Federal Court of Australia

Waterproofing Technologies Pty Limited v Perri (No 5) [2025] FCA 986

ORDERS

THE COURT ORDERS THAT:

1.    The proceedings be listed for a case management hearing on 26 August 2025 at 9:30 am for the making of any orders consequent upon these reasons for judgment.

2.    By 4:00 pm on 22 August 2025, the applicants inform the respondents and the Court whether the undertakings contemplated in these reasons for judgment will be provided, and (if not) indicate the applicants’ position on the question of security for costs in light of these reasons for judgment.

3.    By 4:00 pm on 22 August 2025, the applicants file and serve an affidavit explaining the circumstances in which the submissions in paragraphs [57] and [59] of the applicants’ written submissions dated 28 April 2025 came to be made.

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

REASONS FOR JUDGMENT

MOORE J:

1    This is the third judgment dealing with interlocutory applications heard by me at an omnibus hearing. It should be read with Waterproofing Technologies Pty Limited v Perri (No 3) [2025] FCA 934, and terms defined in that judgment and used in this judgment have the same meaning. This judgment concerns the interlocutory application of the Perri Parties for orders that the applicants in the proceedings provide security for their costs.

2    The application by the Perri Parties is brought on the basis that there is reason to believe that the applicants would be unable to pay their costs of the proceedings if so ordered. In addition, the Perri Parties allege: that the case against them is weak and brought for an improper purpose; that through the offer of undertakings the applicants have conceded that security ought to be provided; and that the delay in bringing the application for security is explained by the Perri Parties’ lack of legal representation for a considerable period, and does not cause prejudice to the applicants.

3    The reference to the offering of undertakings is a reference to the fact that Mr Athanaseris, Group Managing Director of the applicants, has proffered undertakings. In his affidavit, Mr Athanaseris said the following:

…[I]n the event that an adverse costs order was made against the Applicants in favour of the First, Second, Third, Sixth, Eighth and Eleventh Respondents (specifically, an adverse costs order in the amount of approximately $1,500,000 as estimated in paragraph 20 of the Mr Mitchell's Affidavit) and the Applicants were not able to pay such a costs order out of its profits:

(a)    The Applicants could pay any such adverse costs order out of its net assets. In the event that the Applicants’ net assets were insufficient to meet any such adverse costs liability, I (as the sole director of Athanaseris Holdings Pty Ltd) would be prepared to forgive the debt that Waterproofing Technologies owes Athanaseris Holdings Pty Ltd in the amount of $3,221,172 as at 30 June 2024, which would enable Waterproofing Technologies to direct cash coming in from its trade debtors to be directed to pay any such adverse costs order…

(b)    Alternatively, I (as the sole director of Athanaseris Holdings Pty Ltd) would be prepared to take out a loan on behalf of Athanaseris Holdings Pty Ltd in order to pay any such adverse costs order on behalf of the Applicants. Athanaseris Holdings Pty Ltd owns the St Peters Property, which is the property out of which Waterproofing Technologies operates its business (being manufacturing waterproofing products), as explained above. The current value of the St Peters Property based on its financier's most recent valuation is approximately $20 million. Athanaseris Holdings Pty Ltd [sic] only substantial debt is a debt owing to its financier in the amount of approximately $10 million, which is secured over the St Peters Property. Accordingly, there would be more than sufficient to pay the First, Second, Third, Sixth, Eighth and Eleventh Respondents’ estimated costs on a party/party basis in the event that an adverse costs order was made against the Applicants in these proceedings.

4    In the course of the hearing, the matter referred to in (b) above was refined to an undertaking to the Court from Mr Athanaseris in the following form:

Pending further order of the Court, in the event that an adverse costs order is made against either or both Applicants in favour of the First, Second, Third, Sixth, Eighth and Eleventh Respondents following the conclusion of the trial in these proceedings, Athanaseris Holdings Pty Ltd will pay those orders for costs.

