FEDERAL COURT OF AUSTRALIA

Basetec Services Pty Ltd v Leighton Contractors Pty Ltd (No 4) [2015] FCA 1093

THE COURT ORDERS THAT:

1.    The respondent’s application dated 13 August 2015 be dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    This is an application by the respondent dated 13 August 2015 for further security for costs. The respondent made an application for security for costs on 17 June 2014 and, on 12 September 2014, I published reasons in which I indicated that the applicant should provide security for costs in the amount of $300,000. On 25 September 2014, I ordered that the applicant provide that security by a payment into Court of that amount (Basetec Services Pty Ltd v Leighton Contractors Pty Ltd [2014] FCA 991 (“Basetec (No 1)”).

2    In the previous application for security for costs, the respondent put forward evidence that its costs of the proceeding were likely to be $526,260, and that costs to the end of the first day of trial were likely to be in the order of $420,000. I said in Basetec (No 1) (at [53]):

I think that there are a number of variables in this case and the amount sought by the respondent is very significant. The variables I have in mind are the fact that, as the proceeding develops, a clearer picture of the apparent merits of the claim and cross claim may emerge, and a clearer picture of the costs likely to be incurred may emerge. Based on the evidence before me, my estimate of the respondent’s costs to a point where the proceeding is likely to be ready to be set down for trial is approximately $300,000. I will order that the applicant provide security in that amount.

3    That observation was made in the expectation that a proceeding is not ordinarily set down for trial before all, or at least most, of the interlocutory steps have been completed. That may not always occur and there may be cases (and this turned out to be one of them) where, in order to progress the proceeding or “lock in” a trial date or both, it is appropriate to fix a date for trial and then make orders with a view to the parties being ready on that date. On 30 July 2015, I made the following orders:

1.    Order 8 made on 27 March 2015 be varied such that:

1.1    the Applicant file and serve any affidavits of lay and expert witnesses on which it proposes to rely at trial, except in respect of the Respondent’s Cross Claim (“Cross Claim”) by 31 August 2015.

1.2    The Respondent file and serve any affidavits of lay and expert witnesses on which it proposes to rely at trial in respect of Cross Claim by 31 August 2015

2.    Order 9 made on 27 March 2015 be varied such that:

2.1    the Respondent file and serve any affidavits of lay and expert witnesses on which it proposes to rely at trial, in respect of the Applicant’s Claim (“Claim”) by 9 October 2015; and

2.2    the Applicant file and serve any affidavits of lay and expert witnesses on which it proposes to rely at trial, in respect of the Cross Claim by 9 October 2015.

3.    In respect of documents referred to in the affidavits filed pursuant to orders 8 to 10 made on 27 March 2015 above, the parties may, if so advised, refer to the those documents by the unique identification number given to the document in accordance with the agreed document protocol rather than annexing the same to those affidavits.

4.    The date in order 6 made on 4 June 2015 be varied to 23 October 2015.

5.    The date in order 8 made on 4 June 2015 be varied to 20 October 2015

6.    The date in order 9 made on 4 June 2015 be varied to 3 November 2015.

7.    The date in order 10 made on 4 June 2015 be varied to 10 November 2015.

8.    In substitution for order 11.1 made on 4 June 2015 that by 4.00 pm on 10 November 2015, each party is to file and serve on the other party of objections to the other party’s witness statements identifying the evidence to which objection is taken and the reasons therefore.

9.    In substitution for order 11.2 made on 4 June 2015 that by 4.00 pm on 17 November 2015, each party is to file and serve on the other party a schedule of objections to the documents on which the other party proposes to rely identifying the document to which objection is taken and the reasons therefore.

10.    In substitution for order 12.1 made on 4 June 2015 that by 4.00 pm on 17 November 2015 each party is to file and serve on the other party any response to the objections to witness statements using the same schedule as that used to set out the objections.

11.    In substitution for order 12.2 made on 4 June 2015 that by 4.00 pm on 24 November 2015 each party is to file and serve on the other party any response to the objections to documents using the same schedule as that used to set out the objections.

