IN THE SUPREME COURT OF VICTORIA	Not Restricted	
AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY ENGINEERING AND CONSTRUCTION LIST
S ECI 2018 00012 

E.A. NEGRI PTY LIMITED (ACN 006 251 127)	Plaintiff	
		
v   		
		
LEND LEASE SERVICES PTY LIMITED (ACN 081 540 847)	Defendant	

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JUDGE:	RIORDAN J	
WHERE HELD:	Melbourne	
DATE OF HEARING:	10 May 2019 and 18 June 2019 (Further submissions)	
DATE OF JUDGMENT:	5 July 2019	
CASE MAY BE CITED AS:	E.A. Negri Pty Ltd v Lend Lease Services Pty Ltd	
MEDIUM NEUTRAL CITATION:	[2019] VSC 448	

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PRACTICE and PROCEDURE – Application for security for costs – Threshold condition for an order conceded – Undertaking offered by trustee shareholder but not by beneficiaries of the trust – Capacity of trustee shareholder to pay any costs orders uncertain – Delay in making application during negotiations – Application granted.

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APPEARANCES:
	Counsel	Solicitors	
For the Plaintiff	D McAndrew QC with
J D McKay	Marsh and Maher Richmond Bennison	
			
For the Defendant	J R Gurr	Norton Rose Fulbright 	

HIS HONOUR:
1	By summons filed 10 April 2019, the defendant (Lendlease) applies for an order that the plaintiff (Negri) pay into Court, by way of security for costs to be incurred in the proceeding up to and including the first day of the trial, the sum of $1,300,992 or such other sum as the Court thinks fit.
2	By originating process filed on 19 January 2018, the plaintiff claims $5,319,608 plus interest, being amounts due as debts for unpaid work ($4,790,371) and damages ($529,237) payable under the following contracts:
(a)	By agreement made on about 5 March 2009 between Negri and Lendlease, Lendlease engaged Negri to carry out the civil works on the Mortlake Power Station Project comprising earthworks, concrete works and pavement construction works (the Mortlake Power Station Contract).
(b)	Five Plant and Labour Hire Contracts:
(i)	By agreement between Negri and Lendlease made in early June 2009, Lendlease engaged Negri to provide plant, labour, materials and resources to Lendlease in relation to civil works to be carried out at the Mortlake Power Station Project (the 4 June 2009 Plant and Labour Hire Contract).
(ii)	By variation to the 4 June 2009 Plant and Labour Hire Contract made on about 15 April 2010, alternatively by a new contract on its own terms, Negri and Lendlease agreed to vary the rates of payment for the provision of plant, labour, materials and resources to be provided, such variation or contract to be effective from 22 March 2010 (the 15 April 2010 Plant and Labour Hire Contract).
(iii)	By variation to the 15 April 2010 Plant and Labour Hire Contract made on about 24 February 2011, alternatively by a new contract on its own terms, Lendlease engaged Negri to provide casual labour hire to Lendlease at its request (the Plant and Labour Hire Casual Labour Contract).
(iv)	By variation to the 15 April 2010 Plant and Labour Hire Contract made in about July 2011, alternatively by a new contract on its own terms, Negri agreed to provide further plant, labour and other services as requested by Lendlease for the construction of all additional roads and pavements on the ‘Balance of Plant’ section of the Mortlake Power Station Project and otherwise in accordance with the prevailing terms of the 15 April 2010 Plant and Labour Hire Contract (the Plant and Labour Hire Balance of Plant Contract).
(v)	By variation to the 15 April 2010 Plant and Labour Hire Contract made in early February 2012, alternatively by a new contract on its own terms, Negri agreed to provide plant, labour and other services as requested by Lendlease for the construction of the U12 rotor (Zone A, balance of plant section) for the period 12 February 2012 until 5 April 2012 (plant) and for the period 1 February 2012 until 30 June 2012 (labour) or for such further periods as were agreed between the parties (the Plant and Labour Hire .8403 and .8404 Variation).
(c)	By a variation to the above Plant and Labour Hire Contracts, or alternatively by an agreement entered into on about 15 December 2009, 6 July 2010, or 15 April 2011, Negri agreed to supply, and Lendlease agreed to hire, small tools at the rates specified in written schedules provided by Negri to Lendlease on those dates (the Small Tools Variation/Agreement).
(d)	By a variation to the above Plant and Labour Hire Contracts, alternatively by an agreement entered in about late 2009 to early 2010, Negri agreed to supply, and Lendlease agreed to hire, pumps and tanks for the purposes of storing and distributing water on the Mortlake site between 6 February 2010 and July 2012 (the Pump and Tank Variation/Agreement).
3	The defendant claims it is entitled to a set-off for breach of contract and liquidated damages in the amount of $570,000.
Background
4	The Negri family has been involved in earthworks and civil works contracting since 1929; and the plaintiff has been the trading company for the civil and contract works carried out since 1984.
