Central Queensland Development Corporation Pty Ltd (Formerly Bluechip Development Corporation Gladstone) Pty Ltd v BMT & Assoc Pty Ltd (No 2)

1. [1]

   HER HONOUR: There are two notices of motion before the Court, one by the defendant seeking further security for costs and the other by the first plaintiff seeking discovery. I shall deal with them in that order.

(1) The defendant’s notice of motion filed 16 June 2020 – further security for costs

1. [2]

   By notice of motion filed 16 June 2020, the defendant seeks firstly, an order pursuant to r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), or alternatively, s 1135(1) of the Corporations Act 2001 (Cth), that each of the plaintiffs give additional security for the defendant’s costs by payment into Court of the sum of $300,000, or such sum as the Court determines appropriate; secondly, that the proceedings against the defendant be stayed until compliance with order 1; and finally, that this notice of motion be stood over with liberty to the defendant to restore in order to obtain further security at an appropriate time.

2. [3]

   The first plaintiff is Central Queensland Development Corporation Pty Ltd (formerly Bluechip Development Corporation Gladstone) Pty Ltd ACN 120 112 781. The second plaintiff is Prime Property Investments Pty Ltd ANC 058 336 940. Although the first plaintiff pleads that it “elects to conduct the proceedings to the exclusion of the second plaintiff”, the second plaintiff is still a party to the proceedings. The defendant is BMT & Assoc Pty Ltd ACN 079 247 751. The parties relied upon two volumes of court books. Mr James Berg, the solicitor for the defendant, swore three affidavits dated 14 June 2017, 16 June 2020 and 20 July 2020. He was cross examined for some time on this interlocutory application.

3. [4]

   The background to these proceedings has been set out by Harrison J in Central Queensland Development Corporation Pty Ltd (formerly Bluechip Development Corporation Gladstone) Pty Ltd v BMT & Assoc Pty Ltd [2017] NSWSC 992 (“BMT (No 1)”) at [1] as follows:

4. [5]

   On 27 July 2017, Harrison J ordered the plaintiffs to provide security “at this stage of the proceedings” in the sum of $120,000. After that order was made, there was a stay of proceedings for 14 months while the plaintiffs organised security for costs. In the 3 years since that decision, the defendant has exhausted that amount of security.

5. [6]

   As at 28 April 2020, the defendant had incurred costs in the sum of $173,800 including GST. The legal work carried out is described by Mr Berg (Aff, 20 July 2020 at [5]). At [7], Mr Berg sets out the factors he had not anticipated when he prepared his affidavit dated 14 June 2007.

6. [7]

   Counsel for the defendant submitted that there are four issues in dispute. They are, firstly, does the decision in BMT (No 1) prevent further security of costs being granted without a change in circumstances or new evidence; secondly, if so, has there been a change in circumstances or new evidence; thirdly, should further security for costs be ordered; and finally, if so, in what amount.

7. [8]

   As was the position when the original security for costs was ordered, to date the plaintiffs have not put on any evidence as to their financial position. The position is therefore the same as it was in July 2017, other than that the plaintiffs have paid $120,000 into Court in compliance with the order for security for costs in BMT (No 1). In these circumstances, there is reason to believe that the plaintiffs will be unable to pay the costs of the defendant if ordered to do so.

8. [9]

   Counsel for the defendant referred to Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 5) [2006] NSWSC 255 (“Ingot”) and Welzel v Francis [2011] NSWSC 477 (“Francis”).

9. [10]

   In Francis, Mr Francis relied on evidence that the estimated costs of the case had increased substantially since security was ordered. In Francis, Ball J stated at [16]:

10. [11]

    In Ingot, McDougall J referred to Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44, as follows at [9]:

11. [12]

    In BMT (No 1), Harrison J stated at [15] and [18]:

12. [13]

    In BMT (No 1), Harrison J did not make an order for security for costs in relation to the totality of the costs of the proceedings, but rather in relation to costs “up to this stage”. His Honour was not shutting out a fresh application for security for costs.

13. [14]

    Counsel for the plaintiffs argued that [1.3] of the notice of motion dated 6 April 2017 (Ex A) sought an order that “this notice of motion be stood over with liberty to the defendant to restore in order to obtain further security at an appropriate time.” According to the plaintiffs, as Harrison J did not make this order, the defendant was not entitled to make this further application for security for costs. Counsel for the plaintiffs then referred to consent short minutes of order made by the Court on 6 July 2017, and submitted that the parties had liberty to apply to restore the matter on 7 days’ notice in writing, including any application for security for costs. Although the notice of motion for security for costs was filed on 6 April 2017, it was not heard until 26 July 2017 after those directions were made.

