Explore Building Management Services Pty Ltd v The Owners – Strata Plan 103525

1. [1]

   Two notices of motion were listed for hearing before me today, the first being a motion filed by the plaintiff seeking leave to amend its statement of claim and an order transferring the proceedings to the District Court. The second motion is the motion of the defendant seeking an order for security for costs in respect of these proceedings. I will briefly deal with the plaintiff’s motion.

Plaintiff’s Motion for Amendment of Pleadings and Transfer to the District Court

1. [2]

   I have made orders adjourning the plaintiff's motion and directions for the amendment of pleadings before considering the question of transfer. However, subject to what I am going to say in this judgment, assuming that the directions for amendment are complied with, it is as Mr Zhou, solicitor who appears for the plaintiff, submits, inevitable that I will make the order transferring the proceedings, given the amount now in issue, and given the defendant's only qualified opposition to that course.

2. [3]

   In relation to the motion for security, Mr Zhou argued that that motion should abide the transfer of the proceedings to the District Court. Initially, I was attracted to that submission because I am of the view that while both the District Court and this court are subject to the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), the practice in each court in civil matters is not entirely the same. It is my impression that a case has at least the opportunity to get on quicker in the District Court than in the Common Law Division of this Court, and that the procedures adopted as a matter of practice in that Court are likely to be less complex than the practice of procedure in this Court.

3. [4]

   It also seemed to me that those factors would tend to reduce the costs involved for each party in bringing the matter to finality, and that in any event party/party costs in the District Court might well be less than party/party costs in the Supreme Court, even if there is no real difference in costs on a solicitor and client basis between the jurisdictions.

4. [5]

   It seems to me that the application for security has been on for some time. It has been necessary, for what I regard as good reasons, to adjourn the plaintiff’s motion for four weeks without making an order for transfer, accordingly the concern I expressed this morning about making an order for security for costs prior to transfer of the proceedings because of the need to supervise compliance with the order has dissolved. Over the objection of the plaintiff, I propose to consider the application for security for costs.

Defendant’s Motion for Security for Costs

1. [6]

   I make the observation that subject to this judgment and assuming compliance with the directions I have made, I will accede to the application to transfer the proceedings to the District Court which, with important qualifications, is not opposed by the defendant.

2. [7]

   I have said above, "subject to this judgment" and referred to the qualifications on the defendant's non-opposition to the plaintiff's motion because both those considerations essentially dovetail into the motion filed by the defendant on 17 October 2025. It is a motion for security for the defendant's costs under the provisions of either section 1135(1) of the Corporations Act 2001 (Cth) or rule 42.21 of the UCPR.

3. [8]

   During the course of oral argument on the motion, it was necessary for me to give reasons for a number of evidentiary rulings that I made. Those reasons are published separately to this judgment and may be found in Explore Building Management Services Pty Ltd v The Owners – Strata Plan 103525 (No 2) [2025] NSWSC 122.

4. [9]

   The plaintiff’s claim is for damages for breach of a commercial contract. The plaintiff is a corporation who pleads essentially three contracts to provide services to the defendant who is an owners' corporation under a strata plan. The services to be provided under the contracts can be referred to in brief as cleaning, property management and maintenance. The strata plan is situated at Rouse Hill and is a very large complex. On the evidence before me it consists of something in the order of 300 unit holders.

5. [10]

   Although the plaintiff suggests that the case is a straightforward one, and that it has very strong prospects of success, Mr J J Young of counsel who appears for the defendant has persuaded me that the issues of both fact and law to be determined in the proceedings have some complexity as fully set out in the defence.

6. [11]

   Some of the legal complexity arises out of the consideration that these contracts were entered into during the initial phase of the life of the owners' corporation at a time when the defendant and the defendant's committee were essentially controlled by the developer. It is not necessary for the purpose of this case to go through these provisions in detail, but the provisions of Strata Schemes Management Act 2015 (NSW) limit the power of the owners' corporation during that period to enter into contracts in terms of their value and their duration.

7. [12]

   Part of the factual matrix of the breakdown of the commercial relationship between the plaintiff and the defendant on the material before me resulted from a disenchantment of lot holders within the strata plan with the managing agent who has since been deregistered, and who had an association with the plaintiff company. Although the plaintiff company elected to terminate the contracts and sue for breach of contract when its invoices went unpaid from about April 2025, the evidence before me leaves me with a strong impression that there was a wholesale change of the committee of the owners' corporation around that time who were desirous of putting a “clean broom” through the management of the strata complex including in relation to the provision of services.

