Aurora Australasia Pty Ltd v Hunt Prosperity Pty Ltd

JUDGMENT

1. BASTEN AJA: There is an appeal pending in this Court from a judgment of Rees J handed down in the Equity Division on 23 August 2024. The notice of appeal was filed on 20 September 2024. By a notice of motion filed on 22 October 2024 the second and third respondents seek an order that the second appellant, David James Driver, provide security for their costs in the appeal in an amount of $44,000.
2. There is no disagreement between the parties as to a reasonable amount on account of party and party costs, being the amount of security sought by the second and third respondents. The issue is whether it is appropriate to make such an order in the circumstances of the case.
3. Despite the first appellant and the first respondent being corporations, this is in substance a dispute between two individuals. Accordingly, the particular rule provided by s 1335 of the Corporations Act 2001 (Cth) does not apply. The matter is to be dealt with according to the principles applying to individuals.
4. On an appeal, the general principles applied under Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.21 are engaged: r 51.50(3). However, no part of r 42.21 was relied on in the present case. As a result, the general rule, with its qualification, will apply. That is, absent "special circumstances" there is to be no order as to security for costs of an appeal: r 51.50(1) and (2).
5. The principles to be applied were established under Pt 51 r 16 of the Supreme Court Rules, before the relevant rule was incorporated in the UCPR, r 51.50. As set out in subsequent cases, they were conveniently summarised in Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247: "18 The principles governing applications for security were helpfully set out by Beazley J in the Federal Court in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197-198. Although the factors are discussed in the context of an unfettered discretion, in contrast to the power conferred by Pt 51 r 16, the factors themselves remain relevant in assessing special circumstances. The considerations engaged by the concept of 'special circumstances' in relation to security for costs were considered by this Court in Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2004) 60 NSWLR 143 (Beazley, Santow and Ipp JJA), and in Porter v Gordian Runoff Ltd [2004] NSWCA 171 (Bryson JA, Sheller and Giles JJA agreeing). The following principles were identified: (1) no order for security should be made in the absence of 'special circumstances'; (2) consideration of what may constitute special circumstances should not be fettered by some general rule of practice; (3) impecuniosity, without more, will usually be insufficient; (4) an order may be appropriate if the appeal is shown to be hopeless, unreasonable or of an harassing nature; (5) where a bona fide and reasonably arguable appeal would be stifled by an order for security, such an order should usually not be made, and (6) the subject matter of the appeal, including an issue as to the liberty of the individual, or a public interest may provide a reason for not imposing a security order which would stifle the continuation of the appeal."
6. For the purposes of par (4), there was no suggestion in this case that the grounds of appeal were other than reasonably arguable. Nor, for the purposes of par (6), was it submitted that there was any issue of public importance or liberty of the individual to be taken into account. Whilst accepting that impecuniosity would not of itself suffice (in accordance with par (3)), evidence was tendered as to whether the principal appellant, Mr Driver, was impecunious. It will be necessary to address that matter shortly. It was not, however, submitted that the appeal would be stifled if an order for security in the amount identified were to be made: see par (5). Rather, the focus of the consideration was on the particular matter relied upon by the respondent as warranting a finding of "special circumstances". It is necessary to explain a little more about the circumstances of the proceedings to address that issue.
7. Before turning to that issue, the following observations should be made about Mr Driver's financial position. The evidence revealed that Mr Driver owned two properties (one jointly with his wife) with an estimated value of $14 million, but with debts to mortgagees totalling some $19.8 million. The excess of debt over value was secured by three further properties owned by companies controlled by Mr Driver giving, according to his account, an estimated equity of a little over $4 million. There was, however, a valuation tendered by the respondents which suggested that the principal property may have been worth $1 million less than the figure relied upon by Mr Driver's solicitor.
8. As the respondents observed, this equity was significantly less than the $7.5 million outstanding loan, which, with interest totalled some $10 million. Further, a schedule of Mr Driver's secured loans demonstrated that seven loans had been obtained between April and September 2024, two being at interest rates in the order of 50%, reduceable to 25%, and one being at an interest rate of 22% reduceable to 12%. Further, there was obviously the potential for difficulty in a third party enforcing payment against Mr Driver with respect to properties of which he was not the registered proprietor, or was not the sole proprietor.
