Applicant v Respondent

1 In 2010, Alex Moulieris engaged the company formerly known as Pearl Hill Pty Ltd to build him a house in South Yarra. In 2017, the builder[1] made a claim against Mr Moulieris in the Victorian Civil and Administrative Tribunal for payment of over $3.5 million, in addition to the amounts already paid. Mr Moulieris has a counterclaim against the builder for around $1 million. Both claim and counterclaim are made in the Tribunal's jurisdiction under Part 5 of the Domestic Building Contracts Act 1995 (Vic).

2 In April 2018, Mr Moulieris applied to the Tribunal for an order that the builder provide security for costs, under s 79 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act). On 14 May 2018, Senior Member Walker of the Tribunal dismissed that application and provided written reasons for his decision.[2]

3 Mr Moulieris seeks leave to appeal the Tribunal's dismissal of his security for costs application, under s 148 of the VCAT Act. An appeal under s 148 lies to this Court, with leave, on a question of law.

4 The notice of appeal identifies three questions of law, elaborated in five grounds of appeal, all of which challenge the exercise of the Tribunal's discretion under s 79 of the VCAT Act not to order security for costs. For the reasons that follow, I have determined that Mr Moulieris has no real prospect of succeeding on any of those grounds. His application for leave to appeal must therefore be dismissed.

Did the Tribunal identify the correct legal test under s 79?

5 The first question of law identified in the notice of appeal is whether the Tribunal failed to identify the relevant legal test or applied the incorrect legal test in determining whether to exercise its power under s 79(1) of the VCAT Act. Grounds of appeal 1 and 2 correspond with this question of law, as follows:

(a) The Tribunal erred in reasoning that it was required to be satisfied that the evidence gave rise to a 'reasonable and definite inference that the [builder] would be unable to meet an adverse costs order'[3] prior to exercising its power under s 79(1) of the VCAT Act.

(b) Further or alternatively, the Tribunal erred in reasoning that it was required to draw inferences, rather than weigh the unimpeached evidence adduced by Mr Moulieris on the application made under s 79(1) of the VCAT Act.

(1) On the application of a party to a proceeding, the Tribunal may order at any time -

(a) that another party give security for that party's costs within the time specified in the order; and

(b) that the proceeding as against that party be stayed until the security is given.

(2) If security for costs is not given within the time specified in the order, the Tribunal may make an order dismissing the proceeding as against the party that applied for the security.

7 The Tribunal's power to order security for costs is not preconditioned on the existence of any threshold, such as appears in r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules) and s 1335(1) of the Corporations Act 2001 (Cth). Under both of those provisions, the power to order security for costs is enlivened if there is reason to believe that a corporate plaintiff will be unable to pay the costs of the defendant if it is successful in its defence.[4] Satisfaction of that threshold does not, however, dictate the making of an order for security for costs.[5]

8 By contrast, the Tribunal's discretion under s 79(1) is open and unfettered. It is a jurisdictional error for the Tribunal to apply the threshold formula from r 62.02 or s 1335 in determining an application under s 79 of the VCAT Act.[6]

9 That said, the financial capacity of a party to meet an adverse costs order is an important discretionary matter for the determination of an application under s 79. The financial position of the party from whom security is sought will be a central consideration in every application under s 79, and in many cases it will be the critical consideration.[7]

10 The Tribunal's power to order security for costs is exercised in a context where the usual rule is that each party bears its own costs in a proceeding.[8] Under Pt 4, Div 8 of the VCAT Act, there are limited circumstances in which the Tribunal may order that a party pay the costs of another party in a proceeding. A costs order might be made in a proceeding under the Domestic Building Contracts Act because it is fair to do so due to the nature and complexity of the particular proceeding,[9] or because a settlement offer was rejected that is no more favourable than the outcome.[10] However, a party to such a proceeding cannot presume that costs will automatically follow the event.[11] There is no general rule to that effect.

