A class action against Downer EDI has avoided being derailed after the court ordered lawyers for shareholders to stump up a fraction of the security for the costs incurred by the engineering firm's defence.
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Lawyers for shareholders were ordered to provide $685,000 in security for the costs by Monday 5pm - about a third of the $1.9 million in costs security Downer's legal team was originally seeking.
Melbourne lawyer Mark Elliott who has brough the claim on behalf of shareholders said the order did not threaten the trial.
"The case is not off the rails, the case is soldiering on," Mr Elliott told Fairfax Media.
"I'll be handing over a cheque for $685,000 tomorrow morning".
The costs ruling was handed down by Justice John Digby at the beginning of Thursday's session in the Supreme Court of Victoria.
The class action wrangling comes as Downer posted a 24 per cent drop in net profit to $72.1 million for six months ending December 31.
Downer has been accused in a class action brought in the Supreme Court of Victoria of keeping its costs overruns and delays to the Waratah project secret from its shareholders for at least six months and up to one year.
Downer shocked the market in June 2010 with a $190 million write down of its investment in the Waratah project due to cost overruns, delays and its need to inject more equity in the project. The announcement wiped $585 million from the value of Downer's shares.
Yet only six months earlier it had assured investors that the project was on track.
In its defence Downer's lawyer Steven Finch, SC, said Downer's internal estimates of the project's costs and delays did not necessarily warrant disclosure.
"Mere delays, mere consciousness of production problems... don't go anywhere unless there is a translation of that difficulty into a balance sheet item," Mr Finch said.
Mr Finch said Downer had told the market after a two day board meeting to discuss the writedown in June, 2010.
"In our view (the writedown) was reached after an intense review in May," Mr Finch said.
"This wasn't an announcement they had in mind for months and months but had delayed."
Rather, Mr Finch said Downer came to the conclusion it needed to book a $190 million after several complex reviews which Mr Finch said were akin to a "reality check:.
"This isn't a small group of directors agreeing to fess up what they've known for months this is a bottom up review".
The class action has already heard Downer stopped paying its suppliers, including BlueScope Steel and the company supplying the brakes for the trains, to keep a lid on costs.
Internal Downer EDI documents presented to the court show the costs on the project had blown out to $117 million over budget a year ahead of Downer announcing the project was in trouble.
Other documents revealed the company's executives made a pledge for "No More BS" in regards to its estimates on the project nine months before the June 2010 announcement.
"It suggests there had been some BS going on," Lawyers for shareholders Norman O'Bryan, SC, said.
