Sundercombe (Second Defendant | Second Respondent)

Representation:

Counsel:
C Carroll (Plaintiff | Applicant)
S Puttick (First Defendant | First Respondent)

Solicitors:
Enright Law Group Pty Ltd (Plaintiff | Applicant)
Keystone Lawyers (First Defendant | First Respondent)
Submitting appearance (Second Defendant)

File Number(s):

2022/162506

Publication restriction:

None

JUDGMENT

Introduction

1. Before the Court are two notices of motion. One filed by the plaintiff, Stamford Bridge SW6 Pty Ltd (Stamford Bridge), on 22 November 2022 seeks summary judgment. No submissions were made by Stamford Bridge in support of that motion. It should be dismissed with costs.

2. The second motion was filed by the first defendant, Blaise Building Services Pty Ltd (BBS). It seeks security for its costs of the proceedings in the sum of $150,000.

Background

3. Stamford Bridge is a special purpose vehicle established to construct two residential dwellings on adjacent lots in Mascot, New South Wales. On 20 May 2021, Stamford Bridge entered into two construction contracts with BBS for the construction of the dwellings. The contracts were terminated by BBS on 3 June 2022, before the work was complete. There is a question whether BBS was entitled to terminate the contracts or whether its purported termination was a wrongful repudiation of the contracts.

4. Prior to the termination, the first defendant obtained on 30 May 2022, 2 June 2022 and 15 August 2022 under the Building and Construction Security of Payment Act 1999 (NSW) (the SOPA) a number of adjudication determinations in its favour. Relying on those determinations, it obtained judgment against Stamford Bridge in the District Court of New South Wales on 20 June 2022 in the sum of $236,572.22 and on 4 November 2022 in the sum of $129,013.70. Those judgments have not been satisfied.

5. On 5 June 2022, Stamford Bridge commenced these proceedings seeking to quash the adjudication determinations obtained on 30 May 2022 and 2 June 2022 and relief under the Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law. It filed an amended claim on 2 October 2022 abandoning the claims for that relief and instead sought to recover amounts said to have been overpaid by it and damages for defective work. Its right to make those claims is preserved by s 32 of the SOPA. It appears that the total amount claimed is in the order of $500,000 to $600,000.

6. The application for security for costs is made under both Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.2(1)(d) and s 1335 of the Corporations Act 2001 (Cth). Both provisions raise the same issues. In each case, BBS must establish (to use the words of UCPR r 42.2(1)(d)) that there is reason to believe that Stamford Bridge will be unable to pay its costs if ordered to do so and that having regard to all relevant circumstances it is appropriate to make an order for security.

7. As finally put, Stamford Bridge made three principal submissions in relation to security. First, it pointed out that the threshold question is future looking. The question is whether there is reason to believe at the time the order for costs is made that it will be unable to satisfy that order. It submits that BBS has not discharged that onus. According to it, although it may be impecunious now, the dwellings are close to completion and on completion they will be sold for an amount that will enable it to satisfy any costs order made in BBS’s favour. Second, Stamford Bridge submits that its directors are willing to give an undertaking to be personally liable for any costs order and that in those circumstances the Court in the exercise of its discretion should not order security. Third, Stamford Bridge takes issue with the quantum claimed by BBS.

The threshold requirement

8. In my opinion, the threshold requirement is satisfied in this case. BBS does not bear an onus of establishing that Stamford Bridge will not be able to meet any costs order. Rather, it bears an onus of establishing that there is reason to believe it will not be able to do so. It is plain on the evidence before the Court that Stamford Bridge is not currently able to meet any costs order in favour of BBS. It has unsatisfied judgments against it. The only assets it has are the two dwellings, which remain incomplete. According to evidence given by Stamford Bridge, the agent who has been retained to sell the two dwellings when they are completed (which is expected to occur shortly) estimates that the sale price will be between $2,650,000 and $2,900,000. There is also evidence from a valuer that the value of one of the dwellings is $2,450,000. Mr Karl Salau, one of the directors of Stamford Bridge, has sworn an affidavit stating that the total amount owing under a mortgage over that property is approximately $1,077,200, leaving a balance of $1,372,800. However, this evidence is not sufficient to rebut the inference to be drawn from the current position. No attempt has been made to identify all the liabilities of the plaintiff and it remains unclear whether the properties will ultimately be sold for a profit which is sufficient to discharge all those liabilities and leave sufficient money to pay any costs order in BBS’s favour.

