Rickard Constructions Pty Limited v Allianz Australia Insurance Limited & Ors [2002] NSWSC 1162

New South Wales Supreme Court

CITATION : Rickard Constructions Pty Limited v Allianz Australia Insurance Limited & Ors [2002] NSWSC 1162 CURRENT JURISDICTION: Equity Division Construction & Technology List FILE NUMBER(S) : SC 55027/00 HEARING DATE(S) : 15 November 2002 JUDGMENT DATE : 15 November 2002

PARTIES : Rickard Constructions Pty Limited (Pltf/Resp) Allianz Australia Insurance Limited (3D/Appl) JUDGMENT OF : McClellan J

COUNSEL : T G R Parker (Pltf/Resp) A J McInerney (3D/Appl) SOLICITORS : Maurice Blackburn Cashman Lawyers (Pltf/Resp) Dexter, Healey (3D/Appl) CATCHWORDS : COSTS - application for security of costs - where litigation of plaintiff's case was funded by another company - whether plaintiff will be prejudiced if an order is made CASES CITED : Morris v Hanley & Ors [2001] NSWCA 374 Rhema Ventures Pty Limited v Stenders [1993] 2 Qd R 326 DECISION : See paras 22-24

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CONSTRUCTION & TECHNOLOGY LIST

McCLELLAN J

15 NOVEMBER 2002

55027/00 RICKARD CONSTRUCTIONS PTY LIMITED v ALLIANZ AUSTRALIA INSURANCE LIMITED & ORS JUDGMENT – On application by third defendant for security for costs 1 HIS HONOUR: There are two matters before the court today. The first is a minor matter which relates to costs said to have been thrown away by reason of the plaintiff's failure to prosecute its claim in a timely manner. In that respect, an amount of $5,000 is sought, said to be the costs of various directions hearings which were incurred at a time when these proceedings were not being effectively prosecuted by the plaintiff. 2 The circumstances in which that problem arose are that the plaintiff, having commenced the proceedings, fell into dispute with its solicitors and difficulties arose in relation to access to documents. The services of the original solicitors were terminated and the new solicitors, who are now the solicitors for the plaintiff were for that reason, apparently unable to fulfil obligations to provide documents to the defendant. 3 The consequence was that on a number of occasions, attendances were necessary at court, when the defendant was not successful in obtaining access to the documents and no effective explanation was given. However, each of those directions hearings was completed without any order being made as to the costs, or costs being reserved. In those circumstances, I do not think it appropriate for the court now to revisit that sequence of events in order to determine whether it is appropriate that a costs order, which could have been applied for at an earlier time, should now be made. 4 The second matter is of greater substance. The dispute between the parties arises from the circumstance that the plaintiff, a construction company, was contracted to construct the pavement for a large container terminal at Port Botany. The third defendant moves for security. It is the insurer of the plaintiff and has been joined in the action in that capacity. Proceedings have also been taken against other defendants, who are either professional advisers to the owner of the terminal or, in respect of Lumley General Insurance Limited, it is another insurer of the plaintiff. The fifth and sixth defendants are, effectively, the owners of the terminal and have been joined to ensure that the plaintiff is able to effectively prosecute the first and second defendants to recover any entitlement, either in contract or in negligence. 5 The proceedings were first commenced in September 2000. Shortly after they were commenced, the plaintiff entered a deed of arrangement. The necessity for the proceedings was the failure of the pavement, which the plaintiff constructed for the fifth and sixth defendants. It is said that the failure occurred because of the negligence of the first and second defendants, who were consultants to the project. The plaintiff has compromised the claim made upon it by the fifth and sixth defendants and seeks to recover in these proceedings damages, which include the money sum involved in that compromise. 6 At the time the proceedings were commenced, the plaintiff owed a significant sum of money to a company known as SST Consulting Services Pty Limited. The evidence suggests that the primary debt to that company was of the order of $600,000. However, SST contributed moneys to the repair of the defective pavement and also to enable legal process to be taken in an endeavour to recover from the first and second defendants. The amount initially committed by SST was of the order of $300,000, so that by the time the proceedings had commenced the sum owing to SST was of the order of $900,000. A deed of charge has been registered in October 2000 in the sum of $930,000. 7 Having commenced the litigation, it was only a short time before problems with the plaintiff's original solicitors emerged. As I have indicated, those problems delayed the effective prosecution of the proceedings for approximately twelve months. During that time, SST committed further significant funds to the litigation, which now total in the order of $350,000. These comprised fees paid to solicitors and barristers and a sum, which in total is $80,000, paid to the administrators of the deed. 8 The plaintiff accepts that but for one matter security should be ordered in these proceedings. Of course, it is relevant that the proceedings are effectively being maintained by SST, and that that company will, if the plaintiff succeeds, benefit from that victory. 