14. [15]

    I do not agree with the plaintiffs’ submissions. In BMT (No 1), no order was made in relation to [1.3] of the notice of motion dated 6 April 2017. The consent orders made on 6 July 2017 do not contemplate liberty to apply in relation to security for costs, as this was a separate application that had yet to be heard.

15. [16]

    As to the principles that apply to a further order for security for costs, as Ball J stated in Francis, different principles apply depending on whether the application is a fresh application for additional security or an application to vary an existing order granting security for costs. This is a fresh application for security for costs, brought on the basis that the original amount lodged as security for costs has been expended.

16. [17]

    On my reading of Francis, the defendant in these proceedings does not have to demonstrate a material change of circumstances, nor is it required to bring new evidence that could not reasonably have been put before the Court in the hearing before Harrison J. If I am wrong, I consider that due to work done, the amount lodged for security for costs has now been expended, which constitutes new evidence that could not have reasonably have been put before Harrison J in BMT (No 1). The defendant’s solicitor has provided an account of the costs it has expended.

17. [18]

    The plaintiffs raised two further factors as to why the defendant should not be entitled to an order for further security for costs.

18. [19]

    The plaintiffs’ solicitor, Michael Baumann (Aff, 18 August 2020 at [45]-[46]), deposes that he was informed by Sidney Knell, director of the first plaintiff, and verily believes, that the effect of the defendant’s application is to practically deny the first plaintiff the right to litigate, as it does not have the funds readily available to meet such an order. He says that the plaintiffs have lost equity in the project by having to provide the $120,000 in security for costs already ordered. However, Mr Knell has not elected to swear an affidavit supplying financial records, and the plaintiffs have provided no other evidence to demonstrate that his assertions are true.

19. [20]

    Mr Baumann has criticised the defendant’s incurring of legal costs and expenses, and says that the solicitor for the defendant has expressed conflicting viewsand conducted the matter differently at various times (Aff, 18 August 2020 [35]). The plaintiffs’ solicitor says the defendant has done little, other than requesting particulars and providing an amended defence dated 20 July 2020.

20. [21]

    In their amended statement of claim (ASC) at [36], the plaintiffs plead:

21. [22]

    Attached to the end of the ASC is a schedule. The schedule records 19 progress reports which the plaintiffs say evince cost overruns, with the total cumulative error against the final construction costs totalling $2,111,338.20.

22. [23]

    The defendant has made three requests for particulars from the plaintiffs. It is necessary to set out some of the plaintiffs’ answers to these requests, as they are most unusual and may explain in part why the initial security for costs has been expended.

23. [24]

    The first is a letter from the plaintiffs’ in-house counsel, Mr Anthony Olsen, dated 24 April 2019. In reply to the defendant’s two requests for particulars, both dated 11 April 2018, Mr Olsen said (CB 100):

24. [25]

    On 14 May 2019, in reply to the defendant’s further request for particulars dated 29 April 2019, Mr Olsen relevantly wrote (CB 103):

25. [26]

    On 5 June 2019, the defendant’s solicitor once again wrote to the plaintiffs’ solicitor addressing the issues res ipsa loquitur and requesting an answer to the particulars sought.

26. [27]

    On 23 December 2019, the plaintiffs’ solicitor replied, stating that the delay was due to the defendant’s failure to produce three original progress reports, as well as a “development check estimate [initial report]”. He stated that from his point of view, reading the defendant’s correspondence in respect of these documents had been like “looking through a glass darkly”. The plaintiffs’ solicitor then referred to work performed by Dr F J Bromilow “under the auspices of the federal governments CSIRO, [who] did world renowned pioneering work in respect of budgeting in building projects”, before addressing the relevance of “S” curves, which plot expenses over time, from certain of the defendant’s reports. The letter went on to address further outstanding issues, both generally and in answer to particulars.

27. [28]

    For his part, in cross examination, Mr Berg addressed the events that he says caused funds to be expended beyond the defendant’s previous estimates as follows (T 31.50-33.9):

28. [29]

    So Mr Berg says, after attempting to obtain proper answers to the defendants’ requests for particulars from the plaintiffs’ legal representatives, Mr Berg ultimately “bit the bullet to try and get this matter moving” (T 32.14) by filing an amended defence.

29. [30]

    As such, it appears to be the plaintiffs who have put the defendant to the expense of trying to obtain a proper response to its request for particulars. In my view, the plaintiffs have not acted in accordance with s 56 of the Civil Procedure Act.

