Supreme Court New South Wales Medium Neutral Citation: Steel Building Systems Pty Ltd (in liq) v Decmil Australia Pty Ltd [2019] NSWSC 1645 Hearing dates: 22 November 2019 Decision date: 25 November 2019 Jurisdiction: Equity - Technology and Construction List Before: Stevenson J Decision: Plaintiff to provide further security for costs in the amount sought Catchwords: COSTS – security for costs – procedure and discretion – further security sought from the defendant – whether cross-claim defensive in nature – further security ordered Category: Procedural and other rulings Parties: Steel Building Systems Pty Ltd (in liquidation) (Plaintiff/Respondent) Decmil Australia Pty Ltd (First Defendant/Applicant) Kneebone & Beretta Consulting Pty Ltd (Second Defendant) Representation: Counsel: D Hand (Plaintiff/Respondent) A Harding (First Defendant/Applicant) Solicitors: ERA Legal (Plaintiff/Respondent) McCullough Robertson Lawyers (First Defendant/Applicant) File Number(s): SC 2017/348226 Judgment 1. These proceedings arise out of the engagement by the first defendant, Decmil Australia Pty Ltd, of the plaintiff, Steel Building Systems Pty Ltd (in liq) ("SBS"), to design and construct "modules" installed in a mining village in Queensland to provide accommodation and other services for mine workers. 2. On 10 August 2018, the Court ordered that SBS provide security for the costs Decmil for amongst other things, "Tranche 1" of the proceedings; that is to the close of evidence. The amount of security ordered for Tranche 1 was some $160,500. 3. Liberty was reserved to Decmil to apply for further security. 4. By notice of motion filed on 8 October 2019, Decmil now seeks an order that SBS provide further security for Decmil's costs of Tranche 1. 5. SBS and Decmil have served their lay evidence in chief. SBS's lay evidence in reply is due presently. 6. The parties have exchanged expert accounting evidence. Directions have been made appointing for joint expert reports in four disciplines and for the parties provisionally to share the costs of those expert reports. 7. Decmil's solicitor, Mr Nielsen, has deposed that in relation to Tranche 1 Decmil has already incurred professional fees of some $570,000 and disbursements of some $140,500. Mr Nielsen estimates that Decmil will incur further costs in the order of $210,000 in relation to costs associated with the four joint experts. A little under $100,000 of that figure is Decmil's provisional share of the fees payable to those experts. 8. After allowing appropriate discounts to reflect party/party costs, and deducting the amount of security already provided by SBS for Tranche 1, Mr Neilsen proposes a figure in the order of some $460,000 as the appropriate figure for further security. 9. As SBS is in liquidation, and as these proceedings are funded by a litigation funder, it is common ground that the Court's jurisdiction to order further security has been enlivened. 10. SBS resists paying further security on the bases that: 1. the costs in respect of which security is sought are in substance those arising on Decmil's cross-claim; 2. in a number of respects that cross-claim is not defensive, such that Decmil should be seen as, in substance, a plaintiff; 3. there has been delay in bringing this application; 4. an adequate explanation has not been given for Decmil's 2018 underestimate of the costs likely to be incurred in relation to Tranche 1; and 5. Mr Neilsen's estimate of the further costs that will be incurred in relation to the joint expert evidence is excessive. The cross-claim 1. Mr Harding, who appeared for Decmil, submitted that, subject to two matters, the cross-claim agitates matters already raised in the list response, and that the cross-claim should in substance be seen as defensive in nature. 2. Mr Harding explained that Decmil considered it necessary to agitate such matters in the cross-claim as well in the response as it apprehended that, otherwise, it might encounter difficulties in relation to the proof of debt it has lodged in the liquidation of SBS. 3. Mr Harding produced a table, which I set out below, which illustrates his point that, for the most part, the matters in the cross-claim reflect matters already pleaded in the response: Topic Reference in Amended List Response Reference in Further Amended Cross-Claim Formation of Agreements [11] to [16] [6] to [15] 216 Rooms Variation [17], [29] to [31], [33] to [44] [16] to [23] Estoppel by convention [45] to [49] Not pleaded Misleading or deceptive conduct – 216 Rooms Variation [50] to [51] [24] to [25] Incomplete Work [52] to [63] [26] to [29] Defective Work (generally) [64] to [77] [30] to [42] Roof Defects [66] [32] Balustrade Defects [67] [33] Other Defects [68] [34] Contractual adjustment / set-off against unpaid contract sums alleged by SBS [72], [77] Not pleaded Claim that SBS was negligent Not pleaded, but identical duty in contract pleaded at [65], with breach causing loss at [66]-[77] [31], [32] to [34], [38] and [42] Claims against Second Defendant (Kneebone) Not pleaded [43] to [52] Water damage Not pleaded [50]-[52] Misleading or deceptive conduct – statutory declarations Not pleaded [53] to [65] 1. There are two matters pleaded in the cross-claim which do not have an analogue in the list response. 2. Those matters relate to a claim by Decmil arising from alleged water damage to the modules and a claim for damages for misleading or deceptive conduct arising from the provision by SBS to Decmil of statutory declarations concerning payments allegedly made by it to subcontractors. 3. As to the first of those matters, Mr Harding informed me that an insurer of Decmil is meeting Decmil's costs of that issue and that such costs are not included in the amount for which security is sought. 4. As to the second of those matters, Mr Harding submitted that although a large amount is claimed under this head, the costs incurred by Decmil is not material and relate to only a small number of paragraphs in one of nine lay affidavits served on behalf of Decmil. Mr Hand, who appeared for SBS, did not cavil with that submission. 5. Mr Hand pointed to the fact that, in the cross-claim, Decmil makes a claim in negligence which has no analogue in the response. Mr Hand did not seek to identify what extra costs should be attributed to the claim, nor dispute Mr Harding's submission that the negligence claim arose out of the same substratum of facts as the matters alleged in the response. 6. Mr Hand pointed out that, in the cross-claim, Decmil is claiming some $3.2 million in respect of the water damage claim. However, as Decmil's insurer is meeting those costs, I do not see this as a significant factor. 7. Overall, I think Mr Harding was correct to submit that the matters in the cross-claim are in substance a repetition of the matters alleged in the response that, accordingly, the cross-claim should be seen as, in substance, defensive. Delay 1. There has been delay in bringing this application. 2. Mr Nielsen said in his affidavit that he apprehended that an earlier application for security would disrupt, or might be perceived as to disrupt, the timetable ordered by the Court for service of evidence; particularly in circumstances where the Court had earlier made a guillotine order in respect of the service of Decmil's evidence. 3. Further, Mr Nielsen explained, as Decmil was continuing to incur costs, any estimate of cost made whilst Decmil was preparing its lay evidence would likely be superseded by the actual costs incurred. For those reasons, Mr Nielsen concluded that Decmil should bring its application promptly following the service of lay evidence; as it has. 4. Mr Hand submitted, without elaboration, that this explanation was unreasonable. 5. Mr Nielsen's explanation is a little light on and does not provide a very persuasive explanation for Decmil's failure to earlier move for security. 6. However, as SBS does not suggest that the delay in bringing the application has caused it any prejudice or that it will result in the proceedings being stultified, I do not see delay as weighing heavily in the balance here. Alleged lack of explanation for 2018 underestimate 1. Mr Hand pointed to correspondence between the solicitors for the parties shortly prior to the commencement of proceedings in which Decmil's solicitor made detailed allegations of the damages Decmil claimed it had suffered by reason of SBS's conduct. 2. Mr Hand submitted that, in light of the correspondence, Decmil should have been in a position, at the time it made its original application for security, accurately to predict the costs it would likely incur. 3. However, Mr Nielsen stated in his affidavit that the task of preparing evidence proved more complex and extensive than initially anticipated and that, at the outset, Decmil did not appreciate the number of witnesses it would need to call or the scope or volume of evidence required from those witnesses. 4. I see no reason to doubt that evidence. Alleged overstatement of future costs 1. Finally, Mr Hand drew attention to evidence given by SBS's solicitor, Mr O'Neill, in which Mr O'Neill criticised Mr Nielsen's estimate of the costs Decmil would likely incur in relation to the joint expert evidence. 2. In a second affidavit, Mr Nielsen acknowledged the force of some of those criticisms and took them in account in making his current estimate. 3. I asked Mr Hand what figure he submitted ought be allowed for these costs. Mr Hand's first response was to submit that "50%" of Mr Nielsen's estimate should be allowed. However, as I have said, Mr Nielsen's estimate of some $210,000 included some $100,000 as Decmil's provisional share of the actual fees of the joint experts; a figure Mr Hand had earlier accepted was reasonable. Thus, as I pointed out in argument, acceptance of Mr Hand's "50%" submission would allow Decmil only some $5,000 for these costs. 4. Mr Hand then sought instructions and, without elaboration, submitted that $140,000 of Mr Nielsen's estimate should be allowed. 5. I did not find that submission helpful and am not prepared on that basis to reject Mr Nielsen's estimate. Conclusion 1. I am, in these circumstances, persuaded that I should order the security sought by Decmil. 2. I direct that the parties bring in short minutes to give effect to these reasons. ********** 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: 25 November 2019