8. [13]

   Whilst it is not necessary for me to make any decision about the ultimate facts of the case on the balance of probabilities, and it would be inappropriate for me to do so at this interlocutory stage, the material I have been taken to certainly has the flavour about it, or at least the suggestion, that the decision not to pay the plaintiff's invoices was something of a deliberate one given the new broom that was “sweeping clean” the management of the owners' corporation. I make no judgment about the appropriateness of any of that, and as I have said, I am dealing with an interlocutory application and my observations about the facts are necessarily impressionistic given the limited materials available to me on the hearing and the determination of this interlocutory application in the limited time available to consider them.

9. [14]

   In recording those broad impressions from the material before me, I am not, I should emphasise, relying upon "the admissions" that Mr Zhou placed so much weight upon when arguing the strength of the plaintiff's case. I think there are real issues about those as Mr Young demonstrated when he took me through that evidence with some care. But I repeat, those issues are issues for the trial, and I will not make any findings in relation to them. Suffice it to say I am well satisfied that the case is far from straightforward, and that there are significant legal and factual issues to be determined. Having said that, given the circumstances to which I have averted, I am far from satisfied that the plaintiff's case is hopeless or even quite weak.

10. [15]

    Let me move on then to the jurisdictional question. I have received evidence in relation to the financial position of the plaintiff company in the form of Exhibit A being a financial statement for the year ending 30 June 2025, and Exhibit B being email correspondence between the solicitors. That material sufficiently establishes for present purposes that these contracts with the defendant company were virtually (if not completely) the whole of the plaintiff's business. It seems both on the financial records and from the averments in the statement of claim, the performance of a large part if not the whole of the contracts had been delegated to third parties, a matter about which the defendant complains or relies upon in its defence.

11. [16]

    There is no evidence before me whatsoever that the plaintiff has any continuing or ongoing business capable of generating any substantial income, and that lacuna in the evidence and the contents of Exhibits A and B persuade me sufficiently in accordance with rule 42.21(1)(d) of the UCPR that there is reason to believe that the plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so. And in fairness, I did not understand Mr Zhou to argue the contrary either in writing or orally today.

12. [17]

    Before dealing with the relevant considerations which inform the exercise of the discretion to award security for costs, or not, it is important to record that Mr Zhou on behalf of the plaintiff seeks to sidestep that matter by relying upon an unconditional undertaking to the Court proffered by a Mr Michael Lee whom I am satisfied is the sole shareholder and office bearer of the plaintiff company, at least since November 2025. Mr Lee, as I say, unconditionally undertakes to be jointly (with the plaintiff) and severally personally liable for any adverse cost orders made by the Supreme Court of New South Wales against the plaintiff and in favour of the defendant.

13. [18]

    I would not understand the reference to the Supreme Court of New South Wales in Mr Lee’s undertaking to be other than a reference to this Court because the matter is currently pending in this Court. Were I to transfer the proceedings to the District Court, it is evident that the undertaking would equally bind Mr Lee in that Court for the purposes of the proceedings so transferred. I will come back to that undertaking because Mr Young made forceful criticisms of it in his submissions.

14. [19]

    If I turn then to the relevant considerations set out in rule 42.21 of the UCPR, I commence by observing that there's really no difference between the principles or factors which inform the exercise of the discretion under the Corporations Act 2001 (Cth) and the UCPR. Both sets of provisions proceed on the same basis that they are effectively concurrent sources of the same power. It is convenient to deal with the relevant factors by reference to the issues as they were presented before me. Not every one of the matters referred to in rule 42.21(1A) of the UCPR was in issue. I will deal with those that were.

15. [20]

    The prospects of success or the merits of the proceedings were hotly contested. I have already said that there are real issues of fact and law to be tried although I am not of the view that the plaintiff's case is hopeless or even very weak. Mr Young in an appropriate fashion having regard to the material before me did raise a question about the genuineness of the proceedings. In particular, as I have already indicated, Mr Lee is the controlling hand and mind of the plaintiff company presently and was the person who was the strata managing agent through another corporate vehicle whose discharge of that office was a cause of dissatisfaction amongst many of the unit holders resulting in the new broom being applied in April 2025.