11 After setting out s 79 of the VCAT Act, the Tribunal summarised the relevant principles concerning the discretion to order security for costs. Senior Member Walker accepted the correctness of the general propositions that the discretion is broad and unfettered and that the policy behind awarding security for costs is 'to protect involuntary participants in litigation from adverse financial consequences of defending claims by impecunious applications, particularly those sheltering behind limited liability'.[12]

12 The Reasons then set out r 62.02(1)(b) of the Rules and s 1335(1) of the Corporations Act, and referred to the authorities of Livingspring Pty Ltd v Kliger Partners[13] and Amcor Ltd v Barnes.[14] The Tribunal observed that the test under s 79 of the VCAT Act differs from the test under the provisions that apply in this Court:[15]

In an application for security under s.79, there is no 'two-stage process' because the section does not provide that the applicant for security must show that there is '... reason to believe that the Plaintiff has insufficient assets in Victoria to pay the costs ...' or '... credible testimony that there is reason to believe that the corporation will be unable to pay the costs ...'. Nevertheless, the onus is on the Applicant to show that the discretion to award security should be exercised in his favour.

13 The discussion of the relevant principles in the Reasons referred to several earlier decisions of the Tribunal concerning security for costs.[16] It concluded with an extract from Hapisun to the effect that, although financial capacity is not a threshold issue, the ability of a party to meet an adverse costs order is an important, often critical, consideration in determining an application for security for costs under s 79 of the VCAT Act.[17]

14 The Tribunal then summarised the evidence and the submissions of the parties. A feature of the application was that there was very little evidence as to the financial capacity of the builder. That evidence was discussed under the heading 'Whether the Applicant is unlikely to be able to satisfy an adverse costs order'.[18] The discussion concluded:[19]

If the Respondent is seeking an order for security on the ground that it is unlikely that the Applicant would be able to meet an adverse order for costs it is for the Respondent to lead evidence to that effect. In the present case I have no evidence as to the assets and liabilities of the Applicant beyond its share capital and the fact that it is not the registered proprietor of any land.

15 In addressing the submission that the builder's 'silence as to its financial position was deafening',[20] the Tribunal referred to authority to the effect that a respondent to a security for costs application is not obliged to provide an account of its financial position. If it does not, the rule in Jones v Dunkel[21] cannot be used 'to fill gaps in the evidence or to convert conjecture or suspicion into evidence in the nature of inference.'[22] The absence of evidence may, however, fortify an inference that may be drawn from the evidence that is before the Tribunal.[23]

16 The Senior Member then considered what could be inferred from the evidence before him:[24]

In order for an inference to be drawn the circumstances relied upon must give rise to a reasonable and definite inference. If there are conflicting inferences of equal probability so that the choice between them is a matter of conjecture, an inference cannot be drawn (Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 at p. 141).

The matters referred to, whether taken individually or collectively, are not sufficient to give rise to a reasonable and definite inference that the Applicant would be unable to meet an adverse costs order.

17 The Tribunal explained why it did not accept the submission by Mr Moulieris that the builder's claim 'is not bona fide, lacks merit and is severely exaggerated'.[25] It then concluded that it had not been demonstrated that it would be an appropriate exercise of the discretion conferred by s 79 to order security for costs in this case.[26]

18 Mr Moulieris submitted that the Tribunal was wrong to hold that it was required to draw inferences in order to conclude that there was a risk that the builder would be unable to satisfy an adverse costs order. Rather, the Tribunal was required to take a practical and common sense approach to examining the builder's financial affairs, weighing the evidence adduced by the parties. Even if the Tribunal was required to draw inferences, all that was required was a 'rational basis for the belief' that the builder would be unable to satisfy an adverse costs order. Mr Moulieris argued that, in stating that any such conclusion had to be based upon 'reasonable and definite inferences', the Tribunal applied the wrong legal test.

19 This argument was developed before me on the basis that Hapisun framed the relevant inquiry under s 79 as being whether there is a risk or a rational belief that the applicant would be unable to satisfy an adverse costs order. Mr Moulieris relied on several passages from Hapisun in support of this argument, in particular the following:[27]

Indeed, it is difficult to contemplate a scenario in an application for security for costs where the financial position of a plaintiff was not a paramount consideration, or where security would be ordered where there was not a rational basis for believing that the plaintiff could not meet an order for costs.

