Court of Appeal (ACT)|2012-04-26

Davey v Herbst, Herbst and Bray (No. 2) [2012] ACTCA 19 (26 April 2012)

JOHN PATRICK DAVEY v VALERIE HERBST, ADAM RICHARD HERBST AND ERIC MALCOLM BRAY [NO 2]

[2012] ACTCA 19 (26 April 2012)

PROCEDURE - summary judgment - principles - onus on defendant to raise matters of defence.

PROCEDURE - inferior courts - parties - deceased persons - capacity of beneficiary to conduct litigation.

Court Procedures Rules 2006 (ACT), rr 6, 425, 512, 1147, 5302, 5473, 6251, 6256

Stephen Colbran, Security for Costs (Longman Professional, 1993)

R F Norton, A Treatise on Deeds (Sweet & Maxwell, 1st ed, 1906)

Davey and Anor v Herbst and Anor [2011] ACTSC 112

Hughes v Janrule Pty Ltd (2011) 252 FLR 397

Benjamin v GB Franchising Australia Pty Ltd (2008) 1 ACTLR 287

Smail v Burton [1975] VicRp 76; [1975] VR 776

Australasian Compressed Fodder Co v Westwood (1903) IX Arg LR 113

de Groot v Nominal Defendant [2004] NSWCA 88

Natcraft Pty Ltd v Det Norske Veritas [2002] QCA 241

Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2004] NSWCA 136; (2004) 60 NSWLR 143

PS Chellaram & Co v China Ocean Shipping Co [1991] HCA 36; (1991) 65 ALJR 642

Banks v Copas Newham Pty Ltd [2001] QCA 526

Ivory v Telstra Corp Ltd [2001] QCA 490

Jackson v Coal Resources of Queensland Ltd [2000] QCA 413

Commonwealth Bank of Australia v Eise (1991) 6 ACSR 1

Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306

Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972

Maher v Commonwealth Bank of Australia [2008] VSCA 122

Davey v Herbst and Ors [2011] ACTCA 27

Bresam Investments Pty Ltd v Shmee Pty Ltd [2008] VSCA 251

Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175

Singh v Varinder Kaur (1985) 61 ALR 720

ANZ Banking Group Ltd v Barry [1992] 2 Qd R 12

Brisbane City Council v Southern Electric Authority of Queensland (1968) 42 ALJR 78

Bank Für Gemeinswirtschaft AG v City of London Garages Ltd [1971] 1 All ER 541

Hausman v Abigroup Contractors Pty Ltd [2009] VSCA 288

Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705

Lazard Brothers and Co v Midland Bank Ltd [1933] AC 289

Fielding v Rigby [1993] 4 All ER 294

Kamouh v British Aircraft Corporation (Operating) Ltd, The Times, 17 July 1982

Clay v Oxford (1866) LR 2 Exch 54

Tetlow v Orela Ltd [1920] 2 Ch 24

Woolworths Ltd v Crotty [1942] HCA 35; (1942) 66 CLR 603

Smith v London and North Western Railway Co [1853] EngR 500; (1853) 118 ER 694

McLeish v Faure [1979] FCA 38; (1979) 40 FLR 462

Ramage v Waclaw (1988) 12 NSWLR 84

Alexander v Perpetual Trustees WA Ltd [2004] HCA 7; (2004) 216 CLR 109

Lidden v Composite Buyers Ltd (1996) 67 FCR 560

Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432

Mercedes Holdings Pty Ltd v Waters (No 2) [2010] FCA 472; (2010) 186 FCR 450

Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204

Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361

Xenos v Wickham (1867) LR 2 HL 296

Eljon Pty Ltd v Chat Commissioner of State Revenue [1999] NSWSC 266

Beasly v Hallwood Estates Ltd [1961] 1 Ch 105

Alan Estates Ltd v W G Stores Ltd [1982] Ch 511

National Provincial Bank of England v Jackson (1886) 33 Ch D 1

Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85

Bath and Montague's Case [1685] EngR 4120; (1693) 22 ER 963

Coles v Wood [1981] 1 NSWLR 723

Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (No 2) (1990) 21 NSWLR 200

Muldoon v Church of England Children's Homes Burwood [2011] NSWCA 46

Underdown (estate of the late Samantha) v Secretary, Department of Education, Employment and Workplace Relations [2009] FCA 965; (2009) 50 AAR 54

