Synergy Building & Construction Pty Ltd v Tisma & Anor

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeal: Civil)
SYNERGY BUILDING & CONSTRUCTION PTY LTD v TISMA & ANOR
[2024] SASC 22
Judgment of The Honourable Justice McDonald (ex tempore)
13 February 2024
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - APPEAL OR REVIEW
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION - PROSPECTS OF SUCCESS
The Appellant appeals against a judgment made in the Magistrates Court sitting in Adelaide against the Appellant in the context of a building dispute concerning works carried out by the Appellant at the Respondents’ residential address. Against that setting, the Respondents apply for an order that the Appellant pay $25,000 into the Court as security for the costs of the Respondents incurred up to and including the first day of the hearing of the appeal.
The application is brought pursuant to s 1335(1) of the Corporations Act 2001 (Cth) and r 215.3(1) of the Uniform Civil Rules 2020 (SA) (UCR). The Respondents contend that, if unsuccessful on appeal, the Appellant will not be able to pay the costs of the Respondents. In support of this position, the Respondents rely upon affidavit material setting out the result of enquiries into the financial position of the Appellant, as well as its financial liabilities arising from the Magistrates Court proceedings.
The Appellant did not put any affidavit material before the Court on the application for security and submitted that there was no onus upon him to do so. The Appellant contends that declining to provide financial information cannot amount to evidence of his financial position, and that a sound basis existed upon which the Court should decline to exercise its discretion as to the grant of security. In the alternative, the Appellant submits that the quantum of any security should be reduced to reflect the narrow scope of the appeal.
Held, granting the application for security for costs:
1.The Respondent has satisfied the threshold test set out in s 1335(1) of the Corporations Act 2001 (Cth), having established that there is “reason to believe” that the Appellant will be unable to pay the costs of the Respondents if unsuccessful on the appeal.
2.Taking into account the history of the matter, the extent of the findings against the Appellant, the limited scope of the appeal, as well as the real risk that the Appellant will be unable to meet an adverse costs order, it is necessary to exercise the Court’s discretion in making an order for security for costs.
3.Having determined to make an order pursuant to s 1335(1) of the Corporations Act, it is unnecessary to consider the grant of an order for security under r 215.3(1) of the UCR.

Corporations Act 2001 (Cth) s 1335(1); Uniform Civil Rules 2020 (SA) r 215.3(1), referred to.
Blaikie v Chelliah [2023] SASCA 143 ; Mannix Electrical Pty Ltd v Belport Pty Ltd (2019) 134 SASR 438 ; Re Beechworth Land Estates Pty Ltd (Administrators Appointed) (No 3) (2015) 298 FLR 233, considered.

SYNERGY BUILDING & CONSTRUCTION PTY LTD v TISMA & ANOR
[2024] SASC 22
Magistrates Appeal: Civil
McDONALD J.