20 The argument was put on the alternative basis that the relevant consideration for the Tribunal was more specific than whether the builder could meet an adverse costs order. The formulation that the Tribunal was required to consider, Mr Moulieris submitted, was whether there was a risk or a rational belief that the builder would be unable to satisfy an adverse costs order.

21 The builder submitted that this argument misconceived what the Tribunal did. Given that there was no direct evidence of the builder's financial position, the Tribunal considered what inferences could be drawn from the evidence that there was. In doing so, it applied the orthodox approach that, where direct evidence is not available, it is enough if the evidence gives rise to a reasonable and direct inference. This was said by the builder to be a correct approach to assessing the evidence.

22 The first proposed question of law was based on a misunderstanding of the effect of Hapisun, and on a misunderstanding of the Tribunal's reasoning in this case.

23 Hapisun does not stand for the proposition that the 'test' for determining an application under s 79 of the VCAT Act is whether there is a risk or a rational belief that the respondent to the application will be unable to satisfy an adverse costs order. To the contrary, Hapisun was decided on the basis that it was an error to approach s 79 as if it incorporated the threshold test in s 1335 of the Corporations Act and r 62.02(1)(b) of the Rules.[28]

24 There is no statutory 'test' in s 79 of the VCAT Act. I agree with Daly AsJ's observation in Hapisun that Parliament must be presumed to have deliberately omitted from s 79 the threshold test that is found in other security for costs provisions. That being so, it would be wrong to import that test into s 79 in the guise of a precisely formulated relevant consideration.

25 The passages from Hapisun that Mr Moulieris relied on do not, read in their context, support his argument that risk or rational belief is the touchstone under s 79. At [36] Daly AsJ simply observed that security for costs would not usually be ordered unless there was reason to believe that an adverse costs order could not be met. At [44]-[45] her Honour discussed the significance of the Tribunal's finding, in that case, that it was not satisfied that there was a real risk that the respondent could not meet an adverse costs order. There is no formulation of a 'test' or any other gloss on s 79 in those passages. Further, even if they had the effect contended by Mr Moulieris, they could not displace or modify the words of the section.[29]

26 The Tribunal correctly identified that the financial position of the party from whom security for costs is sought is a consideration that should be taken into account in determining an application under s 79. In many cases it will be the critical consideration.[30] Here, the Tribunal identified that consideration and had regard to it under the heading 'Whether the Applicant is unlikely to be able to satisfy an adverse costs order'.

27 Since there was no direct evidence of the builder's financial position, it was appropriate for the Tribunal to consider what inferences might be drawn from the limited evidence before it. The Tribunal correctly stated the approach to drawing inferences, based on established authority.[31] It did not substitute or confuse the need for circumstantial evidence to give rise to a 'reasonable and direct inference' with the discretion to be exercised under s 79.

28 The first proposed question of law in the notice of appeal has no real prospect of success.[32] As I have said, the argument proceeded on a misunderstanding of the Tribunal's decision and the relevant authorities. Leave to appeal on that question is refused.

Did the Tribunal reach a conclusion that was not open to it?

29 The second question of law that Mr Moulieris seeks to raise on appeal is whether the Tribunal arrived at a conclusion regarding the risk of the builder being unable to satisfy an adverse costs order that was not open on the evidence or was unreasonable.

30 Grounds of appeal 3 and 4 correspond with this proposed question of law, as follows:

(a) The Tribunal erred in determining, having regard to the evidence, that there were competing inferences of equal probability;

(b) The Tribunal ought to have held that there was a risk that the respondent would be unable to satisfy an adverse costs order and that security for the applicant's costs of the claim be provided.