30. [31]

    As previously stated, the plaintiffs have not provided any evidence to support their assertions that an order for further security for costs will practically deny them the right to litigate and result in a loss of equity. Harrison J’s order for security for costs was expressed to be “up to this stage”, not to the conclusion of trial. It is my view that as the amount of security has been expended, and under the circumstances, the defendant is entitled to an order for further security for costs.

31. [32]

    Fixing the amount to be provided by way of security is part of the exercise of the Court’s discretion. The cost of the proceedings is a relevant factor to consider in exercising this discretion.

32. [33]

    In his affidavit (Aff, 14 June 2017 at [35.1] - [35.14.2]), Mr Berg estimated the defendant’s costs on an ordinary basis. However, he is now fully apprised of matters he had not previously anticipated.

33. [34]

    In a letter to Mr Baumann dated 28 April 2020, Mr Berg estimated the defendant’s costs, up to and including the trial, as being between $330,397 and $335,397. It is Mr Berg’s opinion that the matter is factually complex and will require a considerable investment of time by numerous people, particularly the defendant’s legal representatives. He estimates that the trial will take about 15 days, allowing 8 days’ preparation for senior counsel and 5 for junior counsel. Mr Baumann does not accept that the trial will take 15 days, which he considers exorbitant. He does not expect the trial to exceed 6 days (Aff, [56]).

34. [35]

    According to Mr Baumann (Aff, 18 August 2020 [22]-[25]), a solicitor of 45 years’ experience, a discount of around 44% on solicitor and own client costs generally conforms with the discount referred to by Gordon J in Norcast SarL v Bradken Ltd [2012] FCA 765 at [22]-[23]. Mr Baumann also commented on Mr Berg’s estimate of costs, saying that very little has changed since the time the original estimates were made. In his view, the defendant’s solicitors have conducted the defence in an over-exacting way, which may be their client’s prerogative, but has no bearing on the previous estimates.

35. [36]

    As to the amount of security for costs that should be lodged, I will adopt the same approach as Harrison J in BMT (No 1).

36. [37]

    The defendant at [3] of its notice of motion also seeks an order that the notice of motion be stood over with liberty to the defendant to restore, in order to obtain further security at an appropriate time. In my view, allowing the defendant to incur further costs by having another argument over security for costs should be avoided. Although I am not satisfied that the trial will finish in 6 days, neither am I satisfied that it will take 15. Like Harrison J, I also take into account this matter may settle before trial. Therefore, in my discretion, it is my view that the appropriate amount for further security for costs is $150,000 for the period of now up to the completion of the trial.

(2) The first plaintiff’s notice of motion filed 21 July 2020 - discovery

1. [38]

   By notice of motion filed 21 July 2020, the first plaintiff now seeks an order that the documents sought are relevant to a fact in issue and that the defendant should give discovery of these documents.

2. [39]

   The documents in dispute are described as “the defendant’s report of on or about 13 May 2004 to the Commonwealth Bank of Australia and any document in respect thereof prepared in respect of Kovarfi v BMT & Associates Pty Ltd (No 3) [2017] NSWSC 710 (“Kovarfi”).

3. [40]

   Rule 21.2 of the UCPR reads:

4. [41]

   Hence, UCPR 21.2(4) limits an order for discovery to those documents that are “relevant to a fact in issue”.

5. [42]

   The first plaintiff’s seeks documents relating to Kovarfi, in which the first defendant was the same defendant as in these current proceedings. It is common ground that the Kovarfi proceedings were summarily dismissed four times. According to counsel for the plaintiffs in these proceedings, the summary dismissals occurred because the Kovarfis were trying to run a concealed fraud case when they were unrepresented, which plainly was not applicable.

6. [43]

   In Kovarfi, Parker J summarised the plaintiff’s claim, which concerned a development in Queensland. His Honour explained at [6]-[8] that three sets of proceedings had been brought in the Court concerning events by Mrs Kovarfi or parties associated with her. The first proceedings were commenced in the Common Law Division’s Professional Negligence List in October 2010, which Parker J referred to the as the “First Common Law Proceedings”. Those proceedings were dismissed by McCallum J in September 2012: Kovarfi v BMT & Associates Pty Ltd [2012] NSWSC 1101.

7. [44]

   The second proceedings were also commenced in the Common Law Division’s Professional Negligence List, in May 2013. Parker J referred to the proceedings as the “Second Common Law Proceedings”. Those proceedings were dismissed by Campbell J in February 2014: Kovarfi v BMT & Associates Pty Ltd (No 2) [2014] NSWSC 100.