5    Athanaseris Holdings Pty Ltd (Athanaseris Holdings) is a company owned by Mr Athanaseris and his wife, and Mr Athanaseris is the sole director of that company. There is an ambiguity in the form of the undertaking in the previous paragraph, in that it is put forward as an undertaking by Mr Athanaseris but is in the form of an undertaking for Athanaseris Holdings to do something. Given that Athanaseris Holdings is a family company, the sole director of which is Mr Athanaseris, I will take this undertaking to be an undertaking to the Court by Athanaseris Holdings to meet any relevant order for costs. There is a further minor ambiguity, which is the reference to “in favour of the First, Second, Third, Sixth, Eighth and Eleventh Respondents”. Counsel for the applicants clarified that this was meant to refer to all or any of them, not just all of them.

6    The Perri Parties assert that the financial position suggested by the applicants’ accounts has to be approached with caution, because two related companies, Polyseal Waterproofing (ACT) Pty Limited (Polyseal ACT) and Polyseal Waterproofing (QLD) Pty Ltd (Polyseal Queensland), are now in liquidation. They point to the fact that the liquidators’ reports suggest that there is a significant deficiency of assets (a combined deficiency of over $5 million), that there is likely to have been insolvent trading for a considerable period, and that there may be claims arising from that insolvent trading. The Perri Parties say this is relevant for two reasons. First, they point to previous evidence given by Mr Balayannis to the effect that most of the trade debtors of the applicants are group companies. They say that the insolvency of two of the group companies must cast some doubt over the value of those trade debtors. Secondly, they say that the insolvency of group companies means that the undertaking proffered by Mr Athanaseris is of questionable value because, in the event of an insolvency of Athanaseris Holdings, Mr Athanaseris will not be able to control what happens and whether Athanaseris Holdings would forgive the debt owing by Waterproofing Technologies, or meet the costs of the proceedings.

7    In evidence in the proceedings were relevant accounts of Waterproofing Technologies Pty Ltd (Waterproofing Technologies) over the period from 2012 to 2024. Looking at the balance sheet as at 30 June 2024, it suggests that:

(a)    total net assets are $4,536,596;

(b)    current assets are $8,905,601. This includes trade debtors of $4,521,817, stock on hand of $4,002,635, and cash of $261,744;

(c)    non-current assets are $2,135,460, including plant and equipment of $1,108,110;

(d)    total assets are $11,041,061;

(e)    current liabilities are $2,894,499;

(f)    non-current liabilities are $3,609,966. This includes a loan from Athanaseris Holdings of $3,221,172; and

(g)    total liabilities are therefore $6,504,465, leaving the net assets of $4,536,596.

8    A broadly similar position prevailed in 2023 on all of the above components, with net assets of $4,252,042. The evidence of the financial results in prior years indicates that Waterproofing Technologies has been broadly profitable (i.e., profitable each year since 2012, with one exception), and that its net assets have been increasing over time.

9    If the liability to Athanaseris Holdings was removed, the financial position of Waterproofing Technologies would be even better, with revised net assets as at 30 June 2024 of $7,757,768.

10    In terms of profits, the accounts suggest that Waterproofing Technologies made $6,699,118 in gross profit in 2024, and $284,553 in net profit, down from $408,880 in 2023. That figure for net profit also appears in the draft 2024 tax return for Waterproofing Technologies. Waterproofing Technologies did not produce any final 2024 tax return.

11    In relation to the second applicant, Polyseal Waterproofing Victoria Pty Ltd (Polyseal Victoria), the position is different. The applicants did not put into evidence any accounts for Polyseal Victoria for financial years 2023 or 2024. Rather, the accounts in evidence only went up to 30 June 2022. In the applicants’ written submissions, at paragraphs [55] and [56], there are two tables setting out relevant information (assets, liabilities, net assets, profits etc.) for each financial year. For Waterproofing Technologies, the table contains figures from the 2012 to 2024 financial years. For Polyseal Victoria, the table contains figures from the 2012 to 2022 financial years. The following submissions are then made:

57.     The Applicants emphasise the following points.

(a)    First, from 30 June 2012 to 30 June 2024 Waterproofing Technologies’ assets have increased from approx. $3.025 million to approx. $11.04 million.

(b)    Secondly, from 30 June 2012 to 30 June 2024 Waterproofing Technologies’ gross profits have steadily increased from approx. $1.36 million to approx. $6.70 million.