Discretion

9. Originally, Stamford Bridge submitted that its impecuniosity arose from BBS’s conduct and that that was a reason for refusing security. That submission was properly abandoned in oral submissions. Stamford Bridge’s impecuniosity arises from the fact that BBS has obtained unsatisfied judgments against it.

10. In exercising the discretion to order security, there is a question of how much weight should be placed on an undertaking by the directors of a company to pay any costs orders against the company: for discussion, see Jazbas Pty Ltd v Haddad [2007] NSWCA 291 at [4]ff per Basten JA. It is apparent, however, that such an undertaking, even if given by all the directors of the company through which those directors carry on business, is not conclusive and that the Court still retains a discretion to order security.

11. In my opinion, that discretion should be exercised in BBS’s favour in this case. There is no evidence before the Court concerning the financial position of the directors. There is evidence that Stamford Bridge holds the properties as trustee of the trust of which the directors are beneficiaries. It is unclear whether the trust funds will ultimately be distributed to the directors, although the current indication is that they will be. Stamford Bridge and its directors have chosen to use the structure of the company and trust to carry on business. It is for them to establish that the undertakings they have offered would put BBS in the same position it would have been in if the business carried on by Stamford Bridge had been carried on by the directors personally. In my opinion, they have not done so.

12. Moreover, in this case, Stamford Bridge and its directors seek to take advantage of the corporate structure they have adopted in relation to the payment claims. The directors have not undertaken to be personally liable for those payment claims and the judgment debts rising from them. In my opinion, Stamford Bridge and its directors should not be permitted, by giving personal undertakings, to avoid the consequences of the corporate structure they have adopted so far as security for costs is concerned when at the same time they seek to obtain the benefit of that corporate structure in relation to the payment claims.

Quantum

13. The application for security is supported by an affidavit from BBS’s solicitor, Mr Lou Stojanovski, setting out his estimate of the costs that BBS will incur. Mr Stojanovski estimates that the total costs will be $213,611.50 including GST. He gives a breakdown of those costs. His estimate appears to be reasonable. It is not challenged by any evidence filed by Stamford Bridge. The claim for security of $150,000 appears to allow for an appropriate discount to arrive at a figure for recoverable costs.

14. Stamford Bridge objects to the amount claimed by BBS on two main bases. First, it submits that the costs are disproportionate to the amount claimed and the amount of security should be discounted for that reason. I do not accept that submission. The costs are substantial having regard to the total amount claimed. However, as I have said, the estimate appears to be reasonable and the quantum of costs arises from the nature of the claim and, in particular, the fact that it will require the parties to obtain expert evidence relating to the various defects that Stamford Bridge says exists with the work undertaken by BBS.

15. Stamford Bridge’s principal point in respect of Mr Stojanovski’s estimate is that it does not allow for contingencies, such as the possibilities of settlement. Those contingencies affect the timing of security, rather than the amount. They should be addressed by ordering security in tranches. That course was not opposed by BBS.

Costs and orders

16. In circumstances where the application for security was opposed by Stamford Bridge, Stamford Bridge should be ordered to pay BBS’s costs of the application.

17. Accordingly, the orders of the Court are:

1. The plaintiff’s notice of motion filed on 22 November 2022 is dismissed with costs;

2. Order that the plaintiff provide security for the first defendant’s costs in the sum of $150,000 to be provided in the following tranches:

1. $50,000 within 28 days of the date of this judgment;

2. $50,000 within 28 days after the date on which the matter is set down for final hearing;

3. $50,000 at least 28 days before the first day of the final hearing;

3. Order that security be provided by paying the relevant amounts into Court or otherwise in a form that is satisfactory to the first defendant;

4. Order that the proceedings be stayed if security is not provided in accordance with order (2);

5. Order that the plaintiff pay the first defendant’s costs of the first defendant’s notice of motion filed on 9 November 2022;

6. Stand the matter over for directions on 17 February 2023.

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Decision last updated: 08 February 2023