VM Romano v BCG

[2023] VSCA 312

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2023 0034

VM ROMANO CONSTRUCTION GROUP PTY LTD (ACN 097 418 874)	Applicant
v
BCG (AUST) PTY LTD (ACN 114 332 017) & ORS (ACCORDING TO THE ATTACHED SCHEDULE)	Respondents

---

JUDGES:	NIALL and WHELAN JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	1 December 2023
DATE OF JUDGMENT:	1 December 2023
MEDIUM NEUTRAL CITATION:	[2023] VSCA 312
JUDGMENT APPEALED FROM:	VM Romano Construction Group Pty Ltd v BCG (Aust) Pty Ltd (County Court of Victoria, Judge Burchell, 3 March 2023)

---

PRACTICE AND PROCEDURE – Security for costs – Whether persons behind company must depose to financial situation where it is suggested that action will be stultified if security ordered – Leave to appeal refused.

Domestic Building Contracts Act 1995 ss 8, 9.

Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1; Black Hill Residents Group Inc v Marist Youth Care Ltd (2021) 250 LGERA 379; House v The King (1936) 55 CLR 499; Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440; Tanah Merah Vic Pty Ltd v Owners Corporation No 1 of PS613436T [2021] VSCA 72.

---

Counsel
Applicant:		Mr R Andrew KC with Mr LJ Hogan
First respondent:		Mr BG Mason
Second respondent:		Mr KJ Naish
Third respondent:		No appearance
Fourth respondent:		No appearance
Solicitors
Applicant:	Alderuccio Solicitors
First respondent:	Colin Biggers & Paisley
Second respondent:	HFW Australia
Third respondent:	CLP Lawyers
Fourth respondent:	CLP Lawyers

NIALL JA:

1. I will invite Whelan JA to give judgment on the application.

WHELAN JA:

1. This is an application for leave to appeal an order for security for costs.

2. In 2009, the applicant entered into a building contract under which the applicant agreed to construct a new 10-storey residential apartment complex on land in North Melbourne. The first respondent, BCG Australia Pty Ltd (‘Checkpoint’), is a building surveying consultancy engaged on the project.

3. On 15 May 2009, Checkpoint issued a regulatory compliance report to the applicant. That report did not raise any issue with the use of combustible cladding as part of the exterior walls of the building.

4. During 2010 and 2011, Checkpoint issued staged building permits under the Building Act 1993.

5. The building was substantially completed by the applicant in 2011, and an occupancy permit was issued by Checkpoint on 21 July 2011.

6. Apartments in the building were subsequently sold. The common property is owned by two owners corporations. The applicant builder ceased trading in 2016.

7. In 2019, a building surveyor from the City of Melbourne inspected the building and formed the opinion that the building was a danger due to the use of combustible cladding on the exterior walls. Consequently, the municipal building surveyor issued a building notice under the Building Act 1993. On 19 July 2021, the owners corporations obtained a fire engineering report setting out the works required to make the building safe.

8. On 20 July 2021, the owners corporations issued proceedings in the Victorian Civil and Administrative Tribunal (‘VCAT’) against the applicant seeking, amongst other things, damages for the costs of replacing the combustible cladding in the sum of approximately $3,500,000. The claim is based upon breach of the statutory warranties in s 8 of the Domestic Building Contracts Act 1995, and under s 9 which permits subsequent owners of the building to bring claims for breach of warranties as if they were a party to the building contract.

9. On 11 August 2022, the applicant issued proceedings in the County Court. The proceedings named as defendants, Checkpoint as first defendant, Romano Property Group Pty Ltd as second defendant, Lake Young & Associates Pty Ltd as third defendant, IND Windows Fabrications Pty Ltd (‘IND’) as fourth defendant, and the two owners corporations and fifth and sixth defendants. IND was the façade and glazing subcontractor on the project.

1. On 17 November 2022, VCAT ordered by consent that the proceedings in VCAT were to be heard and determined concurrently with the proceedings the applicant had issued in the County Court.