5	Mr Negri is the sole director of the plaintiff.  The plaintiff has a paid up capital of $100,000 and, of its 100,000 shares, 99,998 are held by Itrec Pty Ltd and two are held by Mr Negri’s wife, Dr Negri.
6	Itrec Pty Ltd is the trustee of the Itrec Discretionary Trust (‘the Trust’). It has two issued shares, which are held one each by Mr Negri and Dr Negri. Mr Negri is the sole director of Itrec Pty Ltd.
7	The plaintiff filed this proceeding on 19 January 2018.
8	On 14 March 2019, the solicitors for the defendant first notified the plaintiff of its intention to apply for security for costs.
The Application
9	Rule 62.02(1)(b) of the Supreme Court (General Civil Procedure) Rules 2015 permits the Court to order a plaintiff corporation to give security for the defendant’s costs if ‘there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so’.
10	The plaintiff concedes that the threshold condition for the exercise of the Court’s power, being that the plaintiff corporation will be unable to pay the costs of the defendant if ordered to do so, has been satisfied.
11	Accordingly, the Court is required to exercise its discretion to determine whether and to what  extent the Court should order security for costs.  The considerations to which the Court should have regard in exercising that discretion are well established.  In exercising its discretion, the Court must weigh:
(a)	the injustice to the plaintiff if it is prevented from pursuing a proper claim by an order for security; and
(b)	the injustice to the defendant if no security is ordered and the defendant is ultimately unable to recover under a costs order.
Plaintiff’s submissions
12	On behalf of the plaintiff it was submitted that the Court should not make an order for security for costs, on the following bases:
(a)	There had been undue delay by the defendant in bringing the application.
(b)	The principal entity standing behind the plaintiff, Itrec Pty Ltd (as trustee of the Trust) had offered an undertaking to satisfy any costs orders.
(c)	The director of the plaintiff, Mr Negri, had offered to charge his loan owed by Itrec Pty Ltd with payment of any costs orders made against the plaintiff; but was otherwise not prepared to accept personal liability to pay such costs orders.
13	With respect to the delay, it was submitted as follows:
(a)	The proceeding was filed on 19 January 2018.
(b)	The plaintiff had not been notified of the defendant’s intention to apply for security for costs until its letter of 14 March 2019 followed by the application on 10 April 2019 – a delay of at least 12 months from when such intention should have been notified.
(c)	During that period, the plaintiff incurred costs (including unbilled costs) of approximately $250,000.
The plaintiff did not contend that it suffered specific prejudice in the sense that it would have conducted the litigation differently had it received notice at an earlier time. Rather, the plaintiff contended that it suffered prejudice in the general sense as a result of conducting the litigation during this period without notice from the defendant that it proposed to apply for security for costs.
14	With respect to the undertakings offered by Itrec Pty Ltd and Mr Negri, it was submitted as follows:
(a)	The evidence establishes that, at the conclusion of the 2018 financial year:
(i)	the Trust owned assets valued at $4,319,716.63;
(ii)	the Trust owed Mr Negri a beneficiary loan in the sum of $2,985,718.68 (Negri Loan); and
(iii)	the Trust’s assets exceeded its liabilities (including the Negri Loan) by $125,395.95, indicating that the Trust can repay the Negri Loan in full.
(b)	An undertaking to pay the costs by persons standing behind the plaintiff is an important discretionary consideration against the ordering of security.
Defendant’s submissions
15	The defendant submitted as follows:
(a)	The undertakings proffered by Mr Negri and Itrec Pty Ltd are only a factor to be taken into account in determining the application for security for costs.
(b)	The financial statements do not satisfactorily establish that Itrec Pty Ltd has the  capacity to pay any orders for costs for the following reasons:
(i)	The latest financial statement is at 30 June 2018; and is therefore 12 months out of date.
(ii)	The accounts receivable is listed at $1,473,000 as at 30 June 2018; but it was recorded as exactly the same figure as at 30 June 2017, 2016 and 2015.  Accordingly, the recoverability of this sum is questionable.
(iii)	The list of Plant and Equipment provided does not include VIN numbers, so it is difficult to form an accurate view as to whether ltrec Pty Ltd (as opposed to other entities in the Negri Construction Group) actually owns those assets, or their value.
(iv)	There is a non-current receivable item from Pelmet Meadows Pty Ltd of $268,365.46.  This is a private company in which Itrec Pty Ltd is a shareholder, with a value of $1,200.00 attributed to the shareholding in the 2018 financial year accounts. In the absence of information on the current assets and liabilities of Pelmet Meadows Pty Ltd, the recoverable value of this receivable item cannot be determined.