8. [45]

   The third proceedings were commenced in the Corporations List in the Equity division in April 2014. Parker J referred to the proceedings as the “Corporations Proceedings”. Those proceedings were dismissed by Black J in July 2014: In the matter of BMT & Associates Pty Ltd [2014] NSWSC 1082. An application to reopen was dismissed by his Honour in August 2014: In the matter of Kata-Lyn Pty Ltd [2014] NSWSC 1246.

9. [46]

   Parker J set out the details of the four sets of proceedings in his reasons for decision. The first three proceedings were dismissed. Parker J’s judgment was in relation to the fourth proceedings, where Mrs Kovarfi sued on her own behalf and as a purported assignee of Mr Kovarfi. She claimed damages for losses resulting from the Commonwealth Bank of Australia calling in its securities under the loan to Kata-Lyn. The plaintiff’s pleadings made two complaints against the defendant. Parker J set out the pleadings at [18]-[19]:

10. [47]

    His Honour did not see the difference in the formulation in the amended statement of claim. For the purposes of the summary judgment application (accepting the plaintiffs’ case at its highest), Parker J stated at [23]:

11. [48]

    Parker J went on to find that because of the earlier common law proceedings, the proceedings before him were an abuse of process.

12. [49]

    At the hearing of these proceedings, counsel for the plaintiffs submitted that Kovarfi is relevant to these proceedings. In Kovarfi, Mr Plenty was the second defendant and the director of the third defendant. According to counsel for the plaintiffs in these proceedings, Mr Plenty was faced with a situation where the first defendant had provided certain reports, which then led to a further report as to costs for completion, as the costs of completion had already blown out in 2004 (T 44.32-40).

13. [50]

    Counsel for the plaintiffs submitted that Mr Plenty had the plaintiffs’ general and corporate knowledge at that time. According to the plaintiffs in these proceedings, the same thing has happened in this case, in the sense that when the loan was exhausted from the bank, there was a cost to complete (T 44.47-50).

14. [51]

    The defendant in these proceedings submitted that the document sought in relation to Kovarfi are irrelevant to a fact in issue in these proceedings, as they relate to a different period of time (2004), a different plaintiff and a different building site.

15. [52]

    On the topic of discovery, counsel for the plaintiffs referred to two further cases: Girdlestone v North British Mercantile Insurance Company (1870) LR 11 Eq 197 (“Girdlestone”) and Robert John McKenna v Cammell Laird Ship Repairers Ltd and Condron (Avonmouth) Ltd 1989 WL 649898 (“McKenna”).

16. [53]

    McKenna concerned a plaintiff who alleged that he was suffering from industrial deafness, and the issue for the Court was whether interrogatories should be administered. This case is not of assistance.

17. [54]

    Gridlestone concerns an insurance policy. The plaintiff was transferred to India and arrived a few days before his policy of insurance commenced. The insurer submitted that his policy covered only Europe, and not India. The plaintiff requested discovery of 10 policies written before he obtained his policy, and 10 after. The basis upon which he sought discovery was that the defendant had a history of engaging in this conduct in similar circumstances. The application for discovery was allowed.

18. [55]

    Here, I must consider whether the documents sought are relevant to an issue in these current proceedings. In the Kavarfi proceedings, the plaintiffs, projects, and locations of the properties were all different to that in the current proceedings. One construction took place in 2004, and the other in 2017. The similarity with the current proceedings is that both concern the same defendant, who was retained by different banks to provide it with progress and other reports.

19. [56]

    In Kovarfi, it was alleged that BMT caused the developer to receive substantially more funds from the bank than the value of the work executed, and the report dated on or about 13 May 2004 to the bank (the letter for which the plaintiff seeks discovery) convinced the bank to withdraw its finance. In these current proceedings, the plaintiffs allege that the defendant’s misleading or deceptive conduct and breach of warranty caused the plaintiffs to become liable to repay extra moneys advanced by the bank.

20. [57]

    In Kovarfi, it was alleged that BMT caused the bank to withdraw finance; in these current proceedings, the plaintiff became liable to repay extra moneys advanced by the bank. The factual evidence is not similar. In these circumstances, it is my view that the documents are not relevant to a fact in issue in these current proceedings. Hence, the defendant is not required to produce to documents listed in document 10.

Result

1. [58]

   The result is that the plaintiffs are to pay the defendant further security for costs in the sum of $150,000. The plaintiffs’ notice of motion dated 21 July 2020 seeking discovery is dismissed.

2. [59]

   The plaintiffs are to pay the defendant’s costs of the notices of motion dated 16 June 2020 and 21 July 2020.