2. On 13 January 2023, IND issued a summons seeking security for costs. On 24 February 2023, Checkpoint issued a summons seeking security for costs.

3. On 28 February 2023, the applicant served an affidavit of its director, Claudio Romano, in response to the applications for security of costs. Mr Romano deposed, amongst other things, that:

   (1)The applicant had ceased trading in 2016 and had no property or assets from which it could provide security for costs.

   (2)The proceeding had been commenced for the purpose of ‘passing through’ liability to the parties responsible for the loss and damage for the benefit of the owners corporations and ultimately for the benefit of the owners of the apartments.

   (3)If security were ordered, the applicant would be placed into administration.

4. A judge in the County Court ordered security on 3 March 2023, having heard submissions from the respective parties. That order was amended to correct an error on 16 May 2023. In substance, the judge ordered that security for the costs of Checkpoint be provided in the sum of $45,000 and for the costs of IND in the sum of $54,000. The judge ordered that the proceeding be stayed against those parties until the security was provided.

5. The judge delivered an ex tempore ruling in the following terms:

   In my view, (a) although there is a public interest element in relation to cladding where [the owners corporations] do not have privity of contract with these subcontractors in the County Court and (b) where there are health and safety issues arising from the combustible cladding on the building, (c) although it is a finely balanced case, (d) there is no evidence before the court that satisfies the requirements as satisfied in Bell Wholesale as to those who stand behind the company in circumstances where the company does not have assets in Victoria and it has not been trading since 2016 (e) where there are arguable defences (f) there is not an inevitability in relation to success for the plaintiff (g) where the balancing exercise is that if security is not awarded, the court would be requiring the defendants, who are before the court, to bear all the risk in relation to the costs moving forward there ought be security for costs awarded up to mediation for each of the defendants and I will hear the parties in relation to the quantum and terms.

6. Prior to making the ruling just set out, the judge observed, in the course of submissions, that she agreed with a submission which had been made by counsel for IND to the effect that the prospects in the applicant’s proceeding were ‘neutral’.

7. Before us, it was accepted that this is a matter to which the principles in House v The King apply.[1] Relevantly, those principles are as follows:

   It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.[2]

   [1](1936) 55 CLR 499.

   [2](1936) 55 CLR 499, 504–5 (Dixon, Evatt and McTiernan JJ).

8. Further, this is the exercise of a discretionary decision on a matter of practice and procedure. In relation to such matters, not only must there be an error of the House v The King kind, but generally it must also be shown that substantial injustice will be done if the ruling remains uncorrected. In Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc the High Court said:

   Nor is there any serious dispute between the parties that appellate courts exercise particular caution in reviewing decisions pertaining to practice and procedure. Counsel for Brown urged that specific cumulative bars operate to guide appellate courts in the discharge of that task. Not only must there be error of principle, but the decision appealed from must work a substantial injustice to one of the parties. The opposing view is that such criteria are to be expressed disjunctively. Cases can be cited in support of both views. For ourselves, we believe it to be unnecessary and indeed unwise to lay down rigid and exhaustive criteria. The circumstances of different cases are infinitely various. We would merely repeat, with approval, the oft-cited statement of Sir Frederick Jordan in In re the Will of F B Gilbert (dec):

   I am of opinion that, ... there is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal.

   It is safe to say that the question of injustice flowing from the order appealed from will generally be a relevant and necessary consideration.[3]

   [3](1981) 148 CLR 170, 177 (Gibbs CJ, Aickin, Wilson and Brennan JJ) (some citations omitted), quoting (1946) 46 SR (NSW) 318, 323.