9 Evidence has been placed before the court by Mr Peter Sweeney, who is a director of SST, in which he identifies the steps which the company has taken to prosecute this matter. Mr Sweeney has not been cross-examined. In his affidavit, he says that after the original commitment of $300,000 had been made to the repair of the pavement and initial funding of legal claims, he was approached to provide further funding. He was asked, on behalf of SST, to finance the further prosecution of the proceedings in this list as part of a deed of arrangement. SST agreed to do so and, as a result, has committed the further sum which is in the order of $350,000 to which I have referred. 10 He says in his affidavit: "At the time that I was being asked on behalf of SST to commit further funds to the continuation of the proceedings, it was necessary for me to make a judgment as to whether to do so or whether it was better for SST to simply walk away from Rickard Constructions and write-off the amount it had up to that point contributed. Advice was obtained from Doyles (the plaintiff's original solicitors) as to the likely costs of pursuing the litigation." 11 Mr Sweeney was apparently provided with a copy of a letter from the solicitors to the plaintiff and he says that he: "relied upon it in deciding whether to continue to pursue the litigation. Although the letter refers to the possibility of 'security of costs' on page 1, so far as I was aware by then, no such application had been made and for that reason I discounted the possibility that it would be necessary for additional funds, above and beyond the amounts which would be payable to Rickard Constructions' lawyers be provided. Because the question is a hypothetical one, I cannot say definitely what my attitude would have been had I been told at that time that it would be necessary to make such further payment on account of security, but it is my belief that had I been told that the provision of substantial further amounts (say $100,000 would be necessary) then I would have considered continuing support of the litigation and it is likely that SST would not have pursued the litigation but would in effect have written off the amounts which were then owed by Rickard Constructions." 12 The third defendant filed the present notice of motion on 27 September 2002, almost two years after the proceedings were commenced. The explanation for the delay is said to lie in the fact that, being an insurer, the third defendant was concerned that the court may be disinclined to make an order for security in the circumstance when the dispute between the parties related to a claim under the third defendant's insurance policy. It is said that because of the plaintiff's failure to prosecute the proceedings with expedition or indeed in any way efficiently, it was determined that the present application would be brought in order to "bring matters to a head". 13 Only when the notice of motion had been filed did the third defendant become aware that the litigation was being funded by SST. Although, no doubt by reason of the circumstances of the plaintiff, it should have been alert to the fact that the plaintiff may not have itself been able to support the litigation, this apparently did not cause sufficient concern for the third defendant to bring the motion until September of this year. The fact that SST was involved in supporting the plaintiff in the litigation was apparent from the minutes of creditors' meetings and the deed of arrangement which had been filed with ASIC. It would have been possible at an early date for the third defendant to have identified at least that SST was involved in the proceedings. 14 There are decisions of the Court of Appeal which have considered the impact of delay on an application for security for costs. The most recent of which I am aware is the decision in Morris v Hanley & Ors, [2001] NSWCA 374, where a plaintiff funded herself in litigation against the defendant. Those proceedings were commenced in May of 1997 and the motion for security was first brought in March 2000. It was heard by Young J in August 2000 and his Honour made an order. The Court of Appeal unanimously allowed the appeal. By the time of the appeal, the Court accepted that the plaintiff was ready for a hearing and the plaintiff had suffered a substantial diminution in her financial resources with a view to readying the matter for hearing. 15 Heydon JA said in his judgment: "It is never easy for defendants to succeed in applications for security for costs against a natural person where that application is in part based on the ground of that natural person's lack of funds. It becomes significantly harder for defendants to succeed where they permit the plaintiff to throw money away on litigation which will never be recoverable in a costs order against the defendants by reason of the successful application for security. As the primary judge rightly said, the decision whether or not to order security in this case 'is a difficult decision'. In my judgment it is appropriate for this Court to exercise the discretion against the defendants because they have not explicitly explained why they delayed until 2000 before making the application, though there are circumstances which might indicate why they delayed, and because of the hardship suffered by the plaintiff in having expended significant sums on costs during the period of that delay. There can be little doubt that at least some of the matters on which the defendants relied in their application were known to them well before it was made...There can never have been any reason for supposing that the plaintiff was anything other than a person of very limited assets." 