Security for Costs Required of Owners Corporation

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By Ziv Ben-Arie, Partner, Stephen Aroney, Partner, Daren Curry, Partner and Peter Meades, Partner

The Supreme Court of NSW has handed down a decision that needs to be taken into account by any Owners Corporation when bringing litigation.

In The Owners – Strata Plan 64415 v Serman [2017] NSWSC 806 (20 June 2017) an owners corporation was suing their former solicitors and barrister for alleged professional negligence in respect of previous advice about and proceedings against their home warranty insurer for a previously denied claim.  The Defendants would have been represented by lawyers retained by the professional indemnity insurers.

The Defendants sought security for costs, which defendants can obtain when there is a valid concern about a plaintiff being able to pay costs to defendants if they lose the case.  If successful, funds then need to be paid into court or trust to resume the proceedings.

The Court examined the various issues relevant to applications for security of costs, and found amongst other things that the lot owners had a history of not paying their levies on time (thus affecting the cash flow of the owners corporation), that debts were not being paid on time, and the scheme’s net assets were negative.  As a result, the Court required the owners corporation to pay security for costs.

Because of owners corporations’ ability to strike special levies, they are often regarded as not being doubtful payers of debts including costs orders.  However, when they have a history of financial problems it seems that defendants may seek to exploit this to make similar applications.

As such, owners corporations will need to keep this case in mind and, if their financial situation or history calls into question their ability to meet debts, then in any litigation they are bringing they may need to deal with similar security for costs applications by defendants seeking to stymie that litigation. Having a good financial history will serve those owners corporations bringing litigation well.

For further information, please do not hesitate to contact us.

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