What is the case about?
An Owners Corporation (OC) has sued the builder and other parties in respect to a breach of the statutory duties set out in the Domestic Building Contracts Act in the County Court of Victoria. Rather than dealing with the subject matter of the dispute, the builder decided to make an interlocutory application seeking security for costs from the OC. This decision is about that interlocutory application.
What is security for costs?
Security for costs is a payment a party is required to make into the Court to underpin and provide security for any costs order made against that party in the event that the plaintiff is unsuccessful.
A court will generally make an order for security for costs when an individual or company plaintiff has no assets.
What was argued?
The Builder argued that if they were successful in fighting the claim by the OC then they would not have any chance to get their costs paid by the OC.
Tisher Liner FC Law acted for the OC and argued that an Owners Corporation is a unique structure. It is an entity created by statute and whilst an administrator can be appointed to that entity, it cannot be placed into liquidation because an administrator has the power to strike levies against lot owners to fulfil any debt owed by the Owners Corporation.
What did the Court decide?
The Owners Corporation should not be required to provide security for costs. The OC is not a typical company, it acts on behalf of lot owners in respect to common property.
There are strong public interests for an Owners Corporation to be entitled to make a claim against a builder for defective works affecting common property irrespective of its actual cash position. It is important that Owners Corporations should not be stifled from making claims just because of security for costs applications.
The Court also found that it was speculation as to whether the builder would get an order for costs. The OC had already obtained various expert reports that suggest that there are building defects affecting the property. The Court at a final hearing will need to determine whether or not the claims of the OC are correct or whether the Builder will succeed in its defence. However, the Court won’t prevent the OC from making its claims.
The Builder was not successful in the interlocutory application and the matter now proceeds through the normal litigation process.
The decision is a clear reminder that it will be difficult for a builder to obtain a security for costs application against an Owners Corporation.
Disclaimer
The above does not constitute legal advice but is information which may be of general interest. Tisher Liner FC Law will not be held liable or responsible for any claim, which is made as a result of any person relying upon the information contained in this publication.
Phillip Leaman
Tisher Liner FC Law
E: ocenquiry@tlfc.com.au
P: 03 8600 9370
This post appears in Strata News #794.
This article has been republished with permission from the author and first appeared on the Tisher Liner FC Law website.
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