Laurie Linder Construction Pty Ltd v Western Cape Communities Trust Pty Ltd [2024] QSC 123

Andrew Orford  |  Petrina Macpherson  |  Tara Vele

Key takeout

When there are reasonable concerns that one party may be unable to pay the costs of proceedings if they lose, a court may make an order for security for costs. This provides reassurance to a defendant that some of its litigation costs can be recovered if the proceedings are successfully opposed.  In this case, a construction company (in this case the plaintiff) attempted to avoid an order for security for costs by alleging impecuniosity caused by a principal (in this case, the defendant). It was held that to do so it must prove:

• the adequacy of its financial position prior to its dealings with the defendant;
• that the defendant caused or was a material contributor to the plaintiff’s inability to meet a security for costs order; and
• those who stand behind the plaintiff are not in a position to provide the security.

Facts

Laurie Lindner Construction (contractor) entered into a construction contract with the Western Cape Communities Trust Pty Ltd (principal) for a project in Weipa. The contract price for the project was $9.4 million, however, the contractor complained that the works cost in excess of $13.4 million and it only received payments totalling $8.9 million.  The contractor commenced proceedings against the principal claiming over $4 million.

The contractor claimed that as a result of the principal’s underpayment it was impecunious.  Conscious of the contractor’s impecuniosity, the principal applied for security for costs of the litigation under rule  670 Uniform Civil Procedure Rules 1999 (Qld) (UCPR) or s 1335 Corporations Act 2001 (Cth) (Corporations Act). Both these provisions enliven a discretion of the court to order security for costs where ‘the plaintiff is a corporation and there is reason to believe the plaintiff company will not be able to pay the defendant’s costs if ordered to pay them‘. The question before the court was whether it should order security for costs in the exercise of that discretion.

Decision  

The court ordered that the contractor must give security for the principal’s costs.

Discretionary considerations in granting an order for security for costs

The UCPR lists 13 matters a court may have regard to when deciding whether to make an order for security for costs. While the Corporations Act does not specify any matters for consideration, Henry J noted that there was no suggestion that the discretion would be exercised any differently under the Corporations Act than it would be under the UCPR.

Henry J considered that the following discretionary considerations were of material relevance in this case:

1. whether the contractor’s impecuniosity was attributable to the principal’s conduct; and
2. whether, in light of the contractor’s impecuniosity and the means of those standing behind the proceeding an order for security would stultify the proceeding.

The contractor argued that delays by the principal in the delivery of architectural plans caused significant cost overruns and project delays.  Its losses were also compounded by what the contractor alleged were incorrect assessment by the superintendent.

The contractor asserted that the principal was unjustly enriched by the work the contractor had performed and it sought damages for:

• breach of contract on a quantum meruit basis;
• an amount wrongly withheld as liquidated damages;
• amounts retained from progress payments to rectify alleged defects; and
• variation claims.

The principal contended that it had paid all that it was liable to pay and that it was not liable for the contractor’s losses on the project. 

The contractor argued that its work on the project had financially crippled it, such that it had to cease trading as it could no longer meet the minimum financial requirements to maintain its builder’s licence. In support the contractor produced a one and half page report prepared by its accountants. Henry J concluded that the accountant’s report did no more than reiterate its assertions without providing foundational evidence to support them. This was not enough to satisfy the onus of producing evidence to establish the adequacy of its financial position.

Would an order for security stultify the proceeding?

The impecuniosity of a plaintiff ordered to pay security for costs will not stultify its claim if those standing behind the company, who stand to benefit from the claim, are able to provide the security. Again, the onus rests with the plaintiff to be full and frank in its disclosure to the court to prove that those who stand behind it do not have the means to bear an adverse costs order.

The contractor had not been full and frank in its disclosure to the court. The director had not disclosed his income, which was a significant omission given its relevance to his financial circumstances. It was also revealed that the contractor’s director held the majority of the company’s shares as trustee of a family trust, with a broad range of individual and corporate beneficiaries.  No evidence was put before the court of the worth of any of the other beneficiaries of the family trust.

Without adequate evidence and a fulsome disclosure as to who stood to benefit from the claim brought by contractor, the court ordered that the contractor must provide security for costs and the proceedings were stayed until that occurred.