31 The submissions made by Mr Moulieris in support of these grounds of appeal commenced by referring to the 'low threshold' and 'undemanding nature of the test' for enlivening the jurisdiction to order security for costs. However, the authorities relied on for this proposition all concerned applications made under provisions, such as s 1335 of the Corporations Act, that contain a jurisdictional threshold.[33] As discussed, there is no such 'test' in s 79 of the VCAT Act. The financial position of the party from whom security for costs is sought is simply a matter, albeit often the critical matter, to be considered in determining an application under s 79.[34]

32 Mr Moulieris then referred to the evidence that was before the Tribunal, in particular evidence of a statement by the builder's solicitor that the company 'is not carrying on business; its business is this piece of litigation'. He emphasised that the builder had not provided evidence of its financial position, despite requests to do so. He contrasted the Tribunal's reliance on Amcor with a number of authorities that he said were more persuasive. He particularly relied on FFE Minerals Pty Ltd v Mining Australia Pty Ltd[35] and Treloar Constructions Pty Ltd v McMillan.[36] In both of those cases, the court was satisfied that there was reason to believe that the respondent company was not in a position to pay an adverse costs order, and in each case the respondent had chosen not to negate that belief by providing evidence of its finances.

Applying the test as set out in Livingspring and FFE Minerals, the evidence before the Tribunal was sufficient to satisfy the onus placed upon the Appellant by s 79 of the VCAT Act. In the absence of any relevant evidence from the Respondent that it could satisfy an adverse costs order, or at least a positive assertion to that effect, the Tribunal ought to have ordered that the Respondent provide security for the Appellant's costs of the claim.

34 In response, the builder pointed out that an appeal on the ground that a finding of fact was not open is narrowly available and strictly confined.[37] Similarly, legal unreasonableness is limited to circumstances in which the finding finds no justification in the minds of reasonable people, or lacks an evident and intelligible justification.[38] The builder accepted that there was evidence before the Tribunal from which it might have inferred that there was a risk that it would be unable to satisfy an adverse costs order. However, the evidence was not overwhelming and did not compel that finding. The finding that the Tribunal made was open to it and was reasonable.

35 I accept the builder's submissions on this second proposed question of law. There was very limited evidence of the builder's financial position. Some of that limited evidence suggested that the builder was creditworthy.[39] The Tribunal was careful to distinguish between the evidence and the inferences it was asked to draw. It explained, correctly and by reference to established authority, its approach to drawing inferences. It concluded that the evidence, whether taken individually or collectively, was not sufficient to infer that the builder would be unable to meet an adverse costs order. That conclusion was manifestly open on the evidence, in the sense that it was a conclusion that a logical and rational decision-maker could reach.[40]

36 As I have found in relation to the first proposed question of law, the Tribunal correctly understood its discretion under s 79 and did not apply the wrong 'test'. The submissions for Mr Moulieris misunderstood the Tribunal's reference to the need for a 'reasonable and definite inference' to be available. It was a correct statement of the law concerning the drawing of inferences. It was not a statement of any 'test' applied by the Tribunal under s 79.

37 I refuse leave to appeal in relation to the second proposed question of law.

Did the Tribunal's discretion under s 79(1) miscarry?

38 The final question of law identified in the notice of appeal is whether the Tribunal's discretion under s 79(1) of the VCAT Act miscarried by:

(a) acting upon an incorrect principle;

(b) failing to take into account a relevant consideration; or

(c) exercising its discretion in a way in which no reasonable Tribunal could have exercised the discretion.

39 This third proposed question of law is supported by a fifth ground of appeal, that the exercise of the Tribunal's discretion under s 79(1) of the VCAT Act miscarried by:

(i) reasoning that it was required to be satisfied that the evidence gave rise to a 'reasonable and definite inference that the [respondent] would be unable to meet an adverse costs order' prior to exercising its power under s 79(1) of the Act (Reasons, [75]); and

(ii) reasoning that it was required to draw an inference, rather than weigh the unimpeached evidence adduced by the applicant on the application under s 79(1) of the Act (Reasons, [74]-[75]); and/or

(b) failing to take into account relevant considerations, including:

(i) the uncontradicted evidence that the respondent's solicitor stated at a directions hearing on 9 March 2017 that the respondent was not carrying on business and that its business was the present litigation;

(ii) the uncontradicted evidence that the applicant had requested that the respondent provide details of its ability to satisfy an adverse costs order and that the respondent failed to provide such details; and

(iii) the uncontradicted evidence that the respondent's net worth was undetermined as its accounts were unavailable or older than 18 months;

(c) failing to conclude, on the evidence before the Tribunal, that there was a risk that the respondent would be unable to satisfy an adverse costs order.

