The Estate of Sikos v TBPL1 Pty Ltd

1. [1]

   On 2 February 2009, the late Mr Elias Sikos and Mistrina Pty Ltd (now in liquidation) entered a design and construction contract (the “Building Contract”) with the defendant, TBPL1 Pty Ltd, formerly known as Jabbcorp Pty Ltd (the “Builder”) in relation to a proposed development of land then owned by Mr Sikos and Mistrina at Brighton-Le-Sands in Sydney.

2. [2]

   Work was suspended on the Brighton-Le-Sands site on 21 April 2010. Work was never recommenced. The Builder terminated the Building Contract on 24 September 2010.

3. [3]

   On 13 May 2011, receivers appointed by Bankwest to the assets of Mr Sikos and Mistrina sold the site to a third party.

4. [4]

   In these proceedings, commenced on 26 March 2021, more than 11 years after work ceased on the site and more than 10 years after the Builder terminated the Building Contract, Mistrina and those representing Mr Sikos’s estate seek to agitate a dispute under the Building Contract.

5. [5]

   By Notice of Motion filed on 19 July 2021, the Builder seeks orders:

6. [6]

   The first plaintiff is presently described as “The Estate of Elias Sikos”. Letters of administration were granted to Mr George Sikos who, I was informed during argument, is now also deceased. I was further informed that the executrix of Mr Sikos’s estate is now Ms Helen Constantinou. Those representing Mr Sikos’s estate should ensure that Ms Constantinou is substituted as the first plaintiff. I will consider the issues raised upon the motion before me upon the assumption that this will occur.

7. [7]

   As did the parties in their written submissions, I will refer to Mr Sikos and Mr Sikos’s estate simply as “Sikos”, unless the context otherwise requires.

8. [8]

   Mistrina, as second plaintiff, is represented by the same solicitors who represent Sikos. I assume this is on the instructions of the liquidator. Although a respondent to the motion, Mistrina did not appear on the motion. Mr Hume, who appeared for Sikos, informed me he did not appear for Mistrina. That is curious, but Mr Kidd SC, who appeared with Mr Salama for the Builder, did not seek to make anything of it.

What has happened

1. [9]

   On 23 June 2010, the Builder served a payment claim under the Building and Construction Industry Security for Payment Act 1999 (NSW) (the “SOPA”) on Mistrina and Sikos claiming an amount of $749,603.54. On 1 September 2010, an adjudicator determined an adjudicated amount owing by Mistrina and Sikos to the Builder of $749,603.54.

2. [10]

   On 24 September 2010, the Builder obtained an adjudication certificate under s 24 of the SOPA which stated an amount of $776,855.34.

3. [11]

   On 3 November 2010, the Builder purported to file that certificate as a judgment under s 25(1) of the SOPA (the “2010 Judgment”).

4. [12]

   The amount for which the 2010 Judgment was entered was $782,227.52. This was $5,372.18 more than the amount stated in the adjudication certificate. Sikos now contends this is fatal to the validity of the 2010 Judgment. I return to this below. [1]

5. [13]

   On 1 August 2014, Sikos and Mistrina commenced the 2014 Proceedings against the Builder seeking damages for alleged breaches of the Building Contract. The alleged breaches concerned the allegedly defective design of the foundations of the development and the use of an unsuitable raft slab.

6. [14]

   In December 2014, Sikos and Mistrina discontinued the 2014 Proceedings and thereby became liable to pay the Builder’s costs of the 2014 Proceedings. [2]

7. [15]

   In early 2015, the Builder demanded payment of its costs of the 2014 Proceedings. Sikos and Mistrina, through their then solicitor, indicated that they did not have the financial capacity to pay those costs.

8. [16]

   In November 2016, Sikos and Mistrina commenced proceedings against Australian Consulting Engineers Pty Ltd (“ACE”), the structural engineers who designed the allegedly defective slab. The Builder was not a party to those proceedings.

9. [17]

   On 22 November 2017, Mistrina was placed into liquidation.

10. [18]

    On 8 October 2020, the Court of Appeal, following delivery of reasons on 24 September 2020, [3] entered judgments in the proceedings referred to at [16] above against ACE in favour of:

11. [19]

    The total amount of money in those judgments was $5,297,307.19 (the “Judgment Sum”).

12. [20]

    On 13 October 2020, the Builder served on ACE a garnishee order (the “Garnishee Order”) based on the 2010 Judgment.

13. [21]

    On 3 November 2020, the Court of Appeal ordered that the Judgment Sum be paid into Court “until a further order is made directing payment of the judgment sum out of court”.