The Respondent has made an application for security for costs pending the appeal of a decision made in the Magistrates Court.
The appeal arises in the context of a building dispute between the Appellant and Respondent which has been ongoing for over three years regarding building works carried out by the Appellant at the Respondents’ residential premises.
The matter proceeded to trial between July and August 2023 before Magistrate Barnett in the Magistrates Court sitting in Adelaide.
On 20 September 2023 Magistrate Barnett delivered judgment and on 25 September 2023 provided written reasons. The Magistrate made findings in favour of the Respondents and made orders against the Appellant in an amount of in excess of $300,000. I am advised however that the final orders have not yet been made with a number of minor issues still to be determined. I am told that it is anticipated or at least hoped that these will be dealt with on the next occasion on 16 February 2024 when the matter is due to come back on in the Magistrates Court.
The appeal was tentatively listed to be heard on 29 February 2024 however given the status of the proceedings in the Magistrates Court, that date has been vacated. The appeal is likely to be relisted in March.
There are four discrete issues arising from the decision of the Magistrate that are the subject of the appeal. Three relate to the scope of the remedial work that the Magistrate ordered be performed by the Appellant. The fourth issue relates to the payment of damages for alternate accommodation for the Respondents while the works are being performed.
The Respondents seeks an order that the Appellant pays $25,000 into the Court as security for the costs of the Respondents up to and including the first day of the hearing of the appeal.
The application is made pursuant to s 1335(1) of the Corporations Act 2001 (Cth) and r 215.3(1) of the Uniform Civil Rules 2020 (SA) and arises out of concerns that if unsuccessful on appeal the Appellant will not be in a position to pay (or alternatively unwilling to pay) the costs of the Respondents.
I will first consider the application of s 1335(1) of the Corporations Act. It provides:[1]
(1)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 all proceedings until the security is given.
[1] Corporations Act 2001 (Cth) s 1335(1).
It follows that the discretion to order security for costs under s 1335(1) is conditioned upon satisfaction of the threshold requirement that it appears by credible testimony that there is reason to believe that the Appellant will be unable to pay the costs of the Respondents if unsuccessful in the appeal.
The Respondents carry the onus of establishing this threshold requirement, however the test has been described as “undemanding” and as imposing a low or fairly modest threshold.[2] That must necessarily be so as commonly the Court’s assessment will be a preliminary one and based on limited materials. That being said it is not enough for the Respondents to establish that there is a suspicion or a mere risk that the Appellant will be unable to pay, it is for them to establish that there is genuine reason to believe that the Appellant will be unable to pay if unsuccessful.
[2] Mannix Electrical Pty Ltd v Belport Pty Ltd (2019) 134 SASR 438 at [14].
It is also a significant factor that the application is for security for the costs of an appeal rather than a trial. It is well recognised that Courts will more readily order security for costs on an appeal because the Appellant has already had the opportunity to have the matter litigated and has had the benefit of a judicial determination of the underlying controversy. It is also however a relevant factor that weighs against the making of the order that the Appellant here was the Respondent and not the Applicant in the Magistrates Court.[3]
[3] Blaikie v Chelliah [2023] SASCA 143 at [48].
In support of the application for security the Respondents rely on an affidavit sworn by Samuel Burford.[4] In that affidavit Mr Burford sets out enquiries that have been undertaken in an attempt to determine the financial position of the Appellant. The results of those enquiries form part of the basis of the application. In summary those enquiries have established the following:
1.The Appellant’s company commenced operations on 23 February 2015 and is limited by share capital which is owned entirely by Bob Gajic.
2.The Appellant owns no real property in South Australia.
3.Five security interests are registered as having been granted by the Appellant to Buyright Pty Ltd, Stoddard Group Pty Ltd (and associated companies), Capral Ltd and National Australia Bank Ltd. The security interest of the National Australia Bank Ltd is over all present and after acquired property without exception.
[4] 19 January 2024 (FDN 5).
The Respondents also rely on the financial liabilities incurred by the Appellant as a consequence of the Magistrates Court proceedings. This liability includes:
1.The Appellant has been ordered to perform remedial work to rectify defects in the work previously undertaken. The quoted cost to rectify 25 defective areas of work is $271,389.00
2.Payment for the rectification of aspects of the defective work by third parties to the value of about $45,000.
3.Payment for the Respondents alternate accommodation in an amount of between $16,500 and $19,800 for the period that the remedial works are undertaken.
4.The Appellant has been ordered to pay independent expert fees for the supervision and certification of the remedial works which at this stage have not been quantified but are likely to be substantial.
5.In all likelihood the Appellant will be liable for the Respondents costs in the Magistrates Court proceedings. The Respondent estimates that the costs incurred were approximately $260,000.
On 28 November 2023 the solicitor for the Respondents wrote to the Appellant’s solicitor raising concerns about the Appellant’s ability to meet a costs order on the appeal based on the above. An invitation was extended to the Appellants to produce records and documentation to demonstrate that if unsuccessful on appeal he would be in a position to satisfy an adverse costs order. The Appellant declined to produce any records. The Appellant also did not put any affidavit material before the Court on the application for security.
The Respondents submitted that the Court should find that there is reason to believe that the Appellant will be unable to pay their costs in connection with the appeal, in the event of any adverse costs order against him, such that the discretion conferred by s 1335(1) of the Corporations Act is enlivened and that I should exercise my discretion to make the order.
The Appellant opposes the application. He makes the point that whilst he has not produced financial information in response to the Respondents’ request, there is no onus on the Appellant to do so. It is contended that his failure to provide financial information cannot amount to evidence of the Appellant’s financial position.