R v Steffan (1993) 30 NSWLR 633

Burrell v The Queen [2008] HCA 34; (2008) 238 CLR 218

Tait v Bindal People [2002] FCA 322

Pettitt v Dunkley [1971] 1 NSWLR 376

Public Service Board of New South Wales v Osmond (1986) 159 CLR 656

Carlson v King (1947) 64 WN (NSW) 65

Roche & Ors v Kronheimer and Anor [1921] HCA 25; (1921) 29 CLR 329

Deputy Federal Commissioner of Taxation (NSW) v W R Moran Pty Ltd [1939] HCA 27; (1939) 61 CLR 735

Mackay v The Queen [1977] HCA 22; (1977) 136 CLR 465

North Ganalanja Aboriginal Corporation v State of Queensland [1996] HCA 2; (1996) 185 CLR 595

Pape v Federal Commissioner of Taxation [2009] HCA 23; (2009) 238 CLR 1

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Court of Appeal of the Australian Capital Territory

IN THE SUPREME COURT OF THE ) ACTCA No. 44 of 2011

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

1. The application for security for costs be dismissed.

2. The parties be heard as to the costs of the application.

3. The appellant file and serve any written submissions as to costs on or before 7 May 2012.

4. The first and second respondents file and serve any written submissions as to costs on or before 2 May 2012.

5. Compliance with Court Procedures Rules 2006 (ACT) rr 5439, 5440 is dispensed with, on the condition that the parties comply with r 5857.

6. The appellant have leave to file any supplementary submissions directed toward compliance with Court Procedures Rules r 5857(1)(h) on or before 23 April 2012.

7. The first and second respondents file and serve their written cases under Court Procedures Rules r 5857 on or before 29 April 2012.

8. The appellant file any response to those written cases on or before 4 May 2012.

IN THE SUPREME COURT OF THE ) ACTCA No. 44 of 2011

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

1. These proceedings are the result of a breakdown in a commercial relationship between the appellant and the third respondent on the one hand and the second respondent on the other.

2. The parents of the second respondent, the mother being the first respondent, had advanced money to the commercial enterprise and, as a result of the breakdown in the relationship, sought the return of the advance.

3. Negotiations resulted in a Deed being signed by all the parties to these proceedings and the second respondent's father (husband of the first respondent). It is alleged that instalment payments were made under the Deed but discontinued after some time.

4. The first and second respondents and the second respondent's father as plaintiffs then commenced proceedings in the Magistrates Court against the appellant and the third respondent as defendants for recovery of the balance of the moneys said to be due to the plaintiffs under the Deed.

5. Regrettably, the proceedings in the Magistrates Court were conducted in what can only be described as a messy manner with little attention being paid to procedural issues that, admittedly, were of some complexity. Some of this resulted from the terms of the Deed which was hardly a paragon of the drafter's art and which used not only inapt expressions but some that might be construed as inconsistent with the relevant law.

6. Nevertheless, the Deed appeared to evidence a debt to the first respondent and her husband, payable by the appellant and the third respondent.

7. After commencement of the Magistrates Court proceedings, the first respondent's husband was dismissed from the proceedings as he had died before they had been commenced. The second respondent was also dismissed from the proceedings as, though a party to the Deed, he was not owed any money under it at the time the proceedings were commenced. The first respondent remained as the plaintiff. A third party notice was, however, issued by the defendants against the second respondent.

8. On 14 December 2009, the proceedings came before the Magistrates Court constituted by the Registrar, (as permitted by r 6251(2)(a) of the Court Procedures Rules 2006 (ACT)) despite the procedural difficulties, some of which I will have to mention below. This was described by Gray J in Davey and Anor v Herbst and Anor [2011] ACTSC 112 at [18] as "essentially cross-applications for summary judgment." The Registrar entered judgment for the plaintiff, dismissed the claims of the defendants and also dismissed third party notices by the defendants against the second defendant in these proceedings.

9. The defendants appealed under r 6256 of the Court Procedures Rules to a Magistrate who heard the applications anew (a hearing de novo) under r 6256(4), and who effectively dismissed the appeal on 4 May 2010 by confirming the orders made by the Registrar. The Learned Magistrate also permitted the plaintiff to amend her Statement of Claim at the hearing.

10. The defendants then appealed to the Supreme Court under s 274 of the Magistrates Court Act 1930 (ACT) against these orders. The hearing came before Gray J who, on 20 July 2011, dismissed the appeal: Davey and Anor v Herbst v Anor.

