Can you obtain Security for your Costs if you are being sued by an Owners Corporation – Application for Security for Costs – Useful Court Application

12/07/2017

A recent Supreme Court case highlighted a difficulty for Owners Corporations which bring cases against Builders or other parties.  The recent case of the Owners Corporation – Strata Plan 64415 v Serman decided that it was possible that a Defendant to a claim bought by an Owners Corporation may obtain in the appropriate circumstances, an order that the Owners Corporation provide security for costs as a precondition of the Owners Corporation proceeding with its case.

In the case Owners Corporation Strata Plan 64415 referred to above the Owners Corporation had sought advice from two Lawyers concerning building defects at an apartment block in Bellevue Hill and claims it sought advice as to whether it would recover damages from the Builder in relation to those defects.  As it happened the two Lawyers did not advise the Owners Corporation of the limitation period in which the Owners Corporation could commence proceedings against the Builder for recovery of its losses as a result of the building defects at the building.

The Owners Corporation thereafter was out of time and could not claim against the Builder for its damages.

The Owners Corporation claimed in the proceedings against Serman that it was because of the lack of the advice from the Lawyers that it lost the opportunity to sue the Builder to recover losses for building defects.

Accordingly the Owners Corporation commenced the above proceedings against the two Lawyers for damages due to claimed professional negligence by those Lawyers.

Those Lawyers as Defendants made an Application to the Court that the Owners Corporation provide security for costs in the amount of approximately $270,000.00 to protect their costs in the event that they were successful in the defence of the claim.

In that case the first issue to be decided was whether the Owners Corporation (which is a Body Corporate) is a “Corporation” such that the Defendants could bring a claim that the Owners Corporation provides security for costs.  The Presiding Judge decided that for the purposes of the rules on security for costs an Owners Corporation was a Corporation against which a Defendant could make a claim for security for costs.

The second question for the Court to consider was whether the Corporation would be unable to pay in the future the cost of the Defendant if the Defendant was successful in the defending the Claim.

Justice Walton who heard the case took into consideration the following factors:

(a)       The balance in the administrative fund for the Owners Corporation was negative $399,193.00.

(b)       The relevant capital works fund showed a negative balance of $23,793.00.

(c)       Accordingly there was a total negative balance of $422,986.00.

(d)       The cash reserves were $49,950.00 which was insufficient to meet the estimated Defendants’ costs in the proceedings of about $275,000.00.

(e)       There was a history of the Owners Corporation needing to issue Debt Recovery Notices to lot owners for unpaid levies, thus indicating it was difficult for the Owners Corporation to recover levies.

(f)        Furthermore there was no provision for payment of the costs of the rectification works which were approximately $800,000.00

After reviewing all the authorities, Justice Walton made an order that the Owners Corporation pay security for costs of $180,000.00.  Justice Walton ordered that the proceedings be stayed until the security was paid.  In those circumstances the proceedings cannot proceed unless the security is paid or there is a successful appeal against the order.

His Honour also indicated that it was likely that there would be an order in favour of the Defendants in that the Owners Corporation would have to pay the cost of the Defendants in relation to the Application by those Defendants for security for costs.  This was subject to further submissions.

We are not convinced that an Appeal Court would necessarily agree with the decision of Justice Walton.  However the position is as set out in the decision of Justice Walton unless there is an Appeal to a High Court who makes a decision contrary to the decision of Justice Walton.

Certainly if you are an Owners Corporation or a Defendant involved in such litigation it would be worthwhile to properly consider the matter and Richard Watson an experienced Building and Construction and Commercial Litigation Lawyer of many years experience can assist.

Please contact Richard Watson or his Personal Assistant Shereen Da Gloria to obtain an opinion in relation to your particular circumstances.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.