Visual Building Construction Pty Ltd v David Armistead

[2019] NSWCA 92

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Visual Building Construction Pty Ltd v David Armistead [2019] NSWCA 92

Hearing dates:

29 April 2019

Date of orders:

29 April 2019

Decision date:

29 April 2019

Before:

Meagher JA at [1]

Decision:

1. Order the appellant provide security for the costs of the respondents of and incidental to the appeal in the amount of $15,000, that security to be provided by way of payment into court or by an unconditional bank guarantee in a form acceptable to the respondents.

 

2. Order the appeal proceedings be stayed until that security is provided.

 3. Order the appellant to pay the respondents’ costs of the security for costs application.

Catchwords:

PRACTICE – appeal – security for costs – corporate appellant – Corporations Act 2001 s 1335 – where reason to believe appellant unable to pay costs – where no reason not to grant security – no question of principle

Legislation Cited:

Corporations Act 2001 (Cth), s 1335
Home Building Act 1989 (NSW), ss 92, 96, 99
Home Building Regulation 2004, cl 56

Category:

Procedural and other rulings

Parties:

Visual Building Construction Pty Ltd (Appellant)
David Armistead (First Respondent)
Maria-Luisa Patisso (Second Respondent)

Representation:

Counsel:
D Hand (Respondents)

  Solicitors:
Y Shehata appearing as Director of the Appellant company
Adams & Partners (Respondents)

File Number(s):

2018/00265807-1

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

District Court of New South Wales

Jurisdiction:

Civil

Date of Decision:

21 August 2018

Before:

Sorby ADCJ

File Number(s):

2016/384392 & 2016/384311

Judgment

1. MEAGHER JA: The respondents to this appeal, Mr Armitstead and Ms Patisso, seek an order that the appellant company, Visual Building Construction Pty Ltd, provide security for their costs of the appeal. They initially sought security in an amount of $80,000. They presently, by their solicitor's second affidavit, seek security in an amount of $41,000. In argument a submission was made supporting security in an amount of $23,000 on the basis that no senior counsel was retained to conduct the appeal.

2. The appeal is from a judgment of Acting District Court Judge Sorby in favour of the respondents as plaintiffs for an amount of $651,536 as damages for breach of contract by the appellant builder. The contract was for the construction of two duplex buildings on land owned by the respondents. The contract sum was $400,000 inclusive of GST. Construction work commenced in January 2014. The work was never completed and the respondents purported to terminate the contract with effect from 13 July 2015, the appellant not having completed the relevant works by 2 July 2015, the date for completion, and having committed other breaches, or alleged breaches of contract.

3. In early June 2015 the Penrith City Council issued stop work orders in relation to the project and subsequently, in early 2018, made an order requiring that the entire works be demolished.

4. The primary judge found that the respondents had validly terminated the contract and that they were entitled to damages for breach. His Honour calculated those damages as being the cost of demolishing and removing the existing works and constructing the dual occupancy dwellings, estimated as being $871,536, from which was to be deducted the unpaid contract amount of $220,000, the respondents having paid $180,000 of the original contract price of $400,000.

5. The notice of appeal challenges the finding that the respondents validly terminated the building contract (ground 1) and the quantification of the damages awarded (ground 2).

6. The application for security may be addressed by reference to the power conferred by s 1335(1) of the Corporations Act2001 (Cth) which provides:

(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.

7. The evidence relied on as providing reason to believe that the appellant will be unable to pay the respondents’ costs if the appeal is unsuccessful includes the following:

1. The appellant is a building contractor whose licence to perform residential building work was cancelled on 10 January 2018, providing a basis for inferring that it no longer has a primary or any source of revenue;

2. The judgment debt remains unpaid;

3. Property title searches indicate that the appellant does not own any real estate in Australia;

4. Three orders made by the Civil and Administrative Tribunal against the appellant remain unsatisfied. The evidence does not indicate whether the orders required the payment of sums of money or otherwise;

5. The appellant has not provided any evidence as to its financial position, notwithstanding a request that it do so made by the respondents’ solicitors. Rather, it has made two responses to the application for security. First, it has said that the respondents have the benefit of home warranty insurance issued to the appellant which complies with the Home Building Act 1989 (NSW), ss 92 and 96. Secondly, it has maintained that it is entitled to further payments of $120,000 under the terminated contract. Those payments are said to relate to masonry, roofing, plumbing, electricity, and a profit allowance. The total amount said not to have been paid, including interest, is about $147,000;

6. In an affidavit sworn 24 April 2014 the sole director of the appellant, Mr Shehata, concedes that the company is not in a position to pay any security for costs if it does not receive that amount of $120,000 and interest, which it claims remains outstanding.

8. In these circumstances I am satisfied that there is reason to believe that the appellant will be unable to pay the respondents’ costs, assuming the appeal is dismissed.

9. That being the position, it is necessary to consider whether there is any reason why security should not be granted. It is not said that the respondents’ conduct was the cause of the appellant's impecuniosity, or that an order for security for costs would stifle the appeal proceeding.

10. The only matters said to provide reasons for not ordering security are the existence of the home warranty insurance, which is for an amount of $340,000 for each duplex building, and the existence of the amount of $120,000 said to be due under the terminated contract. Neither provides a good reason for not ordering the appellant to provide security.

11. As to the former, the home warranty insurance insures a person on whose behalf building work is done against the risk of loss resulting from non-completion of the work because of the insolvency, death, or disappearance of the contractor: Home Building Act, ss 99(1)(a), (b). Accepting that the company is insolvent and, as appears to be the position, that the respondents have access to the benefit of that insurance, the total sum insured of $680,000 would not be sufficient to satisfy the judgment debt and the costs of the proceeding below. Accordingly the amount of that insurance will not be sufficient to meet the appellant’s obligation to pay the respondents’ costs of an unsuccessful appeal. Furthermore, there remains a question as to whether the insurance would extend to legal or other reasonable costs incurred by the respondents in defending an appeal from their damages judgment: cf Home Building Regulation 2004, cl 56(3)(e).

12. As to the second matter, the amount of $120,000 which is said to have been due and not paid was taken into account in the award of damages. Had that amount been paid, the damages award would have been $771,536, and not $651,536.

13. The remaining question is as to the amount of the security that should be required. The current estimate, excluding an allowance for the costs of this security for costs application, is about $41,000, being the solicitor/client costs to be incurred in defending the appeal, assuming senior and junior counsel are briefed. The amount of those solicitor/client costs likely to be recovered, assuming they are taxed on the ordinary basis, is about $38,000; and I am told from the bar table that if the allowance for senior counsel is put aside the likely recoverable costs would be around $23,000.

14. It is not uncommon in cases such as this to fix an amount by way of security which is below an applicant's estimate so as not to impose an undue burden on the appellant, and so that the applicant bears the consequence of any overestimation. Taking that into account, in my view the interests of justice would be best served in this case if security is ordered in an amount of $15,000.

15. Accordingly I make the following orders:

1. Order the appellant provide security for the costs of the respondents of and incidental to the appeal in the amount of $15,000, that security to be provided by way of payment into court or by an unconditional bank guarantee in a form acceptable to the respondents.

2. Order the appeal proceedings be stayed until that security is provided.

3. Order the appellant to pay the respondents’ costs of the security for costs application.

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Amendments

01 May 2019 - 1 May 2019 - Case name amended

03 May 2019 - Representation amended

Decision last updated: 03 May 2019