11. The appellant, one of the defendants before the Magistrates Court and the first appellant in the Supreme Court proceedings, has now appealed to this Court from his Honour's order. He has joined as respondents the remaining plaintiff, the first respondent, for whose benefit the Magistrates Court orders were made, as well as the third party in those proceedings, the second respondent, and the other defendant, who was the second appellant in the Supreme Court proceedings, namely the third respondent.

12. The first and second respondents have now sought security for costs against the appellant. On 16 April 2012, I dismissed the application. I said that I would provide my reasons later. These are those reasons.

13. The Court Procedures Rules provide in r 5302- for the Court of Appeal to make an order for security for costs. It is in the following terms:

Appeals to Court of Appeal - security for costs

(1) Security for costs of an appeal is not required, unless the Court of Appeal otherwise orders.

(2) This rule does not limit division 2.17.8.

14. In Hughes v Janrule Pty Ltd (2011) 252 FLR 397 at 409; [61], Penfold J held that a single judge of the Court of Appeal may, under s 37J(1)(k) of the Supreme Court Act 1933 (ACT), exercise this jurisdiction of the Court.

15. Stephen Colbran, in Security for Costs (Longman Professional, 1993) at 1; [1.3], addressed the questions of what the purpose of such orders as follows:

(a) to provide protection for a defendant by ensuring an available fund to defray costs incurred by the defendant in defending a frivolous claim; and

(b) to discourage the filing of unmeritorious and frivolous claims which may amount to vexatious harassment. (footnotes omitted)

16. As Hood J said in Bethune v Porteous [1892] VicLawRp 94; (1892) 18 VLR 493 at 494,

the reason underlying the numerous and varying cases in which appellants have been ordered to give security will be found in the injustice to a successful litigant that may be caused if he be compelled to contest the matter for a second time without a probability of obtaining his costs if ultimately successful.

17. In Benjamin v GB Franchising Australia Pty Ltd (2008) 1 ACTLR 287, I discussed the principles relating to the discretion to order security for costs in appellate matters. These may be summarised as follows:

(a) the default position in this jurisdiction is that no security is payable and therefore the applicant has to make out a satisfactory case for security being ordered;

(b) there is not in this jurisdiction, as in some other jurisdictions (see, eg, Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 64.24(2); Uniform Civil Procedure Rules 2005 (NSW) r 50.8; Supreme Court Rules 2006 (SA) r 194(1)), a requirement that the applicant show special circumstances; decisions from such other jurisdictions must, therefore, be treated with some caution;

(c) there are differences between the principles governing the discretion to order a moving party to provide security for costs at trial and on appeal; thus, impecuniosity is not a significant consideration in respect of trials but is more important in respect of appeals;

(d) unlike the position in England, impecuniosity, while important, is not decisive and there are other relevant considerations such as the public importance of the issues in the appeal (Smail v Burton [1975] VicRp 76; [1975] VR 776 at 779), the liberty of the subject (Hood Barrs v Heriot [1896] 2 QB 375 at 376), or where the only property of the appellant is the subject matter of the appeal (Australasian Compressed Fodder Co v Westwood (1903) IX Arg LR 113);

(e) the prospects of success on appeal is a relevant consideration and, despite the difficulty of assessing that (de Groot v Nominal Defendant [2004] NSWCA 88 at [25]), it sometimes simply has to be undertaken (Hughes v Janrule Pty Ltd at [84]).

18. The considerations that the court may take into account have been identified by courts over time. I am conscious that, as Davies JA said in Natcraft Pty Ltd (deregistered) v Det Norske Veritas [2002] QCA 241 at [2], "[i]t is impossible to state comprehensively the factors that are relevant to assessment of an application [for security for costs]". As the NSW Court of Appeal noted in Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2004] NSWCA 136; (2004) 60 NSWLR 143 at 151; [33], though perhaps rather in relation to the notion of "special circumstances", frequently recurring circumstances or outcomes should not be developed into a "general rule" of practice and the Court must have regard to all relevant factors in each case.

19. As McHugh J said in PS Chellaram & Co v China Ocean Shipping Co [1991] HCA 36; (1991) 65 ALJR 642 at 643,

[t]o make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed. A circumstance which may have very great weight when only two or three circumstances have to be weighed may be of minor significance when many circumstances have to be weighed.

20. His Honour did then note, however, that certain factors, such as, in that case, the party bringing proceedings being resident out of the jurisdiction and having no assets in the jurisdiction, had been seen by the courts over time as a circumstance of great weight in determining whether an order for security should be made.

21. Nevertheless, I did identify in Benjamin v GB Franchising Australia Pty Ltd at 296; [48], some matters commonly regarded as relevant factors

include where the impecuniosity of the appellant has been caused by the misconduct of the respondent (Farrer v Lacey, Hartland & Co (1885) 28 Ch D 482 at 485), where the liberty of the subject is involved (Hood Barrs v Heriot [1896] 2 QB 375), where the appeal is an abuse of process (Weldon v Maples, Teesdale & Company (1887) 20 QBD 331), where the appeal is manifestly groundless (Lall v 53-55 Hall Street Pty Ltd [[1978] 1 NSWLR 310]) where there has been great delay in prosecuting the appeal (PG Gabel Pty Ltd (in liq) v Katherine Enterprises Pty Ltd (1977) 29 FLR 108 at 113) and where the matter in issue raises a matter of public importance or a significant matter (Kennedy v McGeechan [1978] 1 NSWLR 314).

22. Similarly, in Natcraft Pty Ltd v Det Norske Veritas at [9], Jerrard JA reviewed "decided cases" which had "established matters which are relevant on such applications", including:

• The appellants' prospects of success on the appeal (see Banks v Copas Newham Pty Ltd [2001] QCA 526).

• The financial position of the appellants. Where an appellant is without funds or assets this factor is important, and provides what this court has described as a "persuasive" reason for ordering security for costs. This is because that appellant would be unable to satisfy any order for costs made against the appellant should the appeal be unsuccessful (see Banks (supra) and Ivory v Telstra Corp Ltd [2001] QCA 490).

• The fact an impecunious appellant, impecunious at trial, has already had a "day in court" and lost on the merits. That circumstance increases rather than reduces the likelihood of the exercise of a discretion in favour of an order for security for costs (see Ivory (supra)).

• The fact that the appellant blames impecuniosity on a respondent who asks for orders for security for costs. This matter has a diminished significance at appellant level, by contrast with its significance at trial level (see see de Jersey CJ Jackson v Coal Resources of Queensland Ltd [2000] QCA 413).

• That it is inappropriate to order an impecunious appellant to provide a greater security than is absolutely necessary (see Young CJ in Commonwealth Bank of Australia v Eise (1991) 6 ACSR 1 at 4).

• That the giving of a personal undertaking by one who stands behind a company does not preclude an order for security for costs (see Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306 at 316).

• Whether there has been any delay in bringing the application for security for costs.

The central issue where there has not been delay is well summarised in the judgment of Malcolm CJ in Intercraft (supra), wherein His Honour said at p316 that the application has to be looked at in the light of all relevant considerations, including the merits of the action and whether the ordering of security will stifle an action which has some apparent merit.

Davies and Williams JJA agreed, subject to the comment referred to above (at [18]). See also Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972.

24. There is no doubt that, in the terms in which McHugh J (above at [19]) referred to matters which have for long been accepted as having great weight in such applications, the impecuniosity of an appellant and the prospects of success on appeal have always had a very great significance in applications for security for costs in appellate proceedings.

25. The respondents brought the application on two bases - that the appellant would not be able to pay any order for costs made by the Court of Appeal and that the appeal had no prospects of success.

(b) affidavit of Nathan Moy affirmed 5 October 2011;

(d) further affidavit of Mr Moy affirmed 17 October 2011;

(e) a title search of a certain property at Weston;

(f) a folder of submissions by the appellant with statutes and authorities;

(g) a copy of an application and supporting affidavit to challenge a costs assessment in the Magistrates Court; and

(h) an amended Statement of Enforcement Debtor's Financial Position of the appellant.

27. Of the deponents of the affidavits only the appellant was cross-examined. The second respondent, however, did give oral evidence and was cross-examined.

28. I shall, on the basis of this material and the submissions of the parties, deal with each of these grounds of the application.

29. Mr P Walker, who appeared for the first and second respondents to the appeal, the applicants for security for costs, submitted that the appellant did not have sufficient means to meet any order for costs should he be ordered to pay them on the appeal.

30. The affidavit of Mr Wilson estimated that the costs of the appeal would be between $25,238 and $26,538. Mr Wilson is an experienced solicitor who has long practiced in litigation, including having to estimate legal costs. It is not clear whether the estimate was on the basis of solicitor-client costs or party and party costs, but for the purposes of the application, I am prepared to accept the estimate as the costs that may be payable to the first and second respondents if the appeal is dismissed.

31. It appears from Mr Moy's affidavit of 5 October 2011 (Mr Moy's first affidavit), that there were a number of outstanding costs orders already made in earlier proceedings. These included orders made in the Magistrates Court on 22 January, 4 May and 9 November 2010, in the Supreme Court on 20 July 2011 and in the Federal Magistrates Court on 27 July 2011. Mr Moy estimated that the solicitor-client costs of the proceedings to date would amount to $225,000.

32. A bill of costs has been assessed in respect of the orders made in the Magistrates Court on 22 January and 4 May 2010 in the sum of $124,313.13. This, of course, must be the vast majority of the costs in that court because the costs order of the summary judgment and the orders made by the Registrar on 14 December 2009 was made that on 22 January 2010, confirmed by the Magistrate on 4 May 2010 with an additional costs order. The costs of the appeal to the Supreme Court were ordered to be paid by the appellant on 20 July 2011. While I am not in a position to estimate those costs, I note that they were not, as were the cost ordered in the Magistrates Court, payable on an indemnity basis and the hearing on the appeal occupied two days.

33. Annexed to Mr Moy's first affidavit is a copy of a "Statement of Assets and Liabilities" of the appellant filed in accordance with an order of Master Harper made on 1 July 2010. I had regard also to the amended Statement of Enforcement Debtor's Finance Position (see [26](h) above) of the appellant.

34. Under the Master's order, the appellant was also required to provide a bank guarantee in the sum of $46,574.49 and to grant an unregistered mortgage over land at Barton to secure costs orders referred to above (at [30]).

35. The bank guarantee was provided and a copy annexed to Mr Moy's first affidavit. A copy of the unregistered mortgage over the Barton land and of the caveat lodged to protect the mortgage interest were also annexed to that affidavit.

36. The Statement of Assets and Liabilities of the appellant disclosed assets including equity in his business, interests in real property, a superannuation balance, a life insurance policy with a substantial redemption value and a motor vehicle and household effects. Liabilities included a loan secured by a mortgage, body corporate fees, credit card and personal loans, a debt to ACT Revenue and accounting fees. The statement notes that some balances are approximations. It adds, rather curiously, that it "does not include assets and liabilities for corporations and businesses that I am associated with". It is not clear whether he may have access to any such assets or be at risk of having to meet any such liabilities. The implication is that he may, otherwise it is not clear why the comment would have been made.

38. The statement disclosed a net asset value of approximately $600,000. Mr Moy expressed the opinion, and his right to do so was not challenged, that it showed "few realisable assets available to satisfy any further costs orders". I have not listed the assets and their values. In the circumstances, it is not necessary to do so; this would expose the financial affairs of the appellant widely and need not be done unless required in the interests of justice.

39. Although not challenged, however, I cannot merely accept Mr Moy's opinion without some analysis. In the first place, I am not satisfied that it is a principle that the assets must necessarily be readily realisable. In the first place, that depends on the circumstances. For example, real estate might be considered not readily realisable, yet provide security for which a loan may be obtained to pay costs. Again, in a buoyant property market, residential property might well be more easily realisable than in a flat market.

40. In the second place, the test seems to me to require that the moving party, in an appeal usually the appellant, must be reasonably able to pay any costs order in a reasonable time period. That requires an assessment not only of assets, but also of income, both as a resource in itself but also as a means whereby liabilities will be reduced over time thus increasing the beneficial interest in assets, especially those over which any liabilities are secured. In this case, the appellant has disclosed a weekly income of a reasonably substantial sum, about twice his weekly liabilities, which included the various loans, including those secured over real estate interests.

41. As to the assets, the appellant has an interest in his home and there did not seem to be any immediate reason why that could not be used to secure a further loan if necessary. There was a regrettable paucity of detail about the equity that the appellant had in the home, but even were the least favourable suggestion, of $80,000, to have been the case, it is not unrealistic to suppose, given the appellant's income, that this would secure a further loan of $26,538 to meet the upper end of the costs estimate made by the solicitor for the first and second respondents.

42. The appellant also disclosed a substantial interest in his business, but that is, perhaps, less relevant since the possibility of its sale and the amount such a sale would realise must be less certain and, therefore, not only is its availability as a source of funds directly, on sale, but also as security for a loan from a bank or other commercial lender, more problematic.

43. On the other hand, he has two insurance policies with a very significant aggregate surrender value which would be readily available to meet any costs order. These would well meet the estimated costs many times over.

44. What, however, has not been disclosed by the appellant as a liability either in the Statement of Assets and Liabilities (see [33] above) or the Statement of Enforcement Debtor's Financial Position (see [26](h) above), was the amount of the costs already ordered to be paid. Of these, $124,313.13 had been quantified. Mr Moy estimated the total costs on a solicitor-client basis as $225,000 to date. I note that a number of the costs orders were made on an indemnity costs basis. A history of the failure to satisfy such orders is relevant to the discretion as to ordering security for costs: Maher v Commonwealth Bank of Australia [2008] VSCA 122 at [109]. In this case, however, since hearing the application, I note that a stay of enforcement of the order for payment of the costs that have been assessed, sought because of the issuing of a bankruptcy notice, has been refused: Davey v Herbst and Ors [2011] ACTCA 27. I can, I consider, conclude from those proceedings that either those costs have now been paid or compromised, or that the appellant will shortly be declared bankrupt. I note, too, from that decision, that the judgment sum has also been paid. Those facts dilute substantially the effect of this factor, if not nullifying it.

45. Even taking these into account, however, it does seem to me that the appellant cannot be regarded as having no reasonable ability to pay the costs of the appeal.

46. The application for a stay of the costs order was made after the hearing of this application. I note that in that application the appellant did not say directly that he was unable to pay the amount claimed (see Davey v Herbst and Ors at [6]), though there must be an implication that this was so, at least prior to the commission of any act of bankruptcy that may follow from service of the bankruptcy notice (referred to at [5] in that decision) and failure to pay the debt. I note that the appellant also gave some evidence in the hearing of the application of his unsuccessful attempts to obtain finance (see [16] in that decision). His Honour considered, however, that the appellant had "on paper" assets sufficient to meet the debt in the bankruptcy notice (see [38] in that decision). That confirms the finding I have come to above (at [45]).

47. Accordingly, it does not seem to me that the appellant is impecunious such as to require me to make an order for payment of security for costs on this ground alone.

48. Whilst it would appear that impecuniosity is a very significant factor among those to be considered in determining an application for security for costs on appeal, it does not appear to me to be necessarily decisive one way or the other and so it is necessary for me to consider the other ground, namely the prospect of success on the appeal. I have already mentioned (at [17](e)) the circumspection with which this ground must be approached.

49. In Bresam Investments Pty Ltd v Shmee Pty Ltd [2008] VSCA 251 at [34] Dodds-Streeton JA, with whom Kellam JA agreed, said "[t]he prospects of success on appeal should not, on an application for a stay be considered extensively, although the applicant for a stay must establish an arguable ground of appeal." That, it seems to me, applies equally to an application for security for costs.

50. The appellant pleads the following six grounds of appeal. They are set out in an Amended Notice of Appeal as follows:

LATE AMENDMENT
1. His Honour erred in finding no application for the principles in Aon v the Australian National University [2009] HCA 27; (2009) 239 CLR 175.

(a) Whether the court rightly determined to exercise its discretion to allow the amendment, the Defendants had a right pursuant to regulation 512 Court Procedures Rules 2006 to re-plead to the amendment. That right was denied by the learned Magistrate who allowed the amendment and entered Judgment immediately following the exercise of her discretion. His Honour erred in not finding that the Appellants were entitled to re-plead following the amendment.

(b) The exercise of discretion was in error and inconsistent with the principles in Aon v the Australian National University.

His Honour erred in finding that the participation of solicitors in the negotiations and execution of the Deed precluded a claim for duress, coercion or some other vitiating circumstances impugning the enforceability of the Deed.

Particulars

(a) There is no rule that lawful threats cannot constitute improper pressure leading to duress. The matter was properly one for evidence at trial.

(b) The demand to pay monies on the evidence was made before any funds were due. It constituted an act of duress by a third party in the form of the Plaintiff.

