Deputy Commissioner of Taxation v Vasiliades

REASONS FOR JUDGMENT 1 This is an "appeal" from orders made by a Deputy District Registrar. The Registrar ordered the second respondent to lodge security for costs in the proceeding. Specifically, he ordered that: 1. Celeste Vasiliades, the second respondent, provide security in a form acceptable to the Deputy Registrar for the costs of the Applicant, the Deputy Commissioner of Taxation, of the application filed by the second respondent on 20 August 2015 in the sum of $17,000 by 4:00pm on 6 November 2015. 2. The proceeding be stayed until the security referred to in paragraph 1 of this order is provided by the second respondent. 3. In the event that the second respondent fails to comply with paragraph 1 of this order, the second respondent's application filed 20 August 2015 be dismissed. 4. The costs of this application be costs in the cause. 5. Liberty to apply. 2 The application for review has been brought under s 35A(5) and (6) of the Federal Court of Australia Act 1976 (Cth) ("the Act"). Such a review is conducted as a hearing de novo: see Jageev Pty Ltd v Deane (1997) 72 FCR 398 at 399 and Druett v Segal [2011] FCA 1191 at [5]. 3 The Deputy Commissioner of Taxation ("the Deputy Commissioner") has, in the time that has intervened between the Registrar's order and the hearing of this application for review, sought a higher amount of security to take account of the additional costs incurred in responding to the review. The amount sought is $20,511.27. 4 The principal proceeding was commenced by the Deputy Commissioner on 17 October 2014. He sought judgment on a debt claim against the first respondent, Mr Socrates Vasiliades, the husband of the second respondent. He sought further orders against Mrs Vasiliades in respect of a share of the net proceeds of sale of a property at 3 Towers Road, Toorak, which the Deputy Commissioner claimed belonged to Mr Vasiliades. The property had been registered solely in his wife's name. 5 On 24 November 2014, freezing orders were made against both Mr and Mrs Vasiliades by Gordon J: see Deputy Commissioner of Taxation v Vasiliades [2014] FCA 1250. Mr and Mrs Vasiliades were represented at the hearing before Gordon J and opposed the making of the freezing orders. Mr and Mrs Vasiliades did not file a defence in the proceeding, and, on 31 March 2015, the Deputy Commissioner applied for default or, alternatively, summary judgment. On 5 May 2015, Pagone J delivered judgment in the proceeding which included declarations that Mr Vasiliades had an equitable interest in the net proceeds of the sale of the property to the extent of $2,710,196.68 plus interest, and that Mrs Vasiliades held that amount for or on account of Mr Vasiliades: see Deputy Commissioner of Taxation v Vasiliades [2015] FCA 412. 6 Pagone J found that the legal ownership by Mrs Vasiliades of the property was intended to be, and was, for the benefit of both herself and Mr Vasiliades jointly. There was no appearance by or on behalf of the respondents at the hearing before Pagone J. That hearing occurred on 30 April 2015. The respondents were ordered to pay the Deputy Commissioner's costs of the proceeding. On 10 July 2015, Pagone J further ordered that Mrs Vasiliades instruct Macquarie Bank Limited within seven days to pay the Deputy Commissioner, by way of enforcement of the judgment, the amount of $2,710,196.68 from its account held in her name. 7 Mrs Vasiliades did not comply with this order, and, on 7 August 2015, Pagone J made orders permitting the Registrar to give the direction to the Bank for the payment of the money to the Deputy Commissioner: see Deputy Commissioner of Taxation v Vasiliades [2015] FCA 854. On 20 August 2015, Mrs Vasiliades filed an interlocutory application to set aside the judgment given on 5 May 2015 and the orders made on 10 July 2015. The application was made pursuant to r 39.05 of the Federal Court Rules 2011 (Cth) ("the Rules"). The trial is listed for hearing on 1 December 2015. It is this application which is the subject of the Deputy Commissioner's application for security for costs. 8 Mrs Vasiliades also sought a stay in relation to the orders made on 7 August 2015. This application was refused by Pagone J on 28 August 2015: see Deputy Commissioner of Taxation v Vasiliades [2015] FCA 957. 9 Mrs Vasiliades opposed the Deputy Commissioner's application for security for costs. She submitted that the Court had no power to grant the Deputy Commissioner's application. She submitted that she was not an applicant in a proceeding within the meaning of s 56(1) of the Act. 10 She contended that this provision gave effect to the well-established principle that an order for security will only ordinarily be ordered against a party who is, in substance, a plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate: see Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103 at [20] per Murphy J. See also Visco v Minter [1969] 2 All ER 714 at 716, Re E.C. Miller's Patent (1894) 63 Ch D 324 at 325, Re B [1965] 2 All ER 651 at 652 and Taly NDC International NV v Terra Nova Insurance Co Limited [1986] 1 All ER 69 at 71. 11 Counsel were unable to identify any direct authority on the question of whether an applicant who is seeking an order that a regularly entered judgment be set aside was an applicant for the purposes of s 56(1) of the Act. My own research has failed to discover any such authority. 