(c)    Thirdly, from 30 June 2012 to 30 June 2022 Polyseal Victoria’s assets increased from approx. $1.33 million to approx. $3.152 million.

(d)    Fourthly, from 30 June 2012 to 30 June 2022 Polyseal Victoria’s gross profits steadily increased from approx. $2.25 million to approx. $4.8 million.

(e)    Fifthly, the combined net asset position of the Applicants is in excess of approx. $5.5 million.

…

59.    The financial statements for each of Waterproofing Technologies and Polyseal Victoria before the Court establish that the business of Waterproofing Technologies / Polyseal Victoria has always been profitable, that its net asset position has substantially increased over that period, that its gross profitability has substantially increased over that period, and that the combined net assets of Waterproofing Technologies / Polyseal Victoria are more than sufficient to meet any order for costs made against Waterproofing Technologies / Polyseal Victoria in favour of the Respondents in these proceedings.

12    At the hearing, in answer to a Notice to Produce, the applicants produced tax returns for Polyseal Victoria for the 2023 and 2024 financial year. The 2024 tax return is in draft. Those documents tell a very different story. It appears that Polyseal Victoria made significant losses in those years, and had net assets of negative $2,085,925 as at 30 June 2024. I was not taken to any information as to its financial resources that permit it to continue trading.

13    The submissions quoted above, made in 2025, were positively misleading having regard to the true position. The true position must have been known to relevant representatives of the applicants. This approach by the applicants was unhelpful, to say the least. I am somewhat troubled about how this has come about. The applicants’ submissions had the real potential to cause the court’s consideration of this issue to miscarry.

14    It therefore appears from the evidence before me that one of the applicants may have sufficient assets to pay likely costs in these proceedings, but the other does not. I did not receive any submissions or analysis from either party of any circumstances in which costs might be awarded against Polyseal Victoria but not against Waterproofing Technologies. However, that is at least theoretically possible. In the Amended Statement of Claim, there are common claims but also separate claims. If the separate claims by Polyseal Victoria were to fail, Waterproofing Technologies might submit that it should not be liable for costs in respect of claims which it did not bring. Whether that sort of differentiated costs award is likely in the present proceedings is difficult for me to assess, particularly without any assistance from the parties on the topic.

15    In relation to the Perri Parties’ point that the insolvency of other group companies casts doubt over the correct value of the applicants’ trade debtors, there is no evidence before me identifying any figure for trade debtors owed by the two insolvent entities. There is likewise no evidence to suggest that the applicants are artificially maintaining the book value of trade debtors in the face of the insolvency of those debtors (noting that the accounts of Waterproofing Technologies also reveal very significant amounts of bad debt being written off each year). There is, more generally, nothing identified by the Perri Parties to impugn the accuracy of the accounts. In these circumstances, I give this factor little weight.

16    In relation to the Perri Parties’ point that the insolvency of other group companies casts doubt over the solvency of Athanaseris Holdings, which in turn undermines the weight to be given to any undertaking by Mr Athanaseris because, in the event of insolvency, he would not be in control, I also give this relatively little weight because there is nothing before me to suggest that the insolvency of Athanaseris Holdings is likely. The mere fact that certain Polyseal entities are insolvent does not permit a finding, without more, that Athanaseris Holdings is likely to be placed into liquidation in the near future. Indeed, the only evidence available to me on the topic is evidence in summary form that Athanaseris Holdings has real estate worth $20 million and a debt of $10 million, as set out above. I would not place much weight on evidence of this type, but there is also no evidence to suggest anything to the contrary.

17    In respect of the Perri Parties’ submission that the applicants’ case is weak and the proceedings have been brought for an improper purpose, I would not act on that basis for the reasons set out in Waterproofing Technologies Pty Limited v Perri (No 3) [2025] FCA 934.

18    Likewise, I do not accept the contention of the Perri Parties that the offering of an undertaking by Mr Athanaseris constitutes some form of admission that the provision of security is necessary. Parties should not be dissuaded from proffering practical solutions by the risk that they will be found to have made admissions by taking that step. It is perfectly conventional to defend an allegation that security is required, but also proffer alternatives in an effort to narrow or resolve issues in dispute. That does not constitute any form of concession that security is required.