(c) The assault by the 2nd Respondent against the Appellant in conjunction with the illegitimate claim for funds from the company Herm Fine Frames Pty Ltd constituted illegitimacy leading to the proper conclusion that the Deed was entered into under duress. The matter was properly one for the testing of all evidence at trial and unsuitable for summary judgment.

(d) The absence of consideration is a matter relevant to a determination concerning duress.

(e) The court erred in not properly considering the established tests for duress pursuant to Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40 and Barton v Armstrong [1973] 2 NSWLR 598.

CAPACITY OF THE PLAINTIFF TO SUE FOR THE DEBT & QUANTAUM OF THE DEBT

His Honour erred in finding that the concession that the Plaintiff was a beneficiary entitled her to sue on behalf of the estate in the late Peter Herbst.

Particulars

(a) A beneficiary cannot sue on behalf of the estate. In It was conceded in evidence that the personal legal representative of the deceased Peter Herbst (that being the public trustee) was invited to participate in the litigation and declined.

(b) The debt as a chose in action in the name of Valerie Herbst was properly characterised as a tenancy in common due to the operation of section 210 Civil Law (Property) Act 2006. Valerie Herbst was properly only entitled to 50% of the debt claimed as she lacked capacity to sue for a debt that remains not administered in the estate of the late Peter Herbst.

(c) By her Application in Proceedings ("the Amendment Application") dated 9 July 2009 the Plaintiff claimed:

Grounds:

Paragraph 3 - The Plaintiff amended her claim only to correct the names of plaintiffs to the proceedings but otherwise maintains her claim forr [sic] a debt owed to the Plaintiff by the defendants.

Paragraph 4 - The defendants are justly and truly indebted to the plaintiff in the sum claimed and were at the commencement of the plaintiff's action so indebted.

CONSTRUCTIONS OF THE DEED & JURISDICTION OF THIS COURT TO MAKE THE ORDERS MADE

His Honour erred in finding that the Deed was enforceable against the Appellant by way of contractual obligation.

Particulars

(a) Following admissions by the Plaintiffs that no funds were lent to the defendants, the proper constructions of the deed was whether it imported a third party obligation of the defendants to the plaintiffs. This was a proper matter for trial.

(b) Law and equity recognise three mechanisms to which 3rd parties (the defendants) may be obliged to pay for another (the company). Those mechanisms are novation, assignment or guarantees. The deed fails the test for all three legal and equitable requirements as a third party obligation. The matter was properly one for pleading and trial given the various tests for novation, assignment and guarantees. The Plaintiff's amendment pleaded an assignment.

(c) The Plaintiff sued on the basis that the obligations of the Defendants was by way of assignment. Equity does not recognise the assignment of a detriment.

APPLICATION OF THE RULES FOR SUMMARY JUDGMENT

His Honour erred in finding that the pre-requisites for entering summary judgment were met.

Particulars

(a) Pursuant to Regulation 1146(2)(b) the defendants were entitled to avoid summary judgment if sufficient facts were disclosed to entitle the defendants to defend the claim for relief. Those facts disclosed were:

Admission by the Plaintiff that no funds were lent to the defendants.

Admissions by the Plaintiff that no funds were repaid by the defendants.

Admission by the 2nd Respondent that an "incident" took place between he and the appellant.

Pursuant to the admissions of the Plaintiff, the Defendants were entitled to test at trial the evidence extraneous to the Deed at trial.

Unlawful detention of company property making the return of the property a condition of the execution of the Deed.

His Honour erred in finding that the order for indemnity costs was properly made by the Magistrate.

Particulars

(a) The Order for indemnity costs made by the learned Magistrate was not consistent with the principles articulated in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225.

(b) Pursuant to regulation 1726(2) Court Procedures Rules 2006, a party who amends a document must pay the costs of and caused by the amendment, unless the Court otherwise orders. No application pursuant to Pt 6.2 was made for an order of the Court "otherwise ordering". The exercise of the Court's discretion was not reasonable given the conduct of the Plaintiff in the litigation.

(c) The proper order of the Registrar in dismissing a Plaintiff without a cause of action (Adam Herbst) and Peter Herbst (deceased) was an order for indemnity costs against Adam Herbst who instructed his solicitors that he had a cause of action and that his father had capacity. It is not an answer that a "mistake" was made by solicitors acting. The conduct of the solicitors was properly a matter for trial. In dismissing the counterclaims the learned Magistrate deprived the defendants of the capacity to adduce evidence that could have impacted on a submission for costs and the exercise of the courts discretion.