9. In substance, the applicant now seeks leave to appeal on the basis of three errors allegedly made by the trial judge.

10. First, it is said that the trial judge erroneously treated what was said in Bell Wholesale Co Ltd v Gates Export Corporation (‘Bell Wholesale’)[4] as imposing a ‘requirement’ that those standing behind the company must depose to their financial situation where it is suggested that the action will be stultified if security is ordered. Whereas, in fact, that was simply one discretionary factor. It was not properly characterised as a ‘requirement’.

    [4](1984) 2 FCR 1.

11. Secondly, it was submitted that Bell Wholesale is a case very different from the present. Bell Wholesale deals with a situation where the benefit of the proceeding was to go to the officers and shareholders, or others with a financial interest in the company. Whereas in this case, the applicant was acting ‘altruistically’, solely for the purpose of benefitting the owners corporations and the owners of the apartments. This point was sought to be emphasised by saying that the applicant had agreed, or had indicated it would agree, that any order for damages in its favour should be paid directly to the owners corporations.

12. Thirdly, it was said that the judge had been wrong to proceed on the basis that the prospects in the proceeding were ‘neutral’. It was submitted that it was highly likely that the owners corporations would succeed against the applicant, and that the applicant would succeed against the defendants in the County Court proceeding. In this respect particular reliance was placed upon this Court’s judgment in Tanah Merah Vic Pty Ltd v Owners Corporation No 1 of PS613436T (‘Tanah v Owners Corporation’).[5]

    [5][2021] VSCA 72.

13. In my opinion, leave to appeal should be refused.

14. It is wrong to characterise what the judge said as imposing a strict ‘requirement’ drawn from the decision in Bell Wholesale. It must be said that what the Court said in Bell Wholesale does come close to suggesting such a requirement exists. But, as was submitted by the applicant, it is still only one factor. In my opinion, it is clear from the judge’s reasons that she did treat it as only one factor. She clearly thought it was a powerful factor. I consider there was no error in her taking that approach.

15. It is true that the position in Bell Wholesale was different to the position here. But the decision reflects the general principle that those who seek to benefit from litigation should bear the risk in a context where the plaintiff is unable to provide security for costs. This principle is not confined to officers and shareholders. It potentially extends to any person who, in the circumstances, can be said to be the person for whose benefit the litigation is being conducted. In this respect I refer to the decisions in Impex Pty Ltd v Crowner Products Ltd[6] and Black Hill Residents Group Inc v Marist Youth Care Ltd.[7]

    [6](1994) 13 ACSR 440, 446 (Macrossan CJ).

    [7](2021) 250 LGERA 379, 383 [18]–[20] (White JA); [2021] NSWCA 314.

16. Finally, in my opinion, there was no relevant error by the judge in her description of the prospects in the litigation. I have considered the decision in Tanah v Owners Corporation,[8] which is the basis upon which it was contended that it is very likely that the applicant will succeed against the defendants. The judge did, in the course of submissions, use the expression ‘neutral’, but what she said in her ruling was that it was ‘not an inevitability’ that the applicant would succeed. Whilst the position between the owners corporations and the applicant might be said to be tolerably clear (I express no

view on that), the position between the applicant and the defendants is not clear. The potential outcomes in terms of apportionment are uncertain and, as counsel for IND pointed out, there was no glazing subcontractor who was a party to the claims in Tanah v Owners Corporation.

[8][2021] VSCA 72.

1. Accordingly, in my view, no relevant error of the House v The King type exists in this case, and accordingly, I consider that leave to appeal should be refused.

NIALL JA:

1. I agree.

2. The order of the Court will be the application for leave to appeal be refused.

   ---

SCHEDULE OF PARTIES

VM ROMANO CONSTRUCTION GROUP PTY LTD

(ACN 097 418 874)

First applicant

and

BCG (AUST) PTY LTD

(ACN 114 332 017)

First respondent

IND WINDOW FABRICATIONS PTY LTD

(ACN 057 553 910)

Second respondent

OWNERS CORPORATION 1 PLAN NO PS604364T

Third respondent

OWNERS CORPORATION 3 PLAN NO PS604364T

Fourth respondent