Appellant v First Respondent

2 The decision of the Associate Justice was made pursuant to s 504 of the Corporations Act 2001 (Cth) that the respondent liquidators receive remuneration fixed in the sum of $252,000.00 for the period of the liquidation of the company, Atwell & Co Pty Ltd, from 24 September 2015 to the completion of the liquidation.

3 The application is supported by two affidavits of Mr Michael O'Brien: of 10 March 2017 and 20 April 2017.

4 The appellant challenged the jurisdiction of the Court to make the orders sought and submitted that r 62.02 exhaustively defined the jurisdiction of the Court. She also submitted that, even if the jurisdiction existed, security should not be granted as a matter of discretion.

5 However, there was agreement between the parties as to the amount that should be ordered in the event that security was granted, namely, $15,000.00.[2]

6 The appellant, Ms Morag Atwell, is a sole shareholder and former director of the relevant company in liquidation. She is now a bankrupt.

7 On 20 August 2015 the respondents were appointed as joint administrators to the company. Then on 24 September 2015 it was resolved at a meeting of creditors that the company be wound up and the respondents appointed liquidators.

8 The liquidators subsequently applied for their remuneration in an amount of $280,000.00. Following a hearing before the Associate Justice, on 14 December 2016 orders were made fixing the remuneration at $252,000.00 with costs ordered against Ms Atwell.

9 On 23 January 2017 a Notice of Appeal was filed out of time by Ms Atwell. No other creditor has opposed the remuneration ordered. Moreover, although the trustee in bankruptcy was notified of the appeal, he has chosen not to participate.[3]

10 By correspondence of 15 December 2016, the respondent's solicitors advised that their costs were estimated to be $35,962.35 but that, in order to avoid the further costs of issuing a summons for taxation, their clients were prepared to accept $26,365.63.

11 No response has been received to this letter. However, on 7 March 2017 Mr Gray (the appellant's solicitor) informed Ms Wangmann (of the respondents' solicitor) that the appellant 'is not going to pay the costs order of circa $35,000.00.'

12 The appellant ultimately accepted that there was inherent jurisdiction in the Court to order security[4] but submitted that r 62.02 exhaustively defined the ambit of that jurisdiction relying on a statement of Priest JA in a decision of ANZ & Ors v Oswal (Oswal).[5]

13 The appellant further submitted that there was good authority that an undischarged bankrupt suing on a cause of action should not be ordered to provide security.

14 Consistent with the ultimate concession of the appellant, I accept that inherent jurisdiction exists to grant security.[6]

15 I am also not satisfied that r 62.02 exhaustively states the ambit of that jurisdiction. The statement in Oswal relied upon was to the effect that the power to grant security for costs flows from r 62.02 of the Rules.[7] This statement did not purport to exhaustively define whether, or to what extent, an inherent jurisdiction might apply. Even under the Rules, there are also other provisions (e.g. r 64.38) which purport to give power to the Court to grant security.

16 I also consider that there is power to order security where there is a risk of injustice to a successful litigant. This is particularly so in the current context which is concerned with appellate jurisdiction. Thus, in the decision of Houlahan & Ors v Trentham Investment Management Pty Ltd & Anor (No 2) (Houlahan)[8] McMillan J was concerned with an application for security in similar circumstances, namely, on appeal from a decision of an Associate Justice. Her Honour found that there was inherent jurisdiction to order security on the basis of the impecuniosity of the appellant and made an order for security. In so doing Her Honour stated as follows:[9]

The Court has an inherent jurisdiction to order security for costs as part of its power to regulate its own procedure. The principles in relation to the ordering of security for costs in a first instance matter and at the appellant level differ. Whilst the general rule at the first instance level provides that poverty is no bar to a litigant and that a plaintiff's impecuniosity will not on its own justify an order for security for costs, there is a difference at the appellate level. This is because there has already been a determination adverse to the person against whom security for costs is sought and, if it be shown that there is a substantial risk that even if successful the respondent to the application for leave to appeal or to an appeal will be deprived of his costs, such an outcome would clearly be unjust.

The justification behind the cases where security for costs is ordered is that an injustice to a successful litigant may be caused if he or she is compelled to contest the matter for a second time without a probability of obtaining his costs, if ultimately successful.

17 Overall then I am satisfied that there is an inherent jurisdiction to order security where it is in the interests of justice. This is confirmed by the provisions of the Civil Procedure Act 2010 (Vic) which oblige the Court to give effect to the overarching purpose which includes the just determination of the dispute.[10] Given the impecuniosity of the appellant (who is bankrupt) there may be an injustice to the respondents absent a security order, who may be compelled to contest the matter for a second time without a probability of obtaining their costs if ultimately successful.

18 Whether security should be granted, however, turns on discretionary factors which I will turn to next.

19 The power to order security for costs is discretionary, although the following six matters are generally relevant to the exercise of the Court's discretion in an appellate context:[11]

(1) the prospect of success of the application, and any appeal;

(2) the extent of the risk that a costs order will not be satisfied;

(3) whether the making of an order for security would be oppressive by stifling a reasonably arguable claim;

(4) whether any impecuniosity of the applicant/appellant arises out of the conduct complained of;

(5) whether there are aspects of the public interest which militate against the making of an order for security; and

(6) whether there are particular discretionary matters peculiar to the circumstances of the case.