16. [21]

    As I have said, both Mr Lee and his company were ultimately deregistered as licenced strata managing agents by the Department of Fair Trading. However, I am of the view that although there are those issues to be explored, no doubt, the proceedings are genuine and they do not constitute a sham or abuse of process. As I have said, there is no doubt that the plaintiff is impecunious. It seems to me that given that these contracts were the whole substance of the plaintiff's business that, to some extent, these proceedings have the flavour (notwithstanding the consideration that the plaintiff elected to terminate the contracts and sue) of the plaintiff's impecuniosity being partly attributable to the defendant's conduct in refusing to pay the invoices for work done.

17. [22]

    Whether or not that conduct on that part of the committee of the Owner's Corporation was commercially or otherwise justified is not a matter I need inquire into today. There is no real doubt that the making of an order for security for costs in my judgment would stifle the proceedings. From its financial records the evidence suggests that the plaintiff does not have the wherewithal to pay a costs order as things presently stand and no real prospect of that position changing given the absence of evidence of any new contracts as demonstrated by Exhibit B. It simply would be unable to meet any substantial order for security.

18. [23]

    In that regard, although the plaintiff's solicitor takes issue with the assessment, I have been provided with evidence from the defendant’s solicitor, Mr Kritharas, who has practised in litigation of this type for over 25 years, which estimates the costs likely to be incurred by the defendant defending the proceedings. Mr Kritharas's estimate has been helpfully summarised by Mr Young in MFI 1, a table he prepared as part of his submissions. The total amount for the five stages the proceedings have been divided into is $258,975; making a deduction of 30% for the solicitor and client margin, as it is sometimes put, the total amount involved is $181,282.50.

19. [24]

    I have said that it would seem to me if the matter were transferred to the District Court that the case may get on for hearing quicker, the practice there may be less elaborate than in the Supreme Court, and the level of party/party costs on the ordinary basis may be less than what is appropriate for the Supreme Court. Even so, if one were to reduce the matter to $200,000, or even to say $150,000 or $100,000, it seems quite clear that the plaintiff would be in no position to pay that amount of money. Even an order for up to what is referred to in MFI 1 as stage 4, which Mr Young suggests, as a possible alternative approach, 70% of the amount claimed would be in the order of $26,000.

20. [25]

    It maybe that that amount could be raised However, I am speculating because not only have I received financial records from the company, I also have financial records for Mr Lee which are annexure K to the third affidavit of Mr Sina Shokouhi of 17 February 2026. Mr Shokouhi is an associate in Mr Kritharas's firm assisting Mr Kritharas with the case. On the evidence before me Mr Lee does not have access to a figure even of that comparative modesty, and there is no evidence before me to suggest that even given a little time he would be able to find that sum.

21. [26]

    It would seem that Mr Lee is of currently comparatively modest means, there is no evidence that he owns any real property (indeed the evidence is to the contrary) and there is no evidence that he has any other business interest currently than his involvement with the plaintiff, which as I have said is not operating as a going concern on the evidence available to me.

22. [27]

    There is no question that the application for security has been raised in a timely manner, and there may be some question about whether the amount involved in the total proceedings is proportionate to the complexity of the subject matter in dispute, although that is a marginal or borderline issue given what I have said about the apparent complexity of some of the legal and factual issues. I should say in this context that although initially a claim was propounded for about $1.3 million, it is now quite clear that the plaintiff accepts that the highest amount it could possibly establish in these proceedings is a figure of about $471,000 which is the matter which motivated its application to transfer the proceedings.

23. [28]

    It is not unusual in the modern age that costs may be the tail that wags the dog of the case; but with respect and without criticism, $258,000 is a lot of money for such a case. I am satisfied that Mr Lee is normally resident in Australia and is an Australian citizen. He has not given evidence before me, and some justifiable criticism was made of that circumstance, but I am satisfied on the evidence that has been read, of those facts at a level sufficient for the current interlocutory application, and accordingly, any order for costs made against the plaintiff can be enforced within Australia.

24. [29]

    I turn then to question of Mr Lee's undertaking. There has been a degree of agitation in case law in New South Wales and in other Australian jurisdictions about the utility of the undertaking of company shareholder or officeholder who steps out from behind the corporate veil to offer personal liability but who in fact is himself or herself impecunious. Those cases have been recently discussed in the New South Wales Court of Appeal in the matter of Suchand Proprietary Limited v Colbran and Stone (2024) 115 NSWLR 587; [2024] NSWCA 250 drawn to my attention by Mr Young. That was a divided decision, Mitchelmore and Stern JJA forming the majority and Ward P dissenting. It must be said that her Honour the President seems to have dissented on the basis she would have taken a different view of the significance of the fact that the person proffering the undertaking was impecunious from Mitchelmore and Stern JJA.