12.    The matter be listed for hearing on 1 December 2015 (up to 14 days set aside).

13.    The directions hearing listed on 30 September 2015 be vacated.

14.    The directions hearing be adjourned to 13 October 2015 at 9:15 am.

15.    Liberty to apply.

4    A week before those orders were made, the solicitors for the respondent wrote to the applicant and, in the course of their letter, they said the following:

The purpose of this letter is to:

(a)    inform your client of:

(1)    additional costs that have been incurred by our client to date, as a result of the manner in which the Applicant and its Managing Director have conducted this proceeding; and

(2)    additional costs that we anticipate will be incurred by our client up to the point where the proceeding is likely to be ready to be set down for trial,

being costs that were not contemplated at the time the Orders were made;

(b)    invite your client to voluntarily post additional security in respect of our client’s additional costs; and

(c)    provide notice to your client that, failing provision of additional security of the kind referred to in paragraph (b) above, our client will apply to the Federal Court for an order that the Security Amount be increased.

An increase in the Security Amount is necessary in light of the following costs not contemplated in the Macpherson Affidavit or the Hartwell Affidavit, or at the time the Orders were made.

5    The respondent’s interlocutory application is supported by an affidavit of the respondent’s solicitor (Mr Hamish Macpherson). A short time later, there was then a second affidavit from Mr Macpherson and an affidavit from an independent solicitor (Mr Stephen Hartwell) with expertise in the taxation or assessment of costs.

6    On 1 September 2015, and pursuant to paragraph 1.1 of the orders I made on 30 July 2015, the applicant filed and served an affidavit from its managing director, Mr Charles Figallo, which is to serve as his evidence-in-chief at the trial. In paragraph 176 of his affidavit, Mr Charles Figallo states that the applicant has decided not to pursue certain claims made in its Amended Statement of Claim. He states:

176.    ... Accordingly, I have given instructions to Basetec’s solicitor and counsel, and now notify the Court and Leighton, as follows:

176.1    Basetec concedes Leighton’s right under the contract to issue a notice terminating the contract for Leighton’s convenience on 20 May 2013.

176.2    Basetec does not press the allegations set out in paragraph 47 to 51 of the Amended Statement of Claim.

176.3    Basetec does not press the allegation that the termination for convenience was for an improper purpose as set out in paragraph 162 of the Amended Statement of Claim.

176.4    Basetec does not press the allegation that Leighton repudiated the contract or that Basetec accepted that repudiation in paragraphs 163 and 164 of the Amended Statement of Claim.

176.5    Consequently, Basetec does not press a claim for the loss set out in paragraph 177 of the Amended Statement of Claim.

7    On 13 August 2015, the applicant engaged a forensic accountant, Mr Brian Morris, to provide an expert report containing his opinion on aspects of the valuation of variations to the scope of the works under the Contract in accordance with clause 33.7 of the Contract. Mr Morris prepared a report and it was annexed to an affidavit he swore and the applicant filed and served on 1 September 2015 (again, pursuant to paragraph 1.1 of the orders I made on 30 July 2015). In paragraphs 3.6 and 5.5 of his report, Mr Morris said the following:

3.6    I have been informed by Mr Paul Figallo, General Manager of Basetec, that some of the wages payable to the employees for the Site Work undertaken during May 2013 remain unpaid. Accordingly, no timesheets are available to me. Mr Figallo advised me that Basetec is still liable for pay the employees for the unpaid work.

5.5    I have been provided with invoices form Hexagon Composite Engineering (a Malaysian company) (Hexagon) which states that Basetec incurred costs of $101,973.32 in constructing the facility. I am instructed that of the total amount incurred, a sum of $32,631.46 remains unpaid and continues to be owed to Hexagon.

8    On 23 September 2015, the respondent filed and served an affidavit of a solicitor (Mr Bradley Strahorn) employed by the firm of solicitors acting for the respondent, and an affidavit of an employee of the respondent and the Deputy Project Director of the project (Mr Murray Hill). Mr Hill swore a second affidavit shortly before the hearing of the respondent’s application.