19    In relation to the position of Waterproofing Technologies, I note that a considerable share of the assets of the company (but by no means the only assets) are trade debtors. Trade debtors may not be readily realisable to meet an order for costs. However, if there was an undertaking capable of enforcement against Athanaseris Holdings that it would not enforce its loan to Waterproofing Technologies in the event and to the extent that the assets of Waterproofing Technologies were insufficient, then this would substantially reduce any risk that the Perri Parties will be unable to recover their costs, including because there would be sufficient assets (including stock on hand) even without trade debtors to meet any likely liability. However, this means that the making of any order dismissing the application as against Waterproofing Technologies would be conditioned upon the giving of appropriate undertakings.

20    In the case of Polyseal Victoria, I consider that there is a material risk that Polyseal Victoria will not be able to meet an adverse order for costs. However, rather than proceeding to make any order for the provision of security by Polyseal Victoria, I consider that the applicants should have the opportunity to consider whether Waterproofing Technologies wishes to provide an undertaking to the Court to meet any costs order in these proceedings against Polyseal Victoria. If such an undertaking were proffered, and if the existing undertakings were perfected, I would not make any order for security.

21    Assuming those undertakings are provided, I would not make any orders as to costs. Whilst, in that event, the Perri Parties would not have succeeded in obtaining the relief that they were seeking, being an order for security, they would be provided with some degree of additional costs protection through undertakings. Further, the financial position of the second applicant was not clarified until the hearing of this matter, when the Perri Parties called on a notice to produce. The Perri Parties were therefore justified in bringing the application.

22    In the circumstances, I would propose to make the following orders, subject to the giving of the relevant undertakings:

UPON:

(a)    the first applicant, by its legal representatives, undertaking to the first, second, third, sixth, eighth and eleventh respondents (the relevant respondents) and to the Court to meet any obligation of the second applicant pursuant to any costs order in these proceedings in favour of any of the relevant respondents;

(b)    Athanseris Holdings Pty Ltd, by its legal representatives, undertaking to the relevant respondents and to the Court that, in the event and to the extent that the assets of the first applicant are insufficient to meet any obligation in relation to any costs orders in these proceedings in favour of any of the relevant respondents (including any obligation pursuant to the undertaking in (a) above), Athanaseris Holdings Pty Limited will forgive the debt owed to it by the first applicant to the extent necessary to enable the first applicant to meet that obligation; and

(c)    Athanaseris Holdings Pty Limited, by its legal representatives, undertaking to the relevant respondents and to the Court that, in the event that an adverse costs order is made against either or both applicants in favour of any of the relevant respondents in these proceedings, and those costs are not met by the applicants, Athanaseris Holdings Pty Ltd will pay those costs.

THE COURT ORDERS THAT:

1.    The application by the relevant respondents for security for costs be dismissed.

2.    There be no order as to costs.

23    On the applicants’ side, there will need to be confirmation that undertakings in this form are provided. In the event that they are not, there may be an appropriate case for an order of security.

24    In that regard, the applicants’ delay in bringing the present application would not prevent such an order being made, but any order would only be in respect of costs after the date of the application, and the delay may be relevant to quantum. The principles relevant to delay were discussed by me in Big Review TV Ltd (in liq) v FC Securities Pty Ltd (2025) FCA 222. Like that case, in the present case there is no concrete evidence establishing any prejudice arising from the delay. That materially reduces the significance of any delay. Further, the delay was partly explained by the respondents’ absence of legal representation for a significant period.

25    Pending confirmation of the provision of the undertakings, the only order I will make is that the proceedings be listed for a case management hearing to deal with the making of any orders consequent upon these reasons, and that the applicants indicate their position in advance.

26    I will also make an order that the applicants provide an affidavit explaining the circumstances in which the submissions in paragraphs [57] and [59] of the applicants’ written submissions dated 28 April 2025 came to be made.

Associate:

Dated:    20 August 2025

SCHEDULE OF PARTIES