14. [22]

    That order was made pending an application by ACE for special leave to appeal to the High Court of Australia against the decision of the Court of Appeal that led to the judgments.

15. [23]

    ACE paid the Judgment Sum into Court on 10 November 2020.

16. [24]

    On 11 March 2021, the High Court refused to grant ACE special leave to appeal against the Court of Appeal’s decision.

17. [25]

    On 16 March 2021, ACE filed a Notice of Motion seeking orders concerning the payment out of Court of the Judgment Sum. In effect, ACE’s application was by way of interpleader, as it claimed no entitlement to the funds in Court.

18. [26]

    On 26 March 2021, Sikos and Mistrina commenced these proceedings against the Builder.

19. [27]

    I heard argument on ACE’s Notice of Motion of 16 March 2021 and delivered judgment on 30 April 2021. [4]

20. [28]

    On 25 May 2021, I made orders pursuant to UCPR r 41.11 that:

21. [29]

    The balance of the Judgment Sum (currently an amount of $1,511,454.87) remains in Court.

Common ground that Mistrina’s and Sikos’s claim for damages under the Building Contract is statute barred

1. [30]

   As I have mentioned, on 13 May 2011, Bankwest, as receivers of the assets of Mistrina and Sikos, sold the Brighton-Le-Sands site to a third party.

2. [31]

   In those circumstances, it was common ground before me that any cause of action that Mistrina and Sikos had against the Builder that was founded on the Building Contract was not maintainable after 13 May 2017. [5]

The claims being made in these proceedings

1. [32]

   In these proceedings, Mistrina and Sikos seek the following final relief:

2. [33]

   In his written submissions, Mr Hume summarised the matters alleged in the List Statement in support of this relief as follows:

The strike-out application

1. [34]

   I will deal first with the Builder’s application to strike-out the various paragraphs of the List Statement, as this focuses attention on the cause of action upon which Sikos (and evidently, Mistrina, but as it did not appear on this application I will from now on refer only to Sikos when discussing the pleadings) relies in making the allegations in the List Statement that I have summarised above.

2. [35]

   The first group of paragraphs of the List Statement that the Builder seeks to strike-out are in the following form:

3. [36]

   By these paragraphs Sikos seeks to have determined “the parties’ final rights” under the Building Contract.

4. [37]

   The question is whether in so doing, Sikos is, as Mr Kidd submitted, propounding a claim “founded on contract” and is thus clearly out of time.

5. [38]

   Mr Hume submitted that Sikos’s claim was not “founded on contract”. He pointed to the fact that Sikos does not seek damages for breach of the Building Contract.

6. [39]

   Mr Hume submitted that the determination Sikos seeks of the “parties’ final rights” is:

   1. (1)

      not to recover damages;

   2. (2)

      in aid of the declaration sought that there are “no amounts owing” from Mistrina and Sikos to the Builder in respect of the works carried out by the Builder under the Building Contract;

   3. (3)

      which declaration, in turn, is a “step along the way” to demonstrating that the Builder would be unjustly enriched were it to enforce the 2010 Judgment.

7. [40]

   Mr Hume submitted that Sikos seeks to “enjoin apprehended injury” being the “unjust enrichment”.

8. [41]

   In argument, I pressed Mr Hume to identify what cause of action Sikos was relying upon.

9. [42]

   Ultimately, Mr Hume submitted that Sikos claimed an equitable right to injunctive relief to prevent the Builder becoming unjustly enriched by enforcing the 2010 Judgment and thereby obtain the fruits of the determination under the SOPA in circumstances where, on Sikos’s case, there is not in truth any amount owing to the Builder.

10. [43]

    Mr Hume said that his argument gave rise to “a difficult” question of the “character of a claim for restitution of amounts paid under Pt 3” of the SOPA.

11. [44]

    Mr Hume submitted:

12. [45]

    Sikos is seeking to achieve this result without applying to set aside the 2010 Judgment.

13. [46]

    This is a novel argument. Mr Hume was not able to point to a case that provides direct support for it. Nor, as Mr Hume submitted, was Mr Kidd able to point to a case that decides that the cause of action for which Mr Hume contends is not available.

14. [47]

    Mr Hume submitted that it is at least arguable that a claim of the kind propounded is available. He submitted:

15. [48]

    I did not understand Mr Hume to be contending that the Builder had sat “on its hands for six years” but rather that, were his submissions not correct, the result he posited would flow in the hypothetical circumstances he outlined.

16. [49]

    On the other hand, acceptance of Mr Hume’s submission about this matter will have the effect that the Builder will, in effect, have to resist a building case more than a decade after the Building Contract was terminated and in circumstances where Mistrina and Sikos commenced and then discontinued the 2014 Proceedings in which the same matters would be agitated.

