Eco-Pact Pty Ltd v The Law Society of NSW

First instance judgment

1. The first instance proceedings were heard on 14-15 March 2023 and judgment was handed down on 29 March 2023.
2. Griffiths AJA noted (first instance judgment at [6]), that the bulk of the applicant's claim related to the sum of $80,000 which was paid to Ms Saldaneri in instalments in September 2015.
3. The primary issues before Griffiths AJA included whether the $80,000 paid by Mr Meknas to Ms Saldaneri between 11 and 18 September 2015 was "trust money", being money received in the course of or in connection with legal practice; and whether the applicant had established that it (i.e., the company, as opposed to Mr Meknas) had suffered a "pecuniary loss" as a result of a "default" by Ms Saldaneri in relation to the sums of $20,000 and $80,000 respectively (first instance judgment at [115]). His Honour noted that if there had been pecuniary loss suffered by the applicant as a result of a default in relation to the $80,000 then there was a question whether there should be a deduction under s 240(4)(d) of the LPUL on the basis that the conduct of the transaction in relation to which the claim was made was illegal and the applicant knew or ought reasonably to have known of that illegality; and his Honour noted the further issue as to whether the claim should be further reduced under s 244(1)(a) of the LPUL by reason of the value of the benefits of Ms Saldaneri's legal work, including disbursements, received by the applicant and, if so, the value thereof.
4. As to the sum of $20,000, Griffiths AJA found that this was trust money (first instance judgment at [124]), as was conceded by the respondent, his Honour having earlier noted that it had been paid on account of Ms Saldaneri's costs to 30 June 2014 and on account of the anticipated costs of drafting a statement of claim and instructing counsel (those anticipated costs having been estimated by Ms Saldaneri as between $10,000 and $20,000 excluding GST) (first instance judgment at [40]-[41]). His Honour accepted the respondent's contention that there had not been any "default" in relation to the $20,000 because in early July 2014 all of that money was applied by Ms Saldaneri, with Mr Meknas' consent, in payment of her fees for legal services. (The respondent points out that it follows from this that the applicant's actual pecuniary loss could not exceed $74,468.)
5. As to the sums totalling $80,000, the respondent contended that this was money that had been paid by Mr Meknas for the purpose of defrauding the applicant's creditors and that money paid for that purpose was not "trust money", as defined in s 129 of the LPUL, and could not be the subject of a "default".
6. Griffiths AJA found that the $80,000 had been paid to Ms Saldaneri as part of an arrangement or understanding between the applicant (via its sole director, Mr Meknas) and Ms Saldaneri in order to protect the money from falling into the hands of the applicant's creditors (i.e., the franchisor, Eagle Boys) (first instance judgment at [65], [145], [160]). His Honour said that the payments did not occur in the ordinary course of legal practice because the ordinary course of legal practice does not include a law practice receiving money from a client for the purposes of withholding the money from creditors and/or denying them knowledge of or access to that money ([145]). Hence the conclusion that the $80,000 was not "trust money" and could not be the subject of a default (first instance judgment at [143]-[148]). If that conclusion be wrong, his Honour said that it was clear that there was a default by Ms Saldaneri in relation to the $80,000 ([150]).
7. His Honour then turned to address the question whether (on the hypothesis, contrary to his finding, that the $80,000 was trust money), there should be a deduction under s 240(4)(d) of the LPUL to the extent that the conduct of the transaction was illegal and the applicant knew or ought reasonably to have known of that illegality. It was submitted by the respondent that the subsection was broad enough to capture any conduct "contrary to law" but also that the relevant payments involved potential criminal offences under the Corporations Act 2001 (Cth) (Corporations Act) or Bankruptcy Act 1966 (Cth) (Bankruptcy Act) (first instance judgment at [154]). His Honour considered that the conduct (payment with the purpose of concealing from the creditors the applicant's true assets) fell within s 590(1)(c)(i) of the Corporations Act and that there could be no doubt that the applicant (through Mr Meknas) knew or ought reasonably to have known of the relevant illegality (first instance judgment at [157]-[164]).
8. His Honour was not persuaded, on the balance of probabilities, that the payment of $80,000 was also for another purpose (namely, to secure funds to progress the applicant's claim against its insurer) (first instance judgment at [160]) but said that if there was that additional purpose it was secondary to the dominant purpose, which was to conceal $80,000 of the applicant's property (first instance judgment at [163]).
9. His Honour said that, for substantially similar reasons, he considered that Mr Meknas' conduct was also in breach of s 596(1)(b) of the Corporations Act ([165]) and that there could be no doubt that the applicant knew or ought reasonably to have known of the illegality ([166]).
10. His Honour considered that, assuming that in the applicant's favour there was a true discretion under s 240(4)(d) of the LPUL, there was no reason why the discretion would not be exercised to reduce the claim by an amount of $80,000 having regard to the findings made as to the true or dominant purpose for which that payment was made and received ([172]). Thus, there was a net value of nil to the claim ([173]).
11. Finally, in the event that the issue as to any reduction under s 244(1)(a) did arise, his Honour said that he would have made a further reduction to the claim under that section on account of the value of the benefits of Ms Saldaneri's legal work including disbursements received by the applicant ([173]).
12. At [174], his Honour noted a formal concession by the applicant that an amount of $10,000 could be attributed to the value of those services. Although the issue did not strictly arise, Griffiths AJA valued those services at $18,500 (cf the contention by the respondent that they be valued at $37,000) (first instance judgment at [173]-[177]).

Appeal

1. On 21 April 2023, the applicant filed a notice of intention to appeal from Griffiths AJA's decision and on 28 June 2023 the applicant filed its notice of appeal (see primary judgment at [9]).
2. By its amended notice of appeal filed on 4 September 2023, the applicant raised five grounds of appeal. By way of summary, by Grounds 1 to 2 of the amended notice of appeal, the applicant challenged the findings: that Ms Saldaneri legitimately withdrew the $20,000 payment from her trust account for her legal services to the applicant (Ground 1); that the subsequent $80,000 payment was not trust money within the meaning of s 129 of the LPUL (Ground 2). Ground 3 challenged the finding that, if the sum of $80,000 be trust money, then the whole of the claim should be disallowed under s 240(4)(d) of the LPUL. Ground 4 challenged the finding as to the value of the legal services provided by Ms Saldaneri (that being found to be $18,500). Ground 5 raised an issue that the respondent says was not put to Griffiths AJA, namely the contention that the primary judge erred in failing to find that, even accepting all other findings, the sum of $10,900 should have been paid to the applicant from either the $20,000 paid to Ms Saldaneri on 1 July 2014 or the $175,000 paid to her trust account on 25 August 2014 from moneys received from the applicant's insurer, QBE.
3. A notice of contention was filed in the appeal proceedings by the respondent on 23 August 2023, raising, inter alia, the contention that the first instance judgment should be affirmed on grounds including that Mr Meknas' conduct was also in breach of s 266(3) of the Bankruptcy Act.

Application for security for costs

1. By letter dated 31 July 2023, the respondent requested confirmation from the applicant's solicitor that security would be provided by the applicant (by way of payment into Court or the provision of an unconditional bank guarantee) in the sum of $35,000 or else that the applicant would provide the documents demonstrating that the applicant was able, and its assets amenable to execution, to