Security for Costs Against an Owners Corporation – An Update

In The Owners – Strata Plan 64415 v Serman, the Supreme Court of NSW ordered an Owners Corporation provide security of $180,000 for the defendants’ costs.

See our previous article for further details about this case and the general principles regarding security for costs.

In the recent case of The Owners – Strata Plan 87265 v Saaib, the Supreme Court again considered whether an owners corporation can be required to provide security for a defendant’s costs.

In this case, the Owners Corporation brought proceedings against a builder, Mr Saaib, for failing to comply with statutory warranties when carrying out building work to the common property.

Mr Saaib asked the Court to make an order requiring the Owners Corporation to pay security for his costs because the Owners Corporation had a significant deficit in its funds, as it had borrowed funds from a litigation funder to finance the litigation against Mr Saaib.

When considering whether to make the order sought by Mr Saaib, the Court considered a number of factors:

  1. If the Owners Corporation was unsuccessful in the litigation, the lot owners who stand behind the Owners Corporation could not shirk the burden of a costs order.
  2. Mr Saaib had reasonable grounds for delaying almost two years in bringing an application for security for costs after the Owners Corporation commenced proceedings against him, because the Owners Corporation had given him cause for concern by breaching Court directions to serve its evidence.
  3. If an order for security for costs was made, it would not frustrate the legal proceedings. There was no evidence from the Owners Corporation that they could not satisfy the order for security for costs by levying each of the lot owners.

The factor which ultimately persuaded the Court to not make an order for security for costs was because the Owners Corporation was in a bad financial position due to the alleged defects in the common property which required repair, and this was attributable to Mr Saaib.

This case highlights that the Court is reluctant to make an order for security for costs in building defect claims where the Owners Corporation would not be in the position it is in if it had it not been for the builder’s conduct.

However the other factors considered by the Court do show that a potential security for costs order is a risk that every Owners Corporation should consider before it commences Court proceedings. Sachs Gerace Broome has considerable experience in assessing the risk of a security for costs order and can advise Owners Corporations on how to manage and eliminate that risk.