Money down, then you can sue me!

TC Build Pty Ltd v STM123 Pty Ltd [2023] NSWSC 322

In the recent decision of TC Build Pty Ltd v STM123 Pty Ltd the Supreme Court of New South Wales considered if a security for costs order would stifle proceedings.

The plaintiff sued the defendants for $4m claiming it was an unpaid builder’s margin.

The defendants sought security for their costs.

In 2018 the plaintiff worked on two projects for some of the defendants, with the defendant’s director expressing interest in buying shares despite a dropping margin.

Later in 2018 some of the defendants entered into the shareholder’s deed. One of the defendant’s became a 50% shareholder in the company and the plaintiff was entitled to charge an 8% margin on costs for construction work done for the defendants.

In 2019 the plaintiff began construction work and issued the defendant invoices for costs plus 8%.

The directors of the company and the defendants incorporated a new company to do building work. There was some complexity as to whether the new company charged a margin or was entitled to.

The directors of the company and the defendants incorporated another company too which, in a complicated arrangement, also purported to do building work for the defendants.

In 2022, the directors of the company and the defendants agreed to part ways.

The plaintiff then rendered an invoice to the defendants for 8% of the cost of works performed by the company, and two newer companies, and related entities.

After settlement negotiations failed, and the making of security of payment claims, the plaintiff commenced proceedings in August 2022.

The defendants sought financial information from the plaintiff.

The plaintiff provided a profit and loss statement and said on the assumption its invoices were paid, it was profitable.

The plaintiff represented that it had tendered successfully for a $20m job, but it appeared that may have been a party related to the plaintiff.

The defendants sought security for their costs.

The plaintiff resisted the application. It said its prospects were strong based on credit findings it said would be made about the defendant’s business practices at final hearing.

The plaintiff said the defendant’s directors sent emails requesting invoices be re-issued to refer to other developments, and that contracts were backdated.

The Court said these issues were peripheral to the plaintiff’s central claim that came from the “complex and changeable” contractual environment.

The Court found that even if the credit finding contended for were made, it was not clear how that would affect the parties’ contractual relationship.

Regarding finances, the company said it was $1.4m in deficit. If the $4m claimed was paid its position would stabilise.

The defendants said the claims were claims of other entities related to the company, and not the company’s claims themselves. That meant that the plaintiff’s prospects were not as strong as claimed and, even if the claims succeeded, the money would not necessarily revert to the company.

The Court considered whether an order for security for costs would stifle the proceedings.

To prove this, the plaintiff had to prove neither it, nor those who stood to benefit from the litigation, could provide security. Including due to insufficient evidence about the beneficiaries of a relevant trust, the plaintiff failed to meet this test.

The Court ordered that the plaintiff should provide the defendant with $250K security for their costs, and for it to have its costs of this application.

This case illustrated the importance of consideration of all costs associated with litigation. If you would like advice in relation to a construction dispute, please do not hesitate to reach out to our Construction team.

 

This article was prepared with the assistance of Christie Preston.