Skyworks NSW Pty Ltd (in liq) v 32 Drummoyne Pty Ltd (formerly Q.Y & Lynn Pty Ltd) [2018] NSWSC 1521

Supreme Court New South Wales

Medium Neutral Citation: Skyworks NSW Pty Ltd (in liq) v 32 Drummoyne Pty Ltd (formerly Q.Y & Lynn Pty Ltd) [2018] NSWSC 1521 Hearing dates: 4 October 2018 Decision date: 05 October 2018 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Application to vary arrangements for security of first defendant's costs dismissed Catchwords: COSTS - Security for costs - Related company to the plaintiff gave undertaking to be responsible for defendant's costs to $300,000 – Related company now said to be financially unable to honour undertaking – nomination of that related company said to be an oversight – undertaking of alternative related company proffered – imminent hearing date - whether the alternative related company should now pay $300,000 into Court Category: Procedural and other rulings Parties: Skyworks NSW Pty Ltd (in liquidation) (Plaintiff/Respondent) 32 Drummoyne Pty Ltd (formerly Q.Y & Lynn Pty Ltd) (First Defendant/Applicant) Ling Ping Zhou (Second Defendant/Applicant) Ming Hai Zhang (Third Defendant/Applicant) Representation: Counsel: I G Roberts SC with D Byrne (Plaintiff/Respondent) G A Sirtes with B Le Plastrier and D Edney (Defendants/Applicants)

Solicitors: Piper Alderman (Plaintiff/Respondent) Mills Oakley (Defendants/Applicants) File Number(s): SC 2016/175996

EX TEMPORE Judgment (REVISED) 1. These proceedings were commenced in June 2016. 2. They are set down for hearing for 10 days commencing 22 October 2018. 3. The plaintiff (now in liquidation) built a home unit development on behalf of the first defendant in Drummoyne. The development is complete. The strata plan has been registered. All of the lots have been sold. 4. The plaintiff builder seeks damages for the delay costs of some $2 million from the first defendant and its directors, the second and third defendants. 5. The first defendant brings a cross-claim seeking damages of some $3.8 million against the plaintiff. 6. On 21 April 2017 the defendants filed a notice of motion seeking an order that the plaintiff provide security for costs in the sum of some $722,000. 7. That notice of motion was settled on 24 May 2017 when the plaintiff and two related companies Decode Group Pty Ltd and Roc Build Pty Ltd each gave an undertaking to the Court as follows: "The plaintiff, Decode Group Pty Ltd and Roc Build Pty Ltd each give an undertaking to the Court that they will contribute to payment of the defendants' costs of the plaintiff's claim up to a cumulative maximum of $300,000.00 in the event that a costs order is made against the plaintiff at the conclusion of the proceedings. The undertakings to the Court by the three entities are given on a joint and severable basis. 1. By notice of motion that I heard yesterday, the defendants sought an order that the security regime represented by those undertakings be replaced by an order that the plaintiff, Roc Build Pty Ltd and Decode Sydney Pty Ltd) (as opposed to as the Decode Group Pty Ltd) pay into Court $300,000 as security for the defendants' costs. 2. The basis for the application is that, very recently, the solicitor now on the record for the defendants, Mr Peter Meades, ascertained that Decode Group Pty Ltd was what Mr Sirtes SC, who appeared for the defendants with Mr Le Plastrier and Mr Edney, described as "an empty vessel"; said to be incapable of satisfying the undertaking given. 3. The defendants' solicitor raised this contention with the plaintiff's solicitor in correspondence between 18 and 24 September 2018. 4. In that correspondence, the plaintiff's solicitor, Mr Timothy Coleman, contended that the undertakings given on 24 May 2017 remained "viable" and that he was "not currently aware of any material change in circumstances which would render these undertakings unreliable". 5. However, a short time later, in an affidavit Mr Coleman swore on 2 October 2018 he said this: "In considering the motion brought by the first defendant, I have been informed by Hussein El Rihani, that he did not realise that the undertaking had been provided by Decode Group Pty Ltd. I have been informed that it was always his intention for the undertaking to be provided by Decode group generally rather than the specific company known as Decode Group Pty Ltd. I am also informed by Mr El Rihani that the entities which comprise of the Decode group, including Decode Sydney Pty Ltd (the entity through which building work in the Decode group is undertaken), are willing to provide an undertaking as to damages in relation to the freezing order and to also provide the same undertaking as to any costs order made against the plaintiff as the plaintiff and the other companies have made and on similar terms to the existing orders." 1. In his submissions Mr Roberts SC, who appeared with Mr Byrne for the plaintiff, put the matter this way: "It was the plaintiff's intention that the party who undertakes the construction works provide the undertaking. That is Decode Sydney Pty Ltd, however, due to an oversight Decode Group Pty Ltd, the holding company, was named in the undertaking. After becoming aware of that oversight following preparation for this motion, those who stand behind the plaintiff have instructed that Decode Sydney Pty Ltd is prepared to give the undertaking in lieu of Decode Group Pty Ltd". 1. It is hard to see how this "oversight" could have occurred. The explanation given by Mr Coleman is sparse. Much is left unexplained. 2. However that may be, Decode Sydney Pty Ltd has now given to the Court an undertaking in the same terms as were given by Decode Group Pty Ltd on 24 May 2017. 3. There is evidence before the Court of the financial position of Decode Sydney Pty Ltd for FY2016, FY2017 and (in draft form) FY2018. I received that evidence on a confidential basis. 4. Suffice to say that the financial position of Decode Sydney Pty Ltd is very sound. It has a significant surplus of assets over liabilities, has significant current assets (including a substantial sum described as "cash at bank") and is recording a significant profit. 5. It is plainly good for the undertaking it has given. 6. Like any building company, its fortunes could change. But the same could have been said of Decode Group Pty Ltd, whose undertaking was evidently thought by the defendants to be sufficient in May 2017. 7. Mr Sirtes accepted that the orders the defendants sought would place them in a better position than they were hitherto, but submitted that this result was justified by two matters: first, by the fact that the inadequacy of the undertaking given by Decode Group Pty Ltd was only unearthed by Mr Meades's diligence and, second, what is said to be the inadequate explanation given on behalf of the plaintiff for the "oversight". 8. I do not think these matters warrant changing the nature of the regime currently in place for security of the defendants' costs beyond provision of the further undertaking now received from Decode Sydney Pty Ltd. The application is put on at a late stage, two weeks from the commencement of the hearing. 9. The orders sought by the defendants would, in effect, punish the plaintiff for what is said to be the inadequacy of the undertaking given on behalf of the plaintiff in May 2017 by Decode Group Pty Ltd. And this is in circumstances where there is no evidence before me of what investigation was made in 2017 on behalf of the defendants as to the financial position of Decode Group Pty Ltd prior to it giving that undertaking; nor sufficient evidence to form any concluded view as to whether any basis exists for criticising the plaintiff, or its legal advisers, in relation to the "oversight". 10. As the balance of the notice of motion has either been dealt with by consent or is not pressed I propose now to dismiss the notice of motion. 11. I order that the costs of the motion be costs in the cause. 12. I order that the confidential affidavit of Mr Coleman be returned to the solicitors for the plaintiff.