20 The respondents highlighted the significant risk, given the bankruptcy status of the appellant, that a costs order would not be satisfied. There was also no evidence to suggest that the making of an order for security would be oppressive by stifling a reasonably arguable claim.

21 The appellant submitted that there was a public interest consideration given the inclusion of a ground concerning proportionality. She also highlighted that (unlike Houlahan which was distinguishable) there was no unpaid costs order because the costs ordered had not been quantified nor taxed in this case. Further, that the liquidators would not be prejudiced because there was nothing to suggest that they would not be paid out of the assets of the company. Any reduced balance would then go to the appellant as the sole shareholder.

22 First, in terms of the prospects of success, the nature of the appeal is not an appeal de novo but an appeal in the nature of a rehearing which will require the appellant to show error on the part of the Associate Justice before appellate power may be exercised.[12] This may present challenges though it was not suggested that the case was hopeless, nor bound to fail (as in Houlahan where the notice of appeal was against a decision to refuse to set aside a default judgment). In those circumstances, I generally accept the position of the respondents that this factor is a 'neutral' factor which does not weigh either in favour or against the grant of security.

23 Second, the appellant is an undischarged bankrupt and has not put on any evidence to suggest that she has sufficient assets to satisfy a costs order. There is a high degree of risk in these circumstances that a costs order will not be satisfied. Although I accept that the adverse costs order made by the As J has not been quantified (unlike in Houlahan), the nature of the responses to date do not instil confidence that such a risk might be avoided. It is also not to the point that the liquidators might be paid from the assets of the company. There was insufficient evidence to form this view[13] and the erosion of those assets might also amount to a risk to potential creditors. In any event, the company ought not be compelled to contest the matter for a second time without a probability of obtaining costs from the unsuccessful litigant. This factor therefore weighs in favour of the grant of security.

24 The third factor also weighs in favour of a security order. There was no evidence whatsoever that the making of the order would be oppressive by stifling the claim. No submission was made to this effect (which was unlike the case of Houlahan).[14] Moreover, the appellant has been able to engage solicitors and counsel to represent her in respect of the hearing at first instance and in respect of this appeal.

25 Fourth, it was not suggested that any impecuniosity arose out of the conduct of the respondents.

26 Fifth, in terms of public interest, ground six alleged that there was an error in the application of the principle of proportionality in reducing the fees by only 10%. Further that the Associate Justice ought to have concluded that proportionality required there to be no additional fees and that the alleged 'interference' by the Atwells was of negligible effect.

27 The ground appears to flow from paragraph 50 of the Reasons wherein, after citing relevant authority, the Associate Justice suggests that proportionality was a difficult concept in this case because of the interference of both the Atwells which had led to a considerable amount of work being undertaken by the liquidators. However, he then reduced the remuneration by 10% having regard to these principles.

28 The ground therefore appears to be concerned with whether the proportionality principles were applied appropriately in this case rather than with any exposition of those principles themselves. In any event, the principles appear to be have been well ventilated and raise no novel question in the public interest.

29 Finally, in terms of general discretionary factors, the application was brought at a relatively early stage, on 10 March 2017. There is also no evidence of other opposition to the remuneration order the subject of the appeal.

30 Overall, then, two factors weigh in favour of the grant of security. Thus, for reasons given, I accept that there is a significant risk that a costs order will not be satisfied absent an order for security. This presents a significant risk of injustice to the respondents. There is also no corresponding prejudice to the appellant in circumstances where it was not submitted that the grant of security would stifle the appeal. There are also no other factors which weigh against the ordering of security.

31 The case may well be distinguishable from the decision of McMillan J, as the appellant submits, but the current matter is to be determined in the exercise of discretion on the basis of its own facts.

32 Overall, then, I am satisfied that it is appropriate to make an order in favour of the grant of security in the interests of justice.

1. The appellant provide security of $15,000.00 for the respondents' costs associated with the appeal of the judgment of the Honourable Associate Justice Efthim dated 14 December 2016 by the payment of that amount into Court, or by the provision of such other form of security as is acceptable to the Associate Judge who is the Senior Master.

2. If the appellant does not comply with the preceding order within 14 days, the appeal be stayed.

34 I will hear from the parties on the question of costs.

[1] Dennis Anthony Turner and Luke Christopher Targett (In their capacities as joint and several liquidators of Atwell & Co Pty Ltd (In Liquidation)) v Atwell & Co Pty Ltd in Liquidation (Unreported, Supreme Court of Victoria, Efthim AsJ, 14 December 2016) (Reasons).

[2] Transcript of Proceedings (21 April 2017) 3-10.

[5] [2013] VSCA 156 at [111].

[6] And see Trkulja v Dobrijevic (No 2) [2016] VSC 596 at [20]; Houlahan & Ors v Trentham Investment Management Pty Ltd & Anor (No 2) [2016] VSC 445 at [11].

[8] [2016] VSC 445.

[10] See ss 8, 9 and 65C.

[11] Australian Dream Homes v Stojanovski [2016] VSCA 38 at [38]; Bodycorp Repairers Pty Ltd v Maisano [2017] VSCA 39 at [23].

[12] Tomasevic v Melbourne Injury Lawyers [2014] VSC 434 at [8].

[13] Although it was suggested that the company was trading profitably at the time it was placed into liquidation, the liquidators are now of the view that the company is actually insolvent: see Reasons of the AsJ at [20].

[14] Houlahan [2016] VSC 445 at [19].