40 Paragraphs (a) and (c) of the third proposed question of law, and the corresponding grounds of appeal, cover the same ground as the first and second proposed questions of law. For the reasons already given, leave to appeal on those questions is refused.

41 That leaves the complaint that the Tribunal failed to have regard to relevant considerations. Mr Moulieris drew attention to the following evidence before the Tribunal:

(a) the builder's solicitor's statement at a directions hearing on 9 March 2017 that the builder's business at the moment is this piece of litigation;

(b) correspondence in early March 2017 in which his solicitor requested that the builder provide details of its ability to satisfy an adverse costs order, and the builder did not provide those details; and

(c) a Dun & Bradstreet rating of the builder's financial strength as 'O', meaning that its net worth is undetermined as its accounts are unavailable or more than 18 months old.

42 Mr Moulieris accepted that each of these matters was 'partially referred to in the Tribunal's outline of the evidence'. However, he contended that none of them was actually taken into account in the Tribunal's consideration of whether to exercise its discretion under s 79(1). His complaint was that the Tribunal had failed to examine each matter in its assessment of the builder's financial affairs.

43 The builder argued that none of the matters was a matter that the Tribunal was bound to take account of, having regard to the subject matter, scope and purpose of s 79 of the VCAT Act.[41] Further, error is not demonstrated merely because the Tribunal's reasons do not address all matters put to it - what must be shown is that there was a vitiating error of law.[42] In any event, the builder submitted, it is apparent from the Reasons that the Tribunal took each matter into account.

44 Reading the Reasons fairly and as a whole, I am satisfied that the Tribunal did take into account each of the three matters raised by Mr Moulieris on this appeal.

45 First, the evidence of the statement at the directions hearing was dealt with at [56] of the Reasons, as follows:

Mr Walsh deposed that he was informed by his employee solicitor that, in a directions hearing before me on 9 March 2017, the Applicant's solicitor told me that the Applicant was not carrying on business and that its business was this piece of litigation. I do not recall what was said to me on that day and no transcript or recording has been produced to establish what was said.

46 It is clear from this paragraph that the Senior Member directed his attention to the hearsay evidence of what was said on 9 March 2017, and decided to give it no weight because there was no transcript or recording produced and he did not remember it himself. The Tribunal was not obliged to accept the hearsay evidence of Mr Walsh as probative of the builder's financial position.

47 Second, the evidence that the builder had declined to provide Mr Moulieris' solicitors with details of its financial position was plainly a matter that the Tribunal took into account. The absence of any material to demonstrate the builder's solvency was noted at [71] of the Reasons. The Senior Member then considered whether he could draw any inference in light of the builder's failure to put on financial evidence. He concluded that he could not, based - as I have found - on a correct statement of the law concerning the drawing of inferences.

48 Third, the Dun & Bradstreet rating was also referred to in the Tribunal's Reasons. The Commercial Bureau Report was accurately summarised at [58] and, at [68], was dealt with thus:

The Commercial Bureau Report dated 21 March 2018 did not show anything adverse concerning the Applicant's financial position. The few things that it did show were positive.

49 This was a fair characterisation of the Report. It noted nothing adverse to the builder and rated its credit appraisal as 'Good', 'Low Risk' and 'Proceed with transaction'. The financial strength rating of 'O' was neutral, and was consistent with there being no accounts available to Dun & Bradstreet. Far from failing to take the Dun & Bradstreet rating into account, it is clear from the Reasons that the Tribunal considered that it was favourable to the builder.

50 The allocation of weight between relevant considerations was a matter for the Tribunal.[43] As I have found, the Tribunal's conclusion on s 79 was open on the evidence and was not legally unreasonable.