9    In response to the application for further security, the applicant filed and served an affidavit of its managing director, Mr Paul Figallo, and an affidavit of its solicitor, Mr Adam Rosser.

10    In addition to the affidavit evidence, each party filed reasonably extensive written submissions. I have considered all of this material.

11    The applicant’s recent withdrawal of a number of substantial allegations had led both parties to revise their estimates of the likely hearing time with the applicant now estimating a hearing time of six days and the respondent a hearing time of ten days.

12    The respondent seeks further security in the amount of $526,260 (or $420,000 should I decide to award security only until the end of the first day of trial). In his first affidavit in support of the application, Mr Macpherson deposes to the fact that the respondent’s actual costs as at 11 August 2015 totalled nearly $1.2 million. His explanation for the difference between the original estimate he advanced in support of the previous application for security and the estimate advanced in his affidavit of 13 August 2015 is that there has been a substantial increase in the number of issues raised by the applicant in its Statement of Claim with consequential increases in the issues to be addressed in the Defence, the issues to be investigated, the documents to be discovered, and the number of witnesses to be called.

13    The respondent did not argue that the applicant’s case is not bona fide or that it does not raise issues fit to go to trial. It did introduce some evidence on the merits through the affidavits of Mr Hill. Counsel for the applicant addressed the merits and he took me to various provisions in the Contract, including those dealing with variations and valuations (cl 33), progress claims and payments (cl 35), and claims made by the Contractor on Leighton (cl 45). I do not think that it is appropriate for me to embark upon an examination of the merits beyond an acceptance of the proposition that the applicant’s case raises issues fit to go to trial. It seems to me that I should not do that in the absence of full submissions from both parties and a consideration of whatever admissible evidence of context each party wishes to put forward. The submissions on the merits which I did hear suggest that questions of contractual interpretation are likely to be reasonably significant at trial.

14    The applicant submitted that the Court should not order further security because it could no longer be satisfied of the first element in s 1335(1) of the Corporations Act 2001 (Cth) (see Basetec (No 1) at [34]-[36]). I have given this matter careful consideration. I have the company’s 2015 financial statements and that there is evidence that the shares in the applicant are owned by Renior Pty Ltd, as trustee for the Figallo Family Trust. I bear in mind the limitations of the company’s 2015 financial statements. On the one hand, the financial statements show a significant reduction in the company’s cash and cash equivalents between 30 June 2014 and 30 June 2015, and there are the unexplained outstanding (and in one case at least, long standing) liabilities of the company referred to in Mr Morris’ report. On the other hand, there is now a much shorter period between the application and any adverse costs order (assuming such an order is made), and although the company is nowhere near the size of the respondent, it does have 25 employees and has been involved in some reasonably substantial projects. Importantly, it does have cash reserves, has paid $300,000 into Court and has an undrawn overdraft facility of $200,000. I am satisfied that the case no longer falls within s 1335(1) of the Corporations Act and that the application for further security should be refused. It is not necessary for me to consider the discretionary factors, including the applicant’s argument that the application should be refused by reason of delay.

15    I should address one argument advanced by the applicant which was not advanced on the previous application for security for costs. It is that a factor relevant to the discretion whether or not to award security is that the respondent chose to deal with the applicant, and the applicant’s claim arises out of the dealing. I was referred to Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103 at [68] et seq. The metes and bounds of such a proposition were not explored in submissions before me. I am not prepared to apply any such factor in this case. It might be a relevant factor in certain cases where, for example, the company is financially fragile at the time of the dealing (and this is known to the respondent) or the respondent brought about the use of the corporate form as in Coca-Cola Amatil Victoria Ltd v PAA Enterprises Pty Ltd [2003] VSCA 135. However, it is not apparent to me that it is a factor to be taken into account in this case.

Associate:    

Dated:    13 October 2015