9. The special circumstance relied on by the respondents was that together Mr Hartley and Mr Driver had set up an investment fund managed by Aurora Australasia Pty Ltd (Aurora) in which Mr Driver held 50% of the shares and Mr Hartley, through another company, AMHP Pty Ltd (the second respondent) held 50% of the shares. The fund apparently traded in foreign exchange and did so profitably. The manager, Aurora, charged the fund a performance fee of one-third of the monthly profits, which fee was to be split between Mr Driver and Mr Hartley. The fee was in fact not paid but reinvested in the fund, the trustee issuing unit certificates to record the additional investments.
10. When Mr Hartley and Mr Driver arranged the loan of $7.5 million, an issue arose as to the security to be obtained by Mr Hartley for the loan. Rees J found that certain units in the trust described in "certificate No 3" were owned beneficially by Mr Driver, but that he had conferred an equitable charge over the units in favour of the second and third respondents (Mr Hartley and AMHP) to secure the loan. The first respondent, Hunt Prosperity, was restrained from processing a redemption request made by Mr Driver, with respect to certificate No 3.
11. Rightly or wrongly, Aurora had been joined as a party in the proceedings below and was a party to the appeal. The result, according to Mr Hartley, was that although the original proceedings in the Equity Division had been commenced by Mr Driver (as the sole director and secretary of Aurora) without his (Mr Hartley's) consent. If the appeal were unsuccessful, Aurora and Mr Driver would likely be jointly liable for the respondents' costs of the appeal and, in the event that Mr Driver did not pay, Aurora would be liable to pay the respondents' costs. Accordingly, as the ultimate beneficiary of 50% of the fund, Mr Hartley would be financing one-half his opponent's costs liability. This was said to be the special circumstance relied upon to warrant an order for payment of security of costs.
12. Three points may be made in relation to the circumstances briefly outlined above.
13. First, although there may be significant difficulties in enforcing a debt against Mr Driver personally, the financial circumstances outlined above do not suggest that an order for payment of security in an amount of $44,000 would stifle the appeal.
14. Secondly, while it may be accepted that a situation in which a respondent is contingently liable to lose the benefit of a costs order because he has a financial interest in an appellant, may well constitute a special circumstance for the purposes of r 51.50, even if Aurora were to pay the whole debt, the loss would be borne equally by him and Mr Driver. At least on that view, either Aurora should provide the security for costs or, if Mr Driver were required to pay, his liability should be limited to $22,000.
15. Thirdly, at the time of the trial, the value of the units identified in "certificate No 3" was said to be in the order of $1.7 million. The loan itself was not yet due for repayment. Taking the amount in issue on the appeal as $1.7 million, the security sought in an amount of $44,000 is a relatively small amount. If the "special circumstance" is identified as the loss of the ability to obtain the benefit of half the costs order (valued at $22,000) the significance of the amount is further reduced.
16. While I accept that this special circumstance engages the power to make an order for payment of security, the nature of the special circumstance is a factor, amongst others, which should be weighed in considering whether an order should be made in the exercise of the Court's discretion. The overall amount in dispute is a significant factor, as is the assumption that Mr Driver has access to assets well in excess of the amount of the estimated costs. Further, the appeal will be heard in a matter of weeks and there is no dispute that it will be completed within a day. These factors weigh against the making of an order.
17. One further consideration, which might have carried weight in other circumstances, would be the amount of the order for costs of the trial and whether those costs had been paid. Counsel for the respondents accepted, however, that that involved a matter of some complexity, suggesting that no reliance should be placed upon it one way or the other.
18. In the circumstances of the case, whilst I accept that the discretion to order security for costs is engaged, in my view no order should be made. The costs of the application should be costs in the appeal.
19. The Court makes the following orders: 1. Dismiss the notice of motion filed by the second and third respondents on 22 October 2024. 2. Order that the costs of the motion be costs in the appeal.

Amendments 28 October 2024 - Correct spacing on cover page DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 October 2024