(v)	The financial position of the plaintiff’s business is deteriorating and losses have been recorded for every year since 2013.
(vi)	The financial statement attributes a market value of $1,500,000.00 to the property at 18 Kaikoura Avenue, Hawthorn East, which is doubtful because:
A.	A valuation summary values the asset at $1,400,000;
B.	In the 2016 Balance Sheet, the asset was recorded at a value of $626,263.25;
C.	The asset has been registered in the name of Catherine Anna Negri and Peter John Phillips as joint proprietors since 25 January 2008;
D.	A caveat over the property was registered on behalf of Clancy & Triado Pty Ltd on 10 May 2019, purportedly pursuant to a charge contained in an agreement dated 23 April 2019.
(c)	Neither Mr Negri or his wife Dr Negri was prepared to undertake to pay any costs orders.
(d)	The delay occurred as a result of the parties attempting to negotiate settlement and, although the plaintiff has incurred costs of about $250,000, the evidence establishes substantially more costs will have to be incurred before the completion of this proceeding.
Conclusion
16	The plaintiff’s claim is bona fide and has reasonable prospects of success.  However, I do not consider that the evidence establishes that the application for security was being used oppressively to frustrate a genuine claim or that the plaintiff’s inability to pay the costs (if the defendant were to succeed) was the result of the defendant’s conduct.
17	I will order the plaintiff to provide security for costs – for the following reasons:
(a)	The defendant did not contend that it was unable to provide the security for costs or that such an order would stultify its action.
(b)	No offer of personal liability was made by Mr Negri or Dr Negri, the former being the director and the latter being a shareholder of the plaintiff company (albeit minor); nor was any offer made by all persons behind the discretionary trust.
(c)	The capacity of the Trust to repay the Negri Loan depends on the profitable operation of the plaintiff’s business.  The evidence of Mr Negri is that the plaintiff’s business has made losses in each financial year since 2013.
(d)	I am not satisfied by the financial statements produced by Itrec Pty Ltd that it will have the capacity to pay the defendant’s costs of the proceeding, if ordered to do so, substantially for the reasons submitted by the defendant (referred to above).
(e)	The ‘Detailed Balance Sheet as at 28 February 2019’ prepared by Mr Negri shows total assets (excluding the provision made for this claim against the defendant) of approximately $1,200,000 and current liabilities of about $975,000.  After the costs incurred by the plaintiff in the conduct of this proceeding, it is doubtful whether the trust will realise sufficient funds to enable it to pay its debt to Mr Negri to enable him to satisfy any order for costs.
(f)	Although there has been a significant delay in the defendant bringing this application, and the plaintiff has incurred significant costs during this period;
(i)	it was not suggested that the plaintiff had suffered any specific prejudice in the sense that ‘it would not have gone ahead with the [proceeding] if an application for security for costs had been brought earlier’; and
(ii)	the delay is substantially explained by the parties attempting to negotiate a settlement of the claims during 2018. In my opinion, the emphasis on using reasonable endeavours to resolve a dispute by agreement, under the Civil Procedure Act 2010, is a relevant factor in considering whether a party should be denied security for costs on the ground of delay in making the application.
Quantification
18	The evidence from Blackstone Legal Costing estimated the defendant’s professional fees and disbursements to the completion of a case management conference at $647,620.78 and further costs up to and including the first day of the trial at $653,391.50 calculated as follows:
To the completion of a case management conference	Disb	Costs	
Amended Pleadings	$12,392.46	$9,031.10	
Security for Costs	$11,084.45	$8,417.80	
Lay Witness Evidence	$22,090.85	$522,081.40	
Court Book	$4,383.00	$14,750.90	
Expert Evidence (Brief only)	$5,467.62	$9,623.50	
CMC	$19,000.00	$9,297.70	
TOTAL	$74,418.38	$573,202.40	
TOTAL (Disb + Costs)	$647,620.78		
To the first day of the trial	Disb	Costs	
Expert Evidence - Forensic Accountant	$257,307.00	$9,145.60	
Expert Evidence - QS	$72,922.00	$5,473.60	
Expert Evidence – Programmer	$57,307.00	$2,699.20	
Up to and including first day of Trial	$158,049.00	$28,580.00	
Loading		$61,908.08	
TOTAL	$545,585.00	$107,806.50	
TOTAL (Disb + Costs)	$653,391.50		
19	The defendant conceded that:
(a)	at this time, security should only be provided up to the completion of the case management conference; and
(b)	the costs and disbursements with respect to the amended pleadings were incurred prior to the application for security for costs.
20	Accordingly, I will order that the plaintiff provide $600,000 by way of security for costs.
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SCHEDULE