51 Leave to appeal is refused in relation to the third question of law.

52 The application by Mr Moulieris for leave to appeal must be dismissed.

53 I will hear from the parties as to the costs of the appeal.

[1] Which by then had changed its name to ACN 115 918 959 Pty Ltd.

[2] ACN 115 918 959 Pty Ltd v Moulieris (Building and Property) [2018] VCAT 740 (Reasons).

[4] Discussed in Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377, [13]-[16] (Livingspring).

[5] Ariss v Express Interiors Pty Ltd [1996] 2 VR 507, 514 (Ariss); Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] VSCA 43; [1999] 2 VR 191, 195.

[6] Hapisun Pty Ltd v Rikys & Moylan Pty Ltd [2013] VSC 730, [34] (Hapisun).

[9] VCAT Act s 109(3)(d). See, for example, Sixty-Fifth Eternity Pty Ltd v Boroondara City Council [2009] VCAT 284, [32]; Cappellin v Brondolino [2011] VCAT 2163, [9]-[11]; Hyndman v Hurtob Homes Pty Ltd [2014] VCAT 1126, [15]-[17].

[11] Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw No 651 Pty Ltd [2005] VSCA 165; (2005) 13 VR 483, [34]-[35] (Ormiston JA); see also Sabroni Pty Ltd v Catalano [2005] VCAT 374, [5].

[13] [2008] VSCA 93; (2008) 20 VR 377.

[14] [2015] VSC 90 (Amcor).

[16] East Kew Construction Pty Ltd v Landspec Investments Pty Ltd [2001] VCAT 2457; Sarandis v Mulberry's Australia Pty Ltd [2002] VCAT 390; Ian West Indoor and Outdoor Services Pty Ltd v Australian Posters Pty Ltd [2011] VCAT 2410; Mt Holden Estates Pty Ltd v Lanigan Baldwin Pty Ltd [2005] VCAT 1442: referred to at Reasons, [48]-[50].

[17] Hapisun, [35]-[36], referred to at Reasons, [51].

[21] [1959] HCA 8; (1959) 101 CLR 298 (Jones v Dunkel).

[22] Amcor, [39]-[43], referred to at Reasons, [71].

[27] Hapisun, [36]. See also [44] and [45].

[31] Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125, 141 (Tadgell JA), citing a passage from Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1, which had been 'repeatedly adopted' in other decisions of the High Court, including Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 304-5.

[32] Section 148(2A) of the VCAT Act provides that the Trial Division of the Supreme Court may grant an application for leave to appeal under s 148 only if it is satisfied that the appeal has a real prospect of success.

[33] Livingspring, [16] and HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87, [7]-[8].

[35] [2000] WASCA 69 (FFE Minerals).

[36] [2016] NSWCA 302 (Treloar Constructions).

[37] Myers v Medical Practitioners Board of Victoria [2007] VSCA 163; (2007) 18 VR 48, [46] (Warren CJ, Chernov JA and Bell AJA agreeing); Jetstar Airways Pty Ltd v Free [2008] VSC 539, [141].

[38] Minister for Immigration v Li [2014] FCAFC 1; (2013) 249 CLR 332, 363-7 (Hayne, Kiefel and Bell JJ).

[39] A Commercial Bureau Report dated 21 March 2018 prepared by Dun & Bradstreet rated the builder's credit appraisal as 'Good', 'Low Risk' and 'Proceed with transaction'. See Reasons, [58] and [68].

[40] Minister for Immigration and Citizenship v SZMDS [2010] HCA 16; (2010) 240 CLR 611, [132]-[135] (Crennan and Bell JJ).

[41] Minister for Aboriginal Affairs v Peko-Wallsend Limited [1986] HCA 40; (1986) 162 CLR 24 (Peko-Wallsend), 40-41.

[42] McKinnon v Cowban [2004] VSC 380, [14], citing Portland Properties Pty Ltd v Melbourne & Metropolitan Board of Works (1971) 38 LGRA 6, 18 (Smith J, Adam J agreeing).