About Scaffolding Pty Ltd v Howard Thompson Construction Pty Ltd [2008] QDC 295

DISTRICT COURT OF QUEENSLAND CITATION: About Scaffolding Pty Ltd v Howard Thompson Construction Pty Ltd [2008] QDC 295 PARTIES: ABOUT SCAFFOLDING PTY LTD (Plaintiff-Respondent) and HOWARD THOMPSON CONSTRUCTION PTY LTD (Applicant - Defendant) FILE NO: D492/08 PROCEEDING: Application DELIVERED ON: 10 December 2008 DELIVERED AT: Southport HEARING DATE: 5 December 2008 JUDGE: C.F. Wall Q.C. ORDERS: Application dismissed with costs to be assessed on the standard basis unless agreed. CATCHWORDS: Practice and Procedure – Security for costs – corporation – few assets but trading profitably – whether security should be provided. LEGISLATION: Corporations Act 2001 Section 1335(1) Uniform Civil Procedure Rules Rules 670, 671 and 672 CASES: Bell Wholesale Company Limited v Gates Export Corporation (1984) 2FCR1 Buckley v Bennell Design and Constructions Proprietary Limited (1974) 1ACLR 301 Harpur v Ariadne Australia Limited (1984) 2 QR 523 Nambour Valley Estates Proprietary Limited v Henebery Holdings Proprietary Limited [2007] QSC 393 COUNSEL Applicant - P D Hay Respondent - S Anderson SOLICITORS: Applicant - DLA Phillips Fox Respondent – Platinum Lawyers -- 1 of 9 -- 2 DISTRICT COURT CIVIL JURISDICTION JUDGE C.F. WALL QC No 492 of 2008 ABOUT SCAFFOLDING PTY LTD Plaintiff/Respondent and HOWARD THOMPSON CONSTRUCTION PTY LTD Defendant/Applicant SOUTHPORT ..DATE 10/12/2008 JUDGMENT -- 2 of 9 -- 3 HIS HONOUR: This is an application by the defendant for an order that the plaintiff provide security for the defendant's costs of $55,000, or such other amount as the Court thinks fit. The plaintiff claims from the defendant $144,056.42, being the balance owing under a contract made on the 15th of August 2007, whereby the plaintiff supplied labour and materials to erect, and later dismantle, scaffolding on a building being constructed by the defendant. The total contract price was $318,532, plus GST. The defendant denies that it is liable to pay anything to the plaintiff and seeks to set off about $35,000, being for work it carried out which was required to be done by the plaintiff, which the plaintiff didn't do. The plaintiff denies this. The application was dealt with on the papers with no deponent being required for cross- examination. In his affidavit, filed by leave, Mr Thompson, the director of the plaintiff company, deposes as follows in paragraphs 9, 11, 12 and 13: "9. I refer to the Defence filed by the Defendants in this matter and say that it is defended on the basis that work was done more slowly than was allowed for in the contract or in the alternative that work was done without prior approval. There is no allegation that work was defective. 11. The basis of About Scaffolding's claim is that About Scaffolding Pty Ltd was employed to erect scaffolding during the construction of two buildings known as Sphere Development on Musgrave Avenue in Southport, Queensland. The contract price was $318,532.00 plus GST. A flat rate of $48.00 per hour plus GST per man for extra work was also to be paid. The Plaintiff alleges that the Defendant agreed to pay two thirds of the contract price or $212,354.66 for the erection of the scaffolding and one third of the contract price for the dismantling of the scaffolding. The price that is claimed is $144,056.42 plus interest and costs. -- 3 of 9 -- 4 The additional amounts are pursuant to extra duties pursuant to site directions which were attached to the Statement of Claim as an extra too. (sic) 12. It is the case for the Plaintiff that difficulties arose when it was directed to construct the scaffolding and then were not provided with adequate room when it was time to dismantle the scaffolding. Difficulties also arose when the Defendant continued to use the scaffolding after dismantling began. On one occasion the Defendant dismantled scaffolding without reference to the Plaintiff and left the scaffolding in a pile which required that the Plaintiff move the scaffolding into an area where it was safe to operate. 13. I attach as Exhibit 'DWT5' to this affidavit photographs of the worksite. The first of these photographs shows an area where the Defendant had removed the bottom level of the scaffolding while it was still erected. This was unsafe and required that extra time be taken to reconstruct the scaffolding to make it safe. Page 2 shows that on a date when About Scaffolding had been told to dismantle the scaffolding, trade people at the work site where still using the scaffolding. Page 3 shows that About Scaffolding was not provided with a clear area around the scaffolding so that dismantling of the scaffolding could be undertaken in a safe manner. These photographs are offered in support of the Claim and Statement of Claim against the Defendant that while it did the work of constructing and dismantling the scaffolding the Defendant has not operated within the terms of the contract by causing the dates of the schedule be (sic) disrupted." In response, the defendant's solicitor, Ruth Hatten, deposes as follows in her affidavit filed by leave: "12. In the very limited time I've had to speak to our client, I have not been able to obtain proper instructions in respect of the affidavit of Daniel Warwick Thompson. -- 4 of 9 -- 5 On 4 December 2008, I had a telephone conversation with Riaz Khan of the Defendant who has briefly looked at the affidavit and has instructed that the Defendant's initial response is as follows: 12.1 In reference to the allegation in paragraph 12 that the Defendant did not provide the Plaintiff with adequate room when it was time to dismantle the scaffolding, during the dismantling of scaffold on both buildings E1/E2 and E3/E4, the Defendant did provide adequate room and also provided barrier tape and erected barrier tape to isolate the zone being used to drop scaffold in. 12.2 In reference to the allegation in paragraph 12 that the Defendant continued to use the scaffolding after dismantling began, the Defendant issued site instructions to the Plaintiff in regard to the use of scaffolding by other contractors (Document 8). 12.3 In reference to the allegation in paragraph 12 that the Defendant dismantled scaffold and left in a pile, (sic) the Defendant says that this is an unsubstantiated claim. 12.4 The first photograph referred to in paragraph 13 does not correspond to Mr Thompson's comments. If Mr Thompson is meant to refer to the third photograph, the Defendant believes that this scaffolding could have been removed prior to the photo or removed by a subcontractor. It was not removed by the Defendant. 12.5 The second photograph shows scaffold being erected, not dismantled. The stair access has been built allowing access to level 3 where the person is shown. The Defendant can not determine from the photograph whether -- 5 of 9 -- 6 he is a scaffolder or a ticketed scaffolder and either way, if the scaffold is complete, there should be signage at the base of the stairwell. 12.6 The third photograph referred to in paragraph 13 does not match Mr Thompson's comments. In any event, the Defendant repeats and relies on paragraph 9.1 above." It is not possible, on this application, to resolve the factual dispute between the parties, but it does appear that the plaintiff did erect and dismantle scaffolding for the defendant and would therefore appear to have a prima facie claim against the defendant. The plaintiff was registered in Queensland on the 23rd of April 2007. It is not in liquidation and receivers and managers have not been appointed. It trades and does so profitably. Daniel Thompson is its sole shareholder and director. Its paid-up capital is minimal and in the 2007/2008 financial year, the company's employee expenses were $190,927.95, most of which was paid to Mr Thompson and his wife, out of a total income of $722,934.96. The main reason for the application seems to be that the company has little or no assets and made a nett loss in the 2007/2008 financial year of $53,589.24. Mr Thompson deposes that the company will be able to pay a costs order if one is made against it from its own income, from its own resources. Costs of the defendant are estimated by the defendant's solicitor at between about $48,000 and about $69,000. The plaintiff's solicitor considers this estimate to be excessive. I accept the evidence of Mr Thompson. He deposes as follows, in paragraph 7 of his affidavit: -- 6 of 9 -- 7 "7. The company has suffered impecuniosity to some extent because the Defendant has refused to pay the progress claims made as set out in the Claim and Statement of Claim." The company hires scaffolding from a third party and uses it in its business. It has a vehicle but little equity in it. It does not need much in the way of owned assets to carry on its business. Its balance sheet, for the financial year ended 30th of June 2008, indicates assets of $46,890.84 and liabilities of $78,559.83. Its profit and loss statement for the same period indicates total income of $722,934.96, costs of sales $549,214.08 and gross profit of $173,720.88. Expenses were $226,618.97 (including