In terms of the liability incurred by the Appellant in the Magistrates Court, it was submitted that it should also be factored in that most of the remedial work will be undertaken by the Appellant with a significant reduction to the costs incurred by him. There is no suggestion that the Appellant is unable or unwilling to undertake the work. Further, there has as of yet been no costs order and no quantum of the costs for the independent certifier or the remedial work.
It was submitted by counsel for the Appellant that there was a sound basis upon which to decline to exercise my discretion to make the order.
In the alternative it was submitted that if I am satisfied that the threshold has been met for the security order, and I determine to exercise my discretion to allow the application, the quantum be reduced given the narrow scope of the appeal.
The threshold test has been met. It has been established by reliable evidence that there is reason to believe that the Appellant will be unable to pay the costs of the Respondents if the Respondents are successful in opposing the appeal. The Appellant was afforded the opportunity to meet that concern and provide documentation to demonstrate that he is not impecunious. He chose to not take up that opportunity. Whilst there is no onus on an Appellant to disclose their financial situation I bear in mind the observations made by Robb J in Re Beechworth Land Estates Pty Ltd (Administrators Appointed) (No 3).[5]
While it is necessary for the defendants to persuade the Court that the evidence justifies a conclusion that there is reason to believe that First Debenture will be unable to pay their costs if ordered to do so, the Court should not permit a plaintiff company to avoid an order for the provision of security for costs by “stonewalling” the defendants, by refusing to comply with a notice to produce returnable at the hearing of the application for an order for security for costs.
It will be the case for a substantial number of corporate plaintiffs that the only source of proof of their financial capacity will be their own financial records, which are solely within the knowledge of the companies. The capacity of defendants to obtain orders for security for costs should not always be dependent upon the happening of events, such as the filing of winding up applications, execution of securities, or non-payment of debts, which may provide objective evidence to defendants of the likely financial incapacity of the companies. There is a point where, in the face of some evidence that casts doubt on the financial capacity of a plaintiff company, a point-blank refusal to provide adequate internal documentary evidence of the financial capacity of the company, will justify a finding that the necessary reason to believe exists.
[5] (2015) 298 FLR 233 at [115].
Of course the Appellant’s situation can be distinguished from the company under consideration in Beechworth in that there has been no failure to comply with a notice to produce.
There is before me evidence that casts doubt upon, or gives rise to a concern about the financial capacity of the Appellant. In those circumstances, and bearing mind that the onus remains on the Respondents to establish the requisite “reason to believe”, the Appellant’s failure to respond to a request for financial information has fortified my view that the threshold test has been met.
Having determined that the threshold test has been met it is necessary to consider whether to exercise my discretion to make the order.
In opposing the order the Appellant relied on the nature of the appeal that has been instituted and in particular its limited scope. It was also submitted that this is not a case in which the Court is in a position to form a view that the Appellant’s prospects of success on appeal are weak and that weights against an order for security.
Counsel for the Respondent contended that there was no merit to any of the grounds of appeal in that they are no more than a re agitation of arguments that had already been ventilated before the Magistrate.
As is often the case with an application made prior to the hearing of an appeal, it is difficult to reach any concluded view about the merits of the appeal absent a glaring error. For the purposes of dealing with this application, I will approach the matter on the basis that it is not an unmeritorious appeal, without any prospects of success.
I have arrived at the view that given the history of this matter, the extent of the findings against the Appellant and the fact that only a small number of those findings are the subject of appeal, coupled with the evidence that there is reason to believe that the Appellant will be unable to meet a costs order after the appeal, the discretion should be exercised to make an order for security for costs in pursuant to s 1335 of the Corporations Act.
In those circumstances there is no reason to give consideration to the application of r 215.3(1) of the Uniform Civil Rules, however given the unfettered nature of that discretion rule, if necessary it is likely that I would also have made the order under that rule.
As to the sum to be lodged, I have considered whether $25,000 is excessive. In his affidavit Mr Burford provides a breakdown of the anticipated cost of the appeal. The total costs is expected to be considerably more than $25,000.
Mr Burford is an experienced practitioner. In support of his estimation of the likely cost Mr Burford deposed:[6]
I have been admitted as a practitioner in the Supreme Court of Australia since 2009. I have practiced commercial litigation specialising in Construction disputes since that date at Minter Ellison, Fenwick Elliot Grace, Lynch Meyer and Finlaysons Lawyers. In the course of my practice, I regularly prepare and advise on estimates for costs for litigious matters, and act in respect of claims for and formulation of costs.
[6] Affidavit of Samuel David Burford dated 18 January 2024 at [19].
Although the Appellant suggested that if I was minded to make the order it should be a lesser amount, the figure of $25,000 was not challenged.
In those circumstances there is nothing before me to suggest that the amount is inflated. Ultimately, if successful it will be for the Respondents to justify whatever costs they seek.
Orders
1.That the Appellant provide security for costs pursuant to s 1335(1) of the Corporations Act 2001 (Cth).
2.That within 14 days of the date of this order, the Appellant shall pay $25,000 into the Court as security for the costs of the First and Second Respondents up to and including the first day of the hearing of the appeal.
3. In the event that the amount is not paid the appeal will be stayed.

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