Central Queensland Development Corporation Pty Ltd (formerly Bluechip Development Corporation Gladstone) Pty Ltd v BMT & Assoc Pty Ltd

HIS HONOUR: By an amended statement of claim filed on 6 April 2017, the plaintiffs claim damages against the defendant arising out of the construction of an apartment building known as “Harbour Lights” at 66 Oka Lane, Gladstone in Queensland. Doing the best I can having regard to the form of that document, it appears that construction of this development took place between November 2007 and May 2009, that the first plaintiff was the developer and that the defendant was the plaintiffs’ quantity surveyor and building consultant. The plaintiffs appear to allege that by reason of the defendant’s breach of contract and/or misleading and deceptive conduct, the project could not be completed on budget but instead suffered a substantial costs blowout amounting to more than $1.65M. More particularly, the plaintiffs allege that the defendant provided erroneous reports that overstated how much work had been completed, thereby unintentionally disguising large costs overruns. This is said to have caused the plaintiffs’ bank to advance more than it would otherwise have provided because the project had not in fact reached the stage represented by the defendant. Further, the plaintiffs allege in those circumstances that they became liable to repay the extra moneys advanced by the bank and, somewhat curiously, that their obligation to do so somehow gives rise to a cause of action against the defendant.

By its notice of motion filed on 14 June 2017, the defendant sought an order for security for costs pursuant to UCPR 42.21 or alternatively s 1335(1) of the Corporations Act 2001. That application is supported by an affidavit of James Berg sworn on 14 June 2017. Mr Berg was not required for cross-examination.

The material to which Mr Berg deposes suggests that neither plaintiff would be able to pay the defendant’s costs of the proceedings if the defendant successfully defended the plaintiffs’ claims. The companies have what might be described as a nominal share capital. Neither company has any assets. Neither plaintiff has provided any documentary or other evidence to suggest that it has the ability or capacity to meet an adverse costs order, despite the defendant’s request that it do so.

For example, by letter dated 22 March 2017, Mr Berg, a partner of DLA Piper Australia, the defendant’s solicitor, wrote to Mr Michael Baumann, the solicitor for the plaintiffs, foreshadowing the present application and asking for information in the following relevant terms:

The information requested was never provided. The plaintiffs have not filed evidence in response to the defendant’s application that contains any information of the type sought.

The plaintiffs have filed two affidavits sworn by Mr Baumann on 21 July 2017 and 24 July 2017. Paragraph 3 of the earlier of those affidavits says this:

It remains unclear to me whether that offer, or Mr Baumann’s evidence about it, is intended to convey the fact or the suggestion that the plaintiffs have between them the sum of $50,000 of their own at this time, or whether they are able to procure the provision of that sum by way of security for costs from someone or some entity standing behind them. Mr O’Hair of counsel for the plaintiffs was unable to clarify that question.

It is my understanding that the plaintiffs do not contend in response to the present application that they are, or would be, in a position from their own resources to meet any adverse costs order that might be made against them. Nor do they suggest that their present financial position is the result of the alleged conduct of the defendant in the principal proceedings. The plaintiffs’ response to the present application is to say only that the application has been brought late and that Mr Berg’s calculation of anticipated costs is excessive.

With respect to the question of delay, the defendant says that there has been none, for the reasons explained in a DLA Piper Australia letter dated 12 April 2017 in the following relevant terms:

These matters were not put in contest before me. The relevant date in these circumstances for gauging or estimating relevant delay is 19 February 2017. Having regard to the terms of Mr Berg’s letter of 22 March 2017, I am unable to accept that there has been any delay in making the present application that presently assists the plaintiffs. The plaintiffs have quite properly conceded that no identifiable prejudice has been caused by any delay of which they complain.

Mr Berg assessed the anticipated costs. As I have already indicated, he was not required for cross-examination, so his assessment that the anticipated costs of defending the proceedings was approximately $220,000 remains unchallenged. However, Mr Baumann’s affidavit provides an alternative assessment of what might be the defendant’s reasonable costs of successfully defending the claim. Mr Baumann was also not required for cross-examination.

Mr Baumann described himself as a solicitor of 42 years standing, with many years of experience in civil litigation. He described Mr Berg’s calculation of the likely or anticipated costs as “based on the widest scope of the case as pleaded, within the imagination.” He went on to say this at paragraph 19 of his earlier affidavit:

Mr Catsanos, who appeared for the defendant, objected to a series of paragraphs in Mr Baumann’s affidavit, including paragraph 19. However, as the succeeding paragraphs appear to indicate, Mr Baumann proceeded to describe and explain, admittedly in somewhat general terms, how the projected costs might be expected to be less than Mr Berg has predicted. I consider that Mr Baumann’s evidence about that is admissible.

Mr Baumann’s calculations suggest that something in the order of $100,000 would be a proper estimate of the likely costs, but that the figure should be further reduced or discounted having regard to his perception that Mr Berg has inappropriately expanded the true nature and scope of the proceedings.

In my opinion, Mr Berg’s assessment is not unreasonable. I am prepared to accept, however, that there may be some factors that limit or reduce the scope of the proceedings. For example, Mr Baumann suggests that the matter may be mediated or that it may settle before proceeding as far as a contested hearing lasting a number of days. These concerns are not unreasonable.

Mr O’Hair drew my attention to what was said by Beazley ACJ at [29] in Treloar Constructions Pty Limited v McMillan [2016] NSWCA 302:

I take Mr O’Hair’s specific reference to this decision and to [19] in particular as counsel’s proper concession that the defendant has arguably satisfied the criterion of the plaintiffs’ impecuniosity that must be established before an order for security for costs would be made. I reiterate as well that the plaintiffs have chosen to provide no material from which any different picture of their financial position might be available. I am not assisted by the fact, if it is a fact, that the plaintiffs appear upon the material referred to by Mr Baumann in his later affidavit, not to have been the subject of any adverse credit reference reports or notifications. While that information may say much about the existence or otherwise of competing creditors, it says nothing at all about the plaintiffs’ ability from their current assets or their access to loan funds to meet an adverse costs order against them.

In my opinion, the defendant has established that the plaintiffs should provide security for their costs. However, having regard to the competing opinions of Mr Berg and Mr Baumann, I consider that the security to be provided at this stage of the proceedings should be reduced from the amount proposed by the defendant.

I make the following orders: