Would an order stifle the appeal?
31 It is not in dispute that the appellants are impecunious. However, that does not conclude the question because there is detailed evidence as to a complex network of what are essentially family trusts with very substantial assets under the trusteeship of Kebaro Pty Limited ("Kebaro") which in turn is under the control and direction of Mr Chapman.
32 The evidence indicates that, in the past, assets from these discretionary trusts have been used to finance the litigation to date. There is also evidence that the Galle Trust has substantial undistributed profits and substantial cash flow in the order of one million dollars per month over the past year arising from the development and sale of part of the Hindmarsh Island Development and that this cash flow is continuing. Kebaro is the trustee of that trust and Mrs and Mrs Chapman are beneficiaries along with their children. The appellants, however, contend that notwithstanding substantial earlier advances made, the Trust would not be entitled and nor would it be appropriate for it to advance funds on the present appeal consistently with the duties of the trustee. Other family trusts include the Hindmarsh Trust which operates the business of a Marina proprietor on Hindmarsh Island; the Neals Trust which holds certain parcels of land and the Tern Trust which owns a unit in North Adelaide. There is evidence that Mr and Mrs Chapman have received damages in the order of $550,000 as the fruits of defamation proceedings over the past few years. The evidence also indicates that the principal creditor of Binalong, which is in liquidation, is Westpac Bank through its subsidiary Partnership Pacific Limited, which was owed in excess of $23 million at one point. In the past the Galle Trust has advanced funds to finance the litigation and funds have also been forthcoming from another family trust, namely the Lincoln Trust. Counsel for the respondents submits that while the Chapman family members may strictly be impecunious, they have engineered that situation themselves by means of isolating assets and income in the Trusts and limiting their own personal income until such time as the discretion to make distribution from the Trusts is exercised. There is some force in this submission.
33 The respondents also submit that:
"… the reality of the situation is that Mr Chapman is one of the two Trustees of the Lincoln Trust and he is also (as sole director) the directing mind of the corporate trustee Kebaro. The reality also is that the same persons are the beneficiaries of those three trusts."
34 The evidence of Mr Palyga, the solicitor for the appellants, was that assets of the Galle Trust have been used for the purpose of financing the litigation.
35 No evidence was provided as to the basis on which the beneficiaries of the Galle Trust authorised these payments or whether the trustee has been indemnified for possible breach of trust in respect of the transfer of Galle Trust funds to pay legal costs and disbursements incurred in the litigation to date. The reality is, as counsel for the respondents submits, that the proceedings are being conducted for and on behalf of Chapman family members who are beneficiaries of the family trusts.
36 On 5 September 2001, the Commonwealth requested particulars in relation to the funding of the proceedings brought by the appellants up to that date and on 2 October 2001 the following reply was received from the solicitors for the appellants:
"….
7.1 How have the Applicants funded the proceedings? Please provide full details of all arrangements.
There are no arrangements with any other party relating to the funding of the proceedings.
Tom and Wendy Chapman have funded the disbursements from their personal funds.
The first source of these funds is proceeds received from defamation actions. Whilst the specific amount of some of the defamation payouts is subject to confidentiality arrangements, we can advise you that the Chapmans have received payments by way of settlements, or Court judgments actually received, which total in excess of $550,000.00, plus additional sums by way of payment of costs. Most of these sums received by Tom and Wendy Chapman (but not all) have been applied by them to fund payment of disbursements in this action, but they have also been applied to disbursements in various other matters for which Lynch Meyer have acted for them, and also $150,000.00 was applied as referred to below.
In some defamation actions, Andrew Chapman was a party but has not been treated as entitled to any of the proceeds of those actions. No award was made in his favour by Judge Lowrie in the only one of those which has proceeded to judgment (Chapman v Draper).
Further funds paid towards disbursements and totalling approximately $550,000.00 have been provided by Tom and Wendy Chapman out of personal funds received by them when loans were made to them by the Galle Trust on various dates going back to 1999. The total loan reached about $700,000.00, but at least, $140,000.00 of that sum has been applied to disbursements in various other matters for which Lynch Meyer have acted for them.
On the 17th August, 2001 the Chapmans reduced the amount of this loan by repaying the Galle Trust $150,000.00 which they had received as a defamation payout. The loan carries interest on usual terms, currently 6.5%.
As their Affidavit filed in respect to the security for costs application also confirms, at the outset of this matter Kebaro paid some disbursements, but Tom and Wendy Chapman reimbursed the same.
Lynch Meyer's cost of the action are outstanding and unpaid. Some Counsel fees also remain outstanding.
7.2 What arrangements have been made (if any) and with whom for the sharing in the proceeds of the action?
The only arrangement relating to the proceeds of the action is that contained in the Deeds of Assignment dated the 22nd May 1997 and the 25th September 1997(or, more correctly, the latter, which superseded the former in that respect).
7.3 What arrangements have been made (if any) and with whom for the payment of any orders for costs made, or to be made, against the Applicants? Please provide full details.
There are no arrangements made with any other party for the payment of any orders for costs made against Tom and Wendy Chapman. There is no arrangement made of which the Chapmans are aware for payment of any order for costs made against Binalong (and the Chapmans believe there are none, but only the company can confirm that finally) except there is, as you are aware, the Deed of Indemnity dated the 2nd October 1998.
7.4 What control has been exercised, if any, over the conduct of the proceedings by any party other than the Applicants? Please provide full details.
No control has been exercised over the conduct of the proceedings by anybody except Tom and Wendy Chapman
The fact that the cause of action was assigned to Tom and Wendy Chapman as trustees for a family trust namely "The Lincoln Trust" was deposed to in their Affidavit filed in respect to the security for costs application. We also note that the Affidavit, by paragraph 28, confirms that there has been no arrangement with the Liquidator, Westpac, Partnership Pacific, any other creditor of Binalong, or any other party, in respect to funding the litigation. The Affidavit also confirms the fact that defamation payouts were being used to fund disbursements.
You have also sought the constituent document for the Lincoln Trust and I enclose the original Trust Deed, and a relevant appointment of new trustee. I am instructed that the Lincoln Trust has not traded, and has no assets apart from the assigned cause of action."
37 This letter discloses that funds totalling in the order $550,000 were received by Mr and Mrs Chapman from loans made by the Galle Trust from 1999 and that the amounts advanced had reached $700,000 of which $140,000 had been applied to disbursements in other matters for which their solicitors, Lynch Meyer, had acted. This indicates that the Trustees of the Galle Trust were of the opinion that the proceedings were worthy of funding in the interests of the beneficiaries of that Trust. In addition, the solicitors for Mr and Mrs Chapman have refrained from recovering unpaid fees for acting in relation to the trial. Furthermore, the hearing of the application for security for costs extended over four days and there was clearly some funding arrangement in place to oppose the application by the Commonwealth respondents.
38 I am satisfied that there is force in these submissions and these circumstances are relevant to take into account on the present application.
39 Although the exact amount of moneys claimed by the appellants has not been quantified, it appears from the reasons for judgment of the trial Judge at [754] that the amount claimed exceeds several million dollars. If the case is considered to have any significant prospects of success it may not be too difficult to obtain a relatively small amount of financial assistance to meet the claim for security (when measured against the amount being claimed by the appellants), rather than to discontinue the proceedings.
40 The present case is not one where it has been shown that two impecunious natural persons without resources or access to funding are being shut out from pursuing an appeal where the chances of success and ultimate recovery can be said to be strong. They are beneficiaries under a number of discretionary family trusts with substantial cash flows extending into the millions of dollars and which are under the trusteeship of Kebaro, itself under the control of and subject to direction by Mr Chapman. The family trusts and companies are related entities. The appellants' solicitors have also provided extensive services and refrained from recovering costs within the past three years for this litigation. They have an interest in a successful appeal. No doubt this was done in the expectation of a favourable outcome. The appellants contend they have a substantial case on appeal. If this is in fact the expectation, then the beneficiaries, the liquidator and the creditors will be greatly benefited.
41 Having regard to the evidence which is before me I am not persuaded that if an order for security for costs is awarded in the amount which I propose, namely $200,000 the present appeal is unlikely to proceed. In particular I am not persuaded that the persons or entities who stand to benefit from a successful appeal and award of damages will not be able or willing to provide sufficient funds to provide the security ordered.