Security for Costs against Owners Corporations– A High Bar for Builders

By Bianca Hoare

In this newsletter, we consider the recent decision in The Owners – Strata Plan No 87639 v Karimbla Properties (No 4) [2025] NSWSC 58. In this case, members of the Meriton Group—Karimbla Construction Services Pty Ltd and Karimbla Construction Services (NSW) Pty Ltd (together, the ‘builders’)—sought $2.405 million in security for costs, which was ultimately refused. The NSW Supreme Court’s analysis of this matter highlights the strict scrutiny applied to late applications for security for costs—setting a high bar that builders will find increasingly difficult to clear.

For context on the first decision, and its lessons on escalating liability in long-running proceedings, see our earlier newsletter, Watch out, construction entities, liability may escalate long after proceedings begin.

A two-part framework for understanding the court’s reasoning

In determining whether to grant the Builder’s Notice of Motion, filed on 14 November 2024 seeking an order that OC provide security for costs, the court based its reasoning on two questions

  1. Did OC have insufficient funds to satisfy an adverse costs order if they lost the case?
  2. Were the claims weakened by their delay and speculative nature?

Answering Question 1: Could OC Pay?

The Builder argued that OC’s immediate assets—roughly $700,000, comprising $610,000 in cash at bank and additional funds on term deposit—fell short of the $2.405 million security sought. They cited r 42.21 of the Uniform Civil Procedure Rules, which permits security where a corporate plaintiff ‘appears unable to pay’. While the Court accepted that OC’s current assets were insufficient, it reiterated that Owners Corporations can employ unique funding mechanisms.

Unlike commercial enterprises dependent on trading revenue, OCs hold both the power and the statutory duty to raise levies to meet expenses (s 81(4), Strata Schemes Management Act 2015). This statutory levy scheme is enforceable against lot owners, providing a source of income that distinguishes OCs from ordinary corporations. The Court’s confidence was reinforced by evidence that the OC had previously raised over $2.3 million through levies in recent years, and that similar levies—averaging about $8,000 per lot owner in this 299-unit scheme—could realistically be imposed again.

The Court also reflected on further safeguards that existed:

  • If individual owners refused to pay, s 237 allowed for the appointment of a compulsory strata manager with the power to raise levies.
  • Any delay in collecting levies could be addressed through an interest award.

On this basis, the Court held that the OC had adequate mechanisms to raise funds, and that the builder had not discharged the burden of showing an inability to pay.

Answering Question 2: Discretionary Considerations

Even if the threshold question had been satisfied, the Court emphasised that two key discretionary factors would likely have led to security being declined. The first was delay. The Court cited Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [68], [70], [81], confirming that a defendant’s delay in seeking security for costs is a relevant factor, which weighed heavily against the Builder in this case. The application, filed in November 2024, came more than five years after proceedings commenced. Although the Builder argued the timing was prompted by the OC expanding its claim, the Court found this unconvincing: the claim had been substantial from the outset, and the Builder’s delay, during which the OC incurred significant legal costs, suggested a strategic motive.

Secondly, the Court found that the Builder’s own arguments highlighted the strength of the OC’s case, making the prospect of an adverse costs order inherently speculative. The Builder claimed that the OC’s ‘prospects of success are not strong’. Yet, they also attempted to claim that security for costs was warranted, on the basis that the OC’s statutory duties under s 106 to rectify safety defects could strain its financial resources. The Court identified a clear contradiction: if the defects were genuine and required rectification, this demonstrated that the OC’s claim was substantively strong, not weak. In other words, the Builder’s concern about potential rectification obligations confirmed the validity of the OC’s case. As a result, assuming the Builder would recover a full costs order was speculative, undermining the justification for security. When combined with the delay in bringing the application, these factors strongly favoured refusal, even if the OC’s immediate funds were limited.

Judgment Practical Implications

Ultimately, the court dismissed the builder’s Notice of Motion with costs, giving rise to several key lessons for builders and property developers:

  1. Security for costs against OCs will rarely succeed. The levy-raising mechanisms under the Strata Schemes Management Act provide a ready-made assurance of capacity to pay.
  2. Applications must be brought early. A five-year delay was fatal here; even shorter delays will be scrutinised.
  3. Strategic timing carries risks. Courts will not look favourably on applications that appear designed to pressure OCs after they have already expended significant resources.
  4. Strong OC claims undermine security applications. Where the OC’s underlying case is substantively forceful, courts may view the prospect of the builder ever obtaining a costs order as too “speculative” to justify security—reflected in the Court’s dismissal of the Builder’s motion with costs.

Conclusion

This decision reminds builders and developers that applications for security for costs are not guaranteed to succeed. Owners Corporations, with their statutory levy-raising powers, are rarely vulnerable, and applications must be timely, well-founded, and consistent—or risk dismissal with an adverse costs order, as seen in this case. For guidance on security for costs or navigating complex defect litigation, the experts at Crisp Law are here to help.

Contact Crisp Law for advice and information:

Telephone: +61 2 8042 8701

Email: admin@crisplaw.com.au

References

The Owners – Strata Plan No 87639 v Karimbla Properties (No4) [2025] NSWSC 58

Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744

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