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Security for Costs – Statewide Developments Realty Pty Ltd v The Owners Corporation, SP 77457 & Ors [2013] NSWSC 1750

The Facts

The plaintiff carried on a business of providing caretaker services to owners corporations and other owners of buildings. There were 43 defendants to the statement of claim. The essence of the claim is that the plaintiff entered into an agreement with a building management committee (“BMC”) in 2007 to provide facilities management services in relation to shared facilities in the development.

In its Statement of Claim, the plaintiff pleaded that:

1. The agreement was made orally in February 2007.

2. In August 2007 the plaintiff and the BMC entered into a further agreement in the same terms as various agreements entered into with the owners corporations of a number of buildings in the development.

3. From November 2007 it and members of the BMC have conducted themselves on the basis of mutually assumed facts with respect to their relationship; those assumed facts being that they were bound by an agreement in the form of what is called the BNC Agreement.

On 30 April 2013 the BMC gave the plaintiff one (1) month’s notice that it terminated its services to the BMC.

On 9 August 2013 Kunc J ordered that until further order the defendants in their capacity as members of the BMC pay a sum of $21,839.84 inclusive of GST to the plaintiff each month subject to, amongst other things, the plaintiff complying with its obligations under the alleged caretaker agreement between the defendants and the plaintiff.

By notice of motion filed on 2 September 2013 the defendants sought an order that the plaintiff be required to provide security for their costs in the sum of $179,570.08. That application was dismissed by Assistant Registrar Musgrave on 17 October 2013.

The Law

Under section 1335 of the Corporations Act 2001 (Cth) and r 42.21(1)(d) there is power to order security for costs if it appears by credible testimony that there is reason to believe that the plaintiff will be unable to pay the defendants’ costs if they are successful in their defence.

The Supreme Court referred to the Federal Court of Australia decision in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 where Beazley J (as her Honour then was) set out a number of principles in relation to applications for security for costs (at 196-197). The Supreme Court repeated that one of those principles that her Honour stated was that as a general rule where a claim was prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success. That was said in the context of a statement of another principle that amongst the discretionary matters to be taken into account is the strength and bona fides of the applicant’s case.

Further, the Supreme Court also commented that where security for costs is resisted on the ground that it is the defendant’s conduct that has caused the plaintiff’s impecuniosity, I think the court is entitled and bound to consider the apparent strength of the plaintiff’s case, insofar as that can be assessed on the summary application.

The Decision

The Supreme Court ruled that security for costs should be ordered and that the plaintiff provide security for the first to 42nd defendants’ costs in the sum of $110,000 within 28 days either by bank cheque or otherwise in a form satisfactory to the Registrar.