25. [30]

    It is not necessary for me to go through all of the authorities so carefully analysed by Stern JA. What is quite clear is that an unqualified undertaking, even from an impecunious shareholder or director, may, not must, be entitled to weight in the circumstances of a given case. Indeed, in re-exercising the discretion in that case her Honour took the circumstance of the unconditional undertaking notwithstanding the impecuniosity of the director into account, but as one relevant factor only. The central factor was the stultification of the proceedings if an order for security had been made.

26. [31]

    I note on the authorities referred to by Stern JA and from her Honour’s analysis of them that it is important to bear in mind that the undertaking proffered by an impecunious shareholder or director is not a determinative consideration, but a relevant factor only. The case law in New South Wales departs from the case law in other Australian jurisdictions where an approach has been taken that an undertaking from an impecunious individual is no security at all.

27. [32]

    Amongst the cases that Stern JA referred to was the judgment of Brereton JA in Vintage Marine Art Pty Ltd v Henderson & Cremer (No 2) (2019) 101 NSWLR 77; [2019] NSWCA 252 where his Honour said at [28]:

28. [33]

    Although as Mr Young acknowledged, some of the considerations in this case may be seen to be evenly balanced, I am of the view that the positive matters weighing in the plaintiff's favour, being: the suggestion that the conduct of the defendant is relevant to the plaintiff's impecuniosity; the proceedings would be stultified were even a relatively modest sum imposed for security; the genuineness of the proceedings; and the unqualified undertaking of Mr Lee are such that I am not satisfied that the case for security has been made out in this matter.

Costs

1. [34]

   Despite the defendant being unsuccessful on its motion, Mr Young submits that an order for the defendant to pay the plaintiff’s costs of the motion should not be made. He has pointed out to me that an essential feature of my exercise of discretion was the question of stultification which turned, in no small part, on my understanding of the financial records both in relation to the plaintiff's financial position and Mr Lee's financial position. The defendant had been seeking those financial records for some months, and they have only been made available in answer to a subpoena on the one hand, and a notice to produce, on the other, this week.

2. [35]

   Had the material been produced in a timely way, Mr Young submits, the defendant would have had an opportunity to reassess the relevant factors informing the exercise of the discretion well before today. It is not said that a different course would have been taken, but the thrust of counsel's submission is that the opportunity to consider whether a different course should be taken was denied the defendant because of that consideration. Mr Zhou submits that the costs should follow the event, that the defendant brought an application for security, the matter has been fully contested, and the plaintiff has been successful in its resistance.

3. [36]

   I am not in a position to say that had the defendant received the financial information at the appropriate time when requested it would have taken a different approach, however I think there is force in the argument it was denied the opportunity to consider for itself whether it should do so. I also bear in mind that the plaintiff's motion was not able to proceed today because it became apparent during the course of argument that the plaintiff's pleadings needed to be further amended to eliminate aspects of forensic embarrassment..

4. [37]

   I am of the view that there is force in Mr Young's argument. consequently, I will order that there be no order for costs to the intent that each party bear its own.

5. [38]

   I will also vacate my order reserving costs in respect of the plaintiff's motion of 25 August 2025, and instead order that each party bear its own costs of today, which will be reflected on JusticeLink

Orders

1. [39]

   On the plaintiff’s motion, I therefore order as follows:

   1. (1)

      Adjourn the motion for mention before me at 9:30 a.m. on 19 March 2026

   2. (2)

      Direct the plaintiff to file and serve a Further Amended Statement of Claim giving effect to the matters raised and discussed today by 26 February 2026

   3. (3)

      Direct the defendant to file and serve its Defence to the Further Amended Statement of Claim by 12 March 2026

   4. (4)

      Each party bear its own costs of today.

2. [40]

   On the defendant’s motion, I therefore order as follows:

   1. (1)

      Notice of Motion is dismissed.

   2. (2)

      No order as to costs to the intent that each party bear its own costs.

   3. (3)

      I direct that Exhibit 1, being the undertaking of Mr Michael Lee, be placed with the file and that the seal of the Court be affixed to it.