12 Counsel for Mrs Vasiliades placed particular reliance on a passage from the reasons of Parker LJ in Taly NDC at 71, in which his Lordship said that: "I will deal first with the suggestion that the application for specific discovery and leave to delivery interrogatories should be regarded as proceedings within the rule. I have no hesitation, myself, in coming to an opposite conclusion. In my judgment the proceedings referred to in the rule, if they are not an action, are at least proceedings of the nature of an action and refer to the whole matter and not to an interlocutory application in some other proceedings. Were it otherwise, it appears to me that chaos would reign, for every time an interlocutory application was taken out by a defendant the plaintiff would be able to say, 'The plaintiff is in the position of the defendant in this application and the defendant is in the position of the plaintiff. They are proceedings. Therefore I ought to have security for the costs of this application.' One has only to examine that to that it cannot have any foundation whatever." 13 The reluctance of courts to impose the additional burden of giving security for costs on respondents who are domiciled outside the jurisdiction has long been accepted. The novel question, however, falls to be answered by reference to s 56(1) of the Act and related statutory provisions. 14 Section 56 of the Act provides: "56 Security (1) The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given. (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security." 15 Rule 19.01 of the Rules provides: "19.01 Application for an order for security for costs (1) A respondent may apply to the Court for an order: (a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and (b) that the applicant's proceeding be stayed until security is given; and (c) that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed. (2) An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought. (3) The respondent's affidavit should state the following: (a) whether there is reason to believe that the applicant will be unable to pay the respondent's costs if so ordered; (b) whether the applicant is ordinarily resident outside Australia; (c) whether the applicant is suing for someone else's benefit; (d) whether the applicant is impecunious; (e) any other relevant matter. Note: Section 56 of the Act deals with security for costs. (4) In this rule: applicant includes a cross-claimant. respondent includes a cross-respondent." 16 It is first to be noted that the word "proceeding" has a defined meaning. Under s 4 of the Act, a proceeding is defined to mean: "a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal." 17 There is subjoined to this definition the notation: "Discovery is an example of an incidental proceeding." 18 The definition, therefore, clearly contemplates that interlocutory applications in the course of a proceeding may themselves constitute a proceeding within the meaning of s 56(1). It is next to be observed that nothing in s 56(1) affects the operation of provisions for or in relation to the furnishing of security contained in the Rules, see s 56(5). Rule 19.01 of the Rules provides that a respondent may apply to the Court for an order that an applicant give security for costs. The term "applicant" is defined in the Rules to comprehend a party claiming relief, and a "respondent" as a party against whom relief is claimed. 19 These definitions have no equivalent in the English Rules which were considered in Taly NDC and the other authorities relied on by Mrs Vasiliades. 20 The application which is pending before Pagone J has been made by Mrs Vasiliades under r 39.05 of the Rules. In it, she seeks an order setting aside the judgment of his Honour on 5 May 2015 in which he declared that Mr Vasiliades had an equitable interest in the net proceeds of the sale of the Towers Road property. As matters stand, the Deputy Commissioner has the benefit of his Honour's orders, notwithstanding Mrs Vasiliades' failure to comply with his Honour's orders to cause the relevant sum to be transferred to the Deputy Commissioner. The Deputy Commissioner now has control of the funds. 21 The practical effect of Mrs Vasiliades' application to Pagone J would be to reopen the principal proceeding and require the Deputy Commissioner to again make good the claim. In such circumstances, I cannot regard Mrs Vasiliades' application as being defensive in nature. On the contrary, she has become the moving party in an attempt to deprive the Deputy Commissioner of the fruits of victory at trial, and to be relieved of the burden of his Honour's orders. It is the Deputy Commissioner who is in the defensive position of trying to preserve the legal status quo. In substance and form, Mrs Vasiliades is the applicant and the Deputy Commissioner a respondent to her application. 22 In my view, Mrs Vasiliades is an applicant within the meaning of s 56(1) of the Act, or alternatively, r 19.01, against whom an order for security for costs may be made in relation to her application to set aside Pagone J's orders. It follows that the Court has power to make the orders sought by the Deputy Commissioner. On a rehearing such as the present, it falls to me to exercise the Court's discretion afresh. In doing so, I have regard to the same material which was before the Registrar and to the submissions made by the parties. 