Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Forte Sydney Construction Pty Ltd v N Moit & Sons (NSW) Pty Ltd [2022] NSWCA 79 Hearing dates: 23 May 2022 Date of orders: 31 May 2022 Decision date: 31 May 2022 Before: Macfarlan JA Decision: Respondent's notice of motion dismissed with costs. Catchwords: COSTS – application for security for costs of appeal – respondent did not establish that there is reason to believe that the appellant will be unable to pay the costs of the appeal (see UPCR r 42.21(1)(d) and Corporations Act s 1335(1)) or that the appellant has divested assets with the intention of avoiding the consequences of the proceedings (see UPCR r 42.21(1)(f)) or that any special circumstances exist (UCPR r 51.50) Legislation Cited: Corporations Act 2001 (Cth), s 1335(1) Uniform Civil Procedure Rules 2005 (NSW), rr 42.21(1)(d) and (f), 51.1(4)(a), 51.50 Category: Principal judgment Parties: Forte Sydney Construction Pty Ltd (Appellant) N Moit & Sons (NSW) Pty Ltd (Respondent) Representation: Counsel: A Cameron (Appellant) T Lynch SC (Respondent) Solicitors: JREA Legal (Appellant) Coleman Greig Lawyers (Respondent) File Number(s): 2022/8762 Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Citation: [2021] NSWDC 673 Date of Decision: 14 December 2021 Before: Russell SC DCJ File Number(s): 2019/145109 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. MACFARLAN JA: This is an application by the respondent for an order that the appellant provide security for the respondent's costs of the appeal in an amount of $79,000, or such other amount as the Court determines. The appeal is against a judgment of Russell SC DCJ of 14 December 2021 determining a dispute between a builder (the appellant) and a subcontractor (the respondent) concerning a development site in Ryde. His Honour entered judgment for the respondent in the amount of $418,485.04. The parties have agreed that the appellant is to pay that amount into Court pending determination of its appeal. The respondent has not contended that the appeal is not bona fide and arguable. It is fixed for hearing in this Court on 21 July 2022. As the issues on it fall within a relatively narrow compass, it is likely to be disposed of within one hearing day. 2. The respondent seeks an order for security for costs on three bases, as follows: 3. First, it relies on rr 42.21(1)(d) and (f) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") which empower the Court to order security for costs where "there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so" ((d)) and where "there is reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings" ((f)). "Plaintiff" in the rules includes an appellant in this Court (r 51.1(4)(a)). 4. Secondly, the respondent relies on s 1335(1) of the Corporations Act 2001 (Cth) which permits a security for costs order to be made "if it appears by credible testimony that there is reason to believe that the corporation [here, the appellant] will be unable to pay the costs of the defendant if successful in his, her or its defence". 5. Thirdly, the respondent relies on UCPR r 51.50 which permits the Court to order security for costs "in special circumstances". 6. I turn then to the evidence concerning the appellant's financial position on which the respondent relies to support its application. 7. The respondent relies first on the absence of recovery pursuant to garnishee orders it issued in January 2022 to two banks in respect of two particular accounts of the appellant. Both banks advised that there were insufficient funds in the respective accounts to pay the judgment debt. There was however no evidence of the significance and role of these two accounts in the operations of the appellant (see [13] below). 8. Next, the respondent relies on the absence of a response by the appellant to letters from the respondent dated 30 March 2022 and 4 April 2022 foreshadowing an application for security for costs and requesting evidence as to the appellant's ability to meet an adverse costs order on appeal. Whilst it is not to the credit of the appellant that it did not respond to the letters, the letters do not have any particular significance as the appellant subsequently provided the affidavit concerning its financial position referred to in [10] below. 9. Thirdly, the respondent relies on its service on the appellant on 6 April 2022 of a statutory demand pursuant to s 459E of the Corporations Act requiring payment of the judgment sum and on the absence of any application made prior to the date of the respondent's solicitor's affidavit of 14 April 2022 to set it aside. These matters are however of limited significance as the appellant subsequently agreed to pay the judgment sum and has demonstrated that it has the means to do so. Likewise, evidence before me of dealings by the appellant with certain other creditors identified by the respondent does not in my view give rise to any significant concern about the appellant's ability to meet a costs order on the present appeal. 10. Fourthly, the respondent relies upon the contents of an affidavit of Ms Xiaolu Li of 26 April 2022 filed on behalf of the appellant. For the following reasons and contrary to the respondent's submissions, that material does not however give reason for the Court "to believe that the [appellant] will be unable to pay the costs of the [respondent]" if the appeal is unsuccessful (see UCPR r 42.21(1)(d) and Corporations Act s 1335(1) referred to in [3] and [4] above). 11. The affidavit exhibits externally prepared financial statements of the appellant for the last complete financial year, that is, the year ended 30 June 2021. The Income Statement confirms Ms Li's evidence that the appellant has a substantial construction business. Its revenue for that year exceeded $24 million and its raw materials and consumables costs exceeded $22 million. Its profit for the year after income tax was about $1 million. Its balance sheet as at 30 June 2021 lists current assets in excess of $13 million, with current liabilities less than $12 million and net assets of about $1.7 million. 12. True it is, as the respondent points out, that the financial statements do not provide all the information that one might want to fully understand the appellant's financial position but there is nothing in the statements which in my view gives one cause to suspect that the appellant was not, at the date of the statements, a substantial company which was trading profitably and had significant net assets. That this continues to be the position is supported by a Cash Flow Statement annexed to Ms Li's affidavit which shows work continuing at the present time on major projects in Epping and Miranda, with cash flow from another project at Burwood anticipated to commence in October 2022. The Cash Flow Statement projects a positive monthly cash flow from April 2022 to March 2023, with a total positive inflow for that 12 months of $1,036,977. 13. In her affidavit Ms Li does not give a full description of the appellant's bank accounts, nor do the letters of request from the respondent (see [8] above) expressly ask the appellant to do so. Ms Li does no more in this respect than provide information as to two of the appellant's bank accounts, in order to demonstrate that the appellant has substantial funds on hand to enable it to pay the judgment sum into Court as it has agreed to do. Ms Li does not suggest that those accounts the subject of the garnishee orders referred to in [7] above were the only bank accounts of the appellant, and there was no cross-examination exploring the issue or notice to produce further documents. 14. In these circumstances, I draw the inference that the appellant has other trading accounts into which its business cash inflows go and from which cash outflows are drawn. Contrary to the respondent's submission, there is therefore nothing surprising in those inflows and outflows not appearing in the two accounts which Ms Li describes, and their absence from the accounts does not give rise to an inference that the appellant is divesting itself of assets to avoid them being available to satisfy any actual or prospective liabilities of the appellant to the respondent (compare UCPR r 42.21(f) referred to in [3] above). 15. Moreover, it follows from the above that the respondent has not established that there is reason to believe that the appellant will be unable to pay the costs of the appeal if ordered to do so. I accordingly find that the powers in s 1335 of the Corporations Act and r 42.21(1)(d) of the UCPR are not enlivened. Equally, r 42.21(f) is not enlivened, as indicated in [14] above, and no "special circumstances" have been identified which would attract the operation of r 51.50. 16. For these reasons, I dismiss the respondent's notice of motion dated 5 April 2022, with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 May 2022