(d) At the conclusion of the Supreme Court appeal, the Respondents made application for an order for indemnity costs. His Honour Justice Gray denied that application. No order for costs was made concerning that application. The Appellants are entitled to an order for costs in opposing the application for indemnity costs in the Supreme Court.

51. Burns J, in Davey v Herbst and Ors, has considered each of these grounds of appeal. I generally agree with his Honour's approach to each of them. I therefore need only make such comment as are necessary to show my own view of them.

52. As Burns J noted (at [19]), there are two complaints referred to here. The first was that the appellant (and, presumably, the third respondent) was not permitted to plead to the amended Statement of Claim when the amendment was allowed. This was said to be a "right" under Court Procedures Rules r 512 (not, as stated in the particulars, a "regulation"). The second was that the learned Magistrate failed to exercise her discretion in allowing the amendment in accordance with the principles in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 (the Aon Case).

53. In respect of the first complaint, the appellant fails to identify what defence would be pleaded that was not clear to her Honour when she was considering the application. It was, after all, an application for summary judgment. In such an application, the test for the exercise of such a power is clear, namely, that it should not be exercised unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 at 99.

54. While the plaintiff bears an onus of showing that there is no real question to be tried (Singh v Varinder Kaur (1985) 61 ALR 720 at 722), if that burden is discharged then the evidentiary onus shifts to the defendant to show that there is some ground of defence: ANZ Banking Group Ltd v Barry [1992] 2 Qd R 12 at 19.

55. Thus, if there were a matter of defence to the amended Statement of Claim, the defendants were bound to draw that to the Court's attention and, except where the need for delay before pleading such a matter could be explained (such as where subsequent events are likely to give a defence: Brisbane City Council v Southern Electric Authority of Queensland (1968) 42 ALJR 78, or where a material witness has not been able to be contacted: Bank Für Gemeinswirtschaft AG v City of London Garages Ltd [1971] 1 All ER 541), the defendants are required to show the defence at the hearing.

56. A defendant is required to use reasonable diligence to put before the Court, albeit in summary form, all the material on which he, she or it will rely to show that there is a defence: Hausman v Abigroup Contractors Pty Ltd [2009] VSCA 288 at [64]).

57. As to the amended Statement of Claim, Gray J, in rejecting the appeal in Davey and Anor v Herbst and Anor, found (at [39]) that the amendment did not amount to an abandonment of the originally pleaded claim or alter the existing cause of action. It was made, his Honour said "for the purpose of deciding the real issues in the proceedings". This was appropriate in the context of a summary judgment application: Hausman v Abigroup Contractors Pty Ltd at [62].

58. The complaint that, following amendment, the defendants have a right to plead fails to recognise the fact that what was being considered was an application for summary judgment which, if successful, would overtake the entitlement of a defendant to plead (r 102) or replead (r 512).

59. The characterisation of the amendment by Gray J referred to above (at [57]), also answers the second complaint. This was not a late amendment in the context of the principles enunciated in the Aon Case and there were no case management principles that have been identified by the appellant which would have denied the second respondent (the plaintiff in the Magistrates Court) an entitlement to amend.

60. There is little likely prospect of this ground of appeal succeeding.

61. The question of whether there has been duress rendering the Deed voidable is a question of fact to be determined by the trial judge having considered all the evidence. As McHugh JA, with whom Samuels and Mahoney JJA agreed, said in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 46, as to the approach to a challenge to a contract because of duress,

[t]he proper approach ... is to ask whether any applied pressure induced the victim to enter into the contact and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.

62. Both the learned Magistrate and Gray J had the opportunity to review the evidence and both concluded that there had been no form of duress. While a finding of fact may be able to be disturbed on appeal, there must be a relatively low prospect of that where two judicial officers have reviewed the facts and arrived at the same view.

63. In assessing this, the factual background found by the learned Magistrate, and which Gray J found (at [23]) was not challenged by the appellant or the third respondent (the appellants on the appeal before his Honour), showed:

Davey v Herbst, Herbst and Bray

At a glance

Court

Decision date

Source

Judgment (263 paragraphs)

Davey v Herbst, Herbst and Bray (No. 2) [2012] ACTCA 19 (26 April 2012)

Parties

Legislation Cited (8)

Cases Cited (32)