23 Mrs Vasiliades has advanced a number of considerations which she contends founds "a strong discretionary basis" for refusing the orders sought by the Deputy Commissioner. The first was that she had been "restricted" by the transfer of the funds from her bank account to the Deputy Commissioner. The second was that, prior to the making of final orders, during which time these funds were subject to a freezing order, she would, but for the order, have had access to some of them in order to fund her legal defence. Next, she argued, had the funds been transferred to a trust in her name rather than being transferred to the Deputy Commissioner, she would have had an asset within the jurisdiction which could have been used to satisfy any future costs judgment in the proceeding. Finally the State Revenue Office, she says, claims to be entitled to a land tax of $407,000 against the property and that she is entitled to be indemnified out of the proceeds of sale for this sum. 24 Mrs Vasiliades also claims to have a strong prospect of successfully defending the principal proceeding were Pagone J's orders to be set aside. 25 I am not persuaded that these considerations, either individually or collectively, warrant the refusal of the Deputy Commissioner's application for security for costs. It is not disputed that Mrs Vasiliades has no assets within the jurisdiction. It is not, as she suggests, the result of the orders made by Pagone J. Mrs Vasiliades held substantial sums in a Macquarie Bank account in addition to those which were the subject of the freezing order and the sum which Pagone J ordered to be transferred to the Deputy Commissioner. She caused these additional funds to be withdrawn and transferred overseas. There is no evidence before the Court that she is impecunious or is otherwise impeded from satisfying a modest order for security for costs. Any liability which Mrs Vasiliades may have to the State Revenue Office is a matter which stands separately and apart from the Deputy Commissioner's claim. It has little or no bearing on the security for costs application. 26 I have not heard any detailed argument relating to the strengths and weaknesses of Mrs Vasiliades' application to set aside Pagone J's orders. I am, as a result, not in a position to form a judgment one way or another as to the prospects of that application being successful. I am, however, aware that Mrs Vasiliades was aware of the proceeding pending before his Honour, was in receipt of legal advice, chose, on the eve of the trial, to terminate her solicitors' retainer and that she failed to attend or be represented at the trial. Such conduct is hardly supportive of her application. 27 In my view, the making of an order for security for costs is warranted in the circumstances. Neither party sought to suggest that the Registrar had been in error in fixing the requisite sum at $17,000. The Deputy Commissioner, however, sought to have that sum increased by $3,262 to take account of additional expenses incurred in resisting the present application. That application was supported by an affidavit affirmed by Ms Zoe Harwood on 30 October 2015. The additional costs related to correspondence, preparation and appearance at this hearing. 28 A further cost of $249.27 was claimed for the transcript of the hearing before the Registrar. I regard these claims as relatively modest, but having regard to the exigencies of taxation, I consider they should be rounded down to $3,000. 29 Subject to submissions which either party may wish to make, I consider the following orders should be made:

1. The second respondent provides security in a form acceptable to the Deputy District Registrar for the costs of the applicant of the application filed by the second respondent on 20 August 2015 in the sum of $20,000 by a date to be fixed.
2. The proceeding be stayed until the security referred to in paragraph 1 of this order be provided by the second respondent.
3. In the event that the second respondent fails to comply with paragraph 1 of this order, the second respondent's application filed on 20 August 2015 be dismissed.
4. The costs of the application be costs in the cause.
5. Liberty to apply. 30 Counsel for Mrs Vasiliades sought an extension of seven days to comply with the proposed orders. He relied upon an affidavit of his instructing solicitor which indicated that the second respondent did not make arrangements to pay the security that was ordered to be paid on the basis that she had received advice that there were reasonable prospects of success in this "appeal". The applicant opposed the extension of time on the basis that the second respondent has had four weeks' time to make the necessary arrangements. In addition, counsel for the respondent indicated that there was a risk that the hearing date could be adjourned because of a pending application by Mrs Vasiliades to give evidence by videolink. 31 The sum was increased at the applicant's request. Further time was necessary (at least to the extent of the additional $3,000) in order for Mrs Vasiliades to transfer funds to Australia to satisfy the order for the provision of security. Counsel for the applicant was not able to identify any substantial prejudice to the Deputy Commissioner if the extension of time was granted. Security would be provided a clear three weeks before the hearing if the orders sought were made and complied with. In these circumstances I have determined that the following orders should be made:
6. The orders made by the Deputy District Registrar on 9 October 2015 be set aside.
7. The second respondent provide security in a form acceptable to the Deputy District Registrar for the costs of the applicant of the application filed by the second respondent on 20 August 2015 in the sum of $20,000 by 4:00 pm AEDT on 13 November 2015.
8. The proceeding be stayed until the security referred to in paragraph 2 of this order is provided by the second respondent.
9. In the event that the second respondent fails to comply with paragraph 2 of this order, the second respondent's application filed on 20 August 2015 be dismissed.
10. The costs of the application be costs in the cause.
11. Liberty to apply. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.