employment expenses of $190,927.95), resulting in a nett loss for the period of $53,589.24, taking into account also other expenses of $691.15. Mr Thompson deposes that in the 2007/2008 financial year he was paid $2,207 per week as project manager for the contract with the defendant, from the 15th of August 2007 until July 2008 and his wife was paid $1,254 per week as administration officer for the same period and I think in respect of the same contract. The relevant statutory provision is section 1335(1) of the Corporations Act 2001 and the relevant rules are rules 670, 671 and 672 of the Uniform Civil Procedure Rules. I am not satisfied that there is reason to believe that the plaintiff will not be able to pay the defendant's costs if ordered to pay them. I am not satisfied that there is a real chance that the plaintiff will be unable to pay the defendant's costs in those circumstances. It is not the case that because a company has only limited assets, it is for that reason alone, impecunious. All relevant circumstances must be considered. I agree with Ms Anderson for the plaintiff that the plaintiff trades essentially as a hirer of scaffolding, which it then re-hires and erects and dismantles and as such, there is no need for much in the way of assets or stock in trade. I also agree that a substantial amount of -- 7 of 9 -- 8 the plaintiff's liabilities are related to its work for the defendant, the subject of its claim. As at the 1st of December 2008, it owed Boral Scaffold Hire $66,000 and the Australian Tax Office $48,766.87. Ms Anderson said these were related to the work it performed for the defendant. Mr Hay, for the defendant, did not disagree. Whilst these are liabilities the plaintiff would have incurred in any event, its earnings would be higher and its profitability greater, but for the present proceeding. The plaintiff's claim amounts to little less than 20 per cent of its 2007/2008 gross profit of almost $723,000. The company clearly does work for other customers and would already appear to have an income stream even though it is only a relatively recently incorporated business. I should mention some of the authorities relied upon by the defendant. In Bell Wholesale Company Limited v. Gates Export Corporation (1984) 2FCR1, the company ordered to provide security for costs had issued capital of two shares of $1 each and its only asset was $2. It was the trustee of a family trust and did not trade. It was common ground that it had no assets it could use to satisfy any judgment for costs in favour of the appellant. In Buckley v. Bennell Design and Constructions Proprietary Limited (1974) 1ACLR 301, the respondent to the application was impecunious. It was not ordered to provide security for costs. Harpur v. Ariadne Australia Limited (1984) 2 Queensland Reports 523, indicates that the lack of means of a plaintiff company and its likely inability to meet an order for costs will frequently lead to an order for security. Such an order was not made against the three plaintiff companies there because they had no claim independent of that of the fourth individual plaintiff, a man of substantial means, and were joined only as a means of establishing his rights. -- 8 of 9 -- 9 In Nambour Valley Estates Proprietary Limited v. Henebery Holdings Proprietary Limited [2007] QSC 393, the fact of the appointment of receivers and managers to the plaintiff combined with the fact that success by the plaintiff in the proceeding would largely benefit a secured creditor who had chosen not to offer security for costs, mainly influenced the decision to order security. In all of the circumstances, the defendant has not, in my view, established that there is reason to believe that the plaintiff will not be able to pay the defendant's costs if ordered to pay them. The defendant's application will therefore be dismissed, with costs to be assessed on the standard basis unless agreed. ... HIS HONOUR: Notwithstanding that the affidavit of Daniel Thompson was not sworn until the 4th of December 2008 and provided after then to the solicitors for the defendant, the affidavit of Mr Thompson was filed by leave on the application and that occurred without any objection by Mr Hay to that course. The determining factor, in my view in this case, is the fact that the defendant has failed in its application and in those circumstances, I really can't see any reason for departing from the normal rule that costs should follow the event. So, for those reasons, Mr Hay, I will not depart from the order I just made. -- 9 of 9 --