17. [50]

    The difficulties confronting the Builder in these circumstances are obvious and were summarised in the following passage from their solicitor’s affidavit on this application:

18. [51]

    These are matters to be taken into account.

19. [52]

    However, I am not satisfied that the matters that Mr Hume seeks to agitate are “so obviously untenable that [they] cannot possibly succeed” or “manifestly groundless” or “so manifestly faulty that it does not admit of argument”. [9] I do not propose to strike these paragraphs out.

20. [53]

    However, I do find, for reasons I will set out further below, that the belated timing of Sikos’s agitation of these matters is relevant to the question of whether I ought to order security for costs, that matter being relevant to the issue of whether or not these proceedings can be properly described as being “defensive”.

21. [54]

    Paragraphs C43 to C46 of the List Statement are in the following terms:

22. [55]

    Section 553C(1) of the Corporations Act is in the following terms:

23. [56]

    Mr Hume sought to justify these paragraphs by reference to Mistrina’s obligation to pay the Builder’s costs in the 2014 Proceedings and by reference to Sikos’s claim to restrain enforcement of the 2010 Judgment.

24. [57]

    As to the former, Mr Hume submitted:

25. [58]

    As to the latter, Mr Hume submitted:

26. [59]

    The “contingent claim” to which Mr Hume referred was that assuming that:

    1. (1)

       the 2010 Judgment was valid and that Mistrina and Sikos had an existing obligation to pay money under the 2010 Judgment; and

    2. (2)

       once the “parties’ final rights” under the Building Contract are determined, if it is revealed that Mistrina and Sikos had no obligation to the Builder under the Building Contract; then

27. [60]

    In that regard, Mr Hume pointed to authorities which establish that amounts “due” from one party to the other for the purpose of s 533C includes amounts contingently due. [10]

28. [61]

    Thus, Mr Hume submitted:

29. [62]

    Mr Hume and I then had this exchange:

30. [63]

    Again, although these arguments may be novel, I am not persuaded that they are so lacking in substance that they should be struck out at this stage.

31. [64]

    There is no suggestion that agitating these arguments will cause the Builder any difficulty beyond those with which it will be confronted by reason of the arguments arising from paragraphs C26 to C35.

32. [65]

    These paragraphs are in the following form:

33. [66]

    It was common ground that these paragraphs, in substance, rehearse the same arguments that arise by reason of paragraphs C26 to C35 and that the result in relation to paragraphs C51 and C52 follows from the result in relation to these earlier paragraphs.

34. [67]

    For these reasons I am not prepared to strike out any of the paragraphs of the List Statement.

Stay application

1. [68]

   UCPR r 12.4 provides:

2. [69]

   The Builder seeks a stay of these proceedings upon the basis that Mistrina and Sikos in these proceedings seek to agitate the “same or substantially the same cause of action” as in the 2014 Proceedings.

3. [70]

   For the reasons I have set out in relation to my consideration of paragraphs C26 to C35 of the List Statement, my opinion is that the cause of action that Mistrina and Sikos seek to agitate in these proceedings is, at least arguably, not the same as that in the 2014 Proceedings.

4. [71]

   In the 2014 Proceedings, the cause of action upon which Mistrina and Sikos relied was a claim for damages under the Building Contract.

5. [72]

   In these proceedings, as I have outlined, Mistrina and Sikos seek to invoke an equitable right to injunctive relief to prevent unjust enrichment of the Builder.

6. [73]

   Although this will involve an examination, and indeed a determination, of the parties’ rights under the Building Contract it is, at least arguably, not a cause of action founded in contract.

Security for costs

1. [74]

   As I have said, Mistrina did not appear on this application and thus makes no submissions in response to the Builder’s application for security for costs.

2. [75]

   Mistrina is in liquidation and is insolvent. I see no basis to refuse the Builder an order for security of costs against Mistrina.

3. [76]

   As against Sikos, the principal basis upon which the Builder sought security was that Ms Constantinou brings these proceedings in a representative capacity in circumstances where there is reason to believe that she will be unable to pay the Builder’s costs from the assets of the Sikos estate if ordered to do so.

4. [77]

   Mr Kidd pointed to the fact that Sikos has not paid the costs of the 2014 Proceedings and, through its then solicitors, indicated that it was not in a position to do so.

5. [78]

   As I have set out above, on 25 May 2021, I ordered that there be paid out of the monies paid into Court by ACE the sum of $976,164.77 to the solicitors for Sikos in partial satisfaction of the judgment obtained in the Court of Appeal in the ACE proceedings.

6. [79]

   However, as Mr Kidd pointed out, the proceedings brought by Mistrina and Sikos against ACE were funded by a litigation funder which is entitled to be paid from the proceeds of the litigation its costs together with 45% of the remainder. As Mr Kidd submitted:

7. [80]

   Mr Hume did not contest this aspect of Mr Kidd’s submissions and did not suggest that the sum paid out of Court to the solicitors for Sikos on 25 May 2021 had any bearing on whether Sikos should now provide security for the costs of these proceedings.

8. [81]

   Mr Kidd submitted that Sikos’s only asset is its chose in action against ACE.

9. [82]

   Mr Hume submitted that a further asset of Sikos is its potential entitlement to contribution from Mistrina were Sikos to be held liable to pay anything to the Builder pursuant to the 2010 Judgment.

10. [83]

    Both Mr Kidd and Mr Hume drew attention to the Annual Administration Return filed by the liquidator of Mistrina which showed that, as at 21 November 2020, Mistrina’s estimated total realisations were in the order of $2.5 million whereas its unsecured liabilities were in the order of $4.1 million.

11. [84]

    Mr Hume submitted that were Sikos to pay the amount of the 2010 Judgment to the Builder, Mistrina’s liabilities would decrease accordingly, leaving Mistrina’s liabilities only slightly exceeding its assets, in which event Sikos could expect a healthy dividend on proving in the winding up.

12. [85]

    However, as Mr Kidd pointed out, it is not clear whether, and it seems unlikely that, the liabilities recorded in the Annual Administration Return for Mistrina include its contingent liability to render contribution to Sikos in the event that Sikos satisfied the 2010 Judgment.

13. [86]

    I think Mr Kidd was correct to submit that the value of any right of contribution that Sikos might have against Mistrina is unable, on this application, to be determined as having any value.

14. [87]

    Mr Hume also sought to resist the Builder’s claim for security by contending that these proceedings are, in substance, defensive in nature because “Sikos is not seeking damages against [the Builder]” but “just wants to stop the enforcement of [the Builder’s] claims”.

15. [88]

    It may be that these proceedings can be seen to be defensive in that sense. But the proceedings are brought belatedly and Sikos offers no explanation for the delay. It may be that the pendency of the proceedings against ACE is part of the explanation. But the fact is that Sikos is seeking to avoid paying a judgment entered over 10 years ago but without moving to set aside the judgment (presumably because it has advice that it would be unlikely to succeed in achieving that result).

16. [89]

    A further factor in favour of ordering security is that, not only is there reason to believe Sikos will be unable to meet the Builder’s costs were it to be successful in these proceedings, but Sikos has not paid the Builder’s costs of the 2014 Proceedings.

17. [90]

    Sikos has given no explanation as to why those costs continue to be unpaid.

18. [91]

    It is true that there is some $1.5 million still in Court from the sum paid into Court by ACE on 10 November 2020.

19. [92]

    However, as my judgment of 30 April 2021 reveals, that amount is calculated by reference to the amount due to the Builder under the 2010 Judgment and does not provide protection to the Builder in relation to the costs of these proceedings.

20. [93]

    In those circumstances, my conclusion is that this is a proper case in which to order the provision of security.

21. [94]

    As to quantum, the Builder’s solicitor, Ms Boustani, has estimated that the Builder’s likely costs of the proceedings are in the order of $641,000 and that, an estimate of the Builder’s likely recoverable costs is in the order of $581,000. On the other hand, Sikos’s solicitor, Ms Holland, estimates the Builder’s likely recoverable costs to be in the order of $371,000.

22. [95]

    One reason for the difference in these estimates is that Ms Boustani has discounted the Builder’s likely actual costs by 80% to reflect recoverable costs, whereas Ms Holland has discounted her estimate of actual costs by 70%.

23. [96]

    Further, as Mr Kidd accepts, a part of Ms Boustani’s estimate of actual costs includes the costs incurred by the Builder in dealing with ACE’s Notice of Motion.

24. [97]

    Overall, adopting the broad-brush approach that is appropriate in cases such as this, I propose to fix the amount that should be provided as security for costs at $450,000.

25. [98]

    Mr Hume submitted that an order should be made for the security to be provided in tranches.

26. [99]

    I invite the parties to confer and endeavour to agree on a timetable for the provision of the $450,000 security for costs in tranches.

27. [100]

    If the parties cannot agree, they should confer and agree on a timetable for short submissions on the subject, which I will resolve on the papers.

28. [101]

    As each party has had a measure of success on the motion, I propose to order that the costs of the motion be costs in the cause.

29. [102]

    Otherwise, the parties should confer and agree on the orders necessary to give effect to these reasons and to progress the proceedings generally.