Description of Claim	Amount of Claim	
Section 1 Debt Claims	
(1)	Daily Dockets	221,901	
(2)	Unbilled Labour	233,710	
(3)	Damage Waiver	134,113	
(4)	Additional Plant Hours / P&LHC 15 April 2010	148,709	
(5)	25% Uplift Casual Labour	34,491	
(5A)	Labour Under-charge	99,792	
(6)	Plant Claim weeks 119-142	124,174	
(7)	Profit Margin 10% P&LHC Labour	342,282	
(8A)	Overheads Margin 9.5% P&LHC Labour	477,532	
(8B)	Profit / Overheads 15% on P&LHC Plant	282,838	
(9)	Redundancy	150,900	
(10)	Supervision	673,257	
(11A)	Variations – Admitted	293,083	
(11B)	Variations – Disputed	854,755	
(12)	Fuel	81,534	
(13)	Materials	69,780	
(13A)	Retention monies withheld	18,933	
(14)	Small Tools	424,022	
(17)	Wrongful Deduction under Invoices 1799/1800	124,565	
Sub-total Debt Claims:	4,790,371	
Section 2 Damages Claims	
(15)	Tank Hire	295,695	
(16)	Attachments	233,542	
Sub-total Damages Claims:	529,237	
Totals (All Claims):	$5,319,608