16 That case, of course, involved a litigant who was a natural person. It appears to be inherent in what Heydon JA said that the court accepted that, if an order for security was made, the plaintiff would not have been able to meet it and, accordingly, the moneys which she had spent on preparing the matter for hearing would be lost. 17 In Rhema Ventures Pty Limited v Stenders [1993] 2 Qd R 326, Lee J was required to consider an application for security in circumstances where there had been delay. The plaintiff was a corporation and in that respect the matter differs from the decision in Morris. His Honour recited the facts of the matter and then said at p 333: "The above detailed recitation of the facts and submissions shows that the application is not a simple one. It is true that delay is a substantial factor which may defeat an application for security but it must be remembered particularly from the decision of the Full Court of New South Wales in Buckley v Bennell Design and Constructions Pty Limited (1974) 1 ACLR 301 that there is no set rule as to the time when an application for security can be brought. It seems to me that the submissions of counsel for the defendants in reliance upon Bell Wholesale Co Limited v Gates Export Corporation (1984) 2 FCR 1 have substance. It seems to me that before there can be prejudice to the plaintiff if an order for security is made, it must appear that the plaintiff is unable to afford to provide security of its own resources or that those who stand behind the litigation and who will benefit from it also are unable to fund and provide the security. There can be no prejudice to the plaintiff if the costs it has incurred are not thrown away as a result of the security, if ordered, being provided by those behind the litigation and who will benefit from it." 18 In the present case, there is no evidence and indeed there is no reason to believe that if an order for security is made, SST will not be able to fund it. Accordingly, I am satisfied that it is appropriate to consider the exercise of the court's discretion upon the assumption that, if an order is made, the plaintiff will not be prejudiced by reason of the fact that costs which have been incurred will be thrown away. 19 It is regrettable that the costs which have been incurred in this matter are so substantial and the matter is not yet ready for hearing, but this is largely due to the difficulties which the plaintiff has encountered with its solicitors and is in no way attributable to any action of the defendant. 20 Although I accept Mr Sweeney's evidence that he may have reconsidered supporting the litigation if he had been aware that his company was required to provide security, this evidence has to be considered having regard to the fact that SST nevertheless committed considerable sums and was prepared to commit moneys to the dispute between the plaintiff and its original solicitors. 21 The sum which the third defendant seeks by way of security is modest. It is submitted by the plaintiff that if an order is made, it may be that further applications will be made by the third defendant seeking additional security or applications may be made by other defendants, with the consequence that if the court makes an order at this stage it can anticipate applications being made which seek to cast a more significant burden upon SST. In my opinion, it is appropriate to consider this application in light of the material before the court today. Whether further applications may be made are, in my opinion, irrelevant. If those applications are made then, of course, they would need to be considered in light of the facts as they exist at that later date. 22 In my opinion, it is appropriate for an order for security to be made. There is no evidence before the court which would suggest that, if an order is made, the plaintiff will lose the benefit of any moneys which it has so far spent in prosecuting the litigation. As SST stands to directly benefit in a significant sum if the litigation succeeds, in my opinion, it is appropriate in the exercise of the court's discretion in the present circumstances to require the plaintiff to provide modest security. I consider that the sum of $50,000, having regard to the nature of the dispute and the evidence in relation to the steps which need to be taken to prosecute it, to be a reasonable sum. 23 I will make order 3, as amended, in the notice of motion. The motion is otherwise dismissed. 24 The third defendant seeks an order for costs. In part, the third defendant has failed in its motion, although it has succeeded in relation to the matter which was of greater significance and which has occupied the greater part of the court's time. In those circumstances, I am of the opinion that the appropriate order is that the plaintiff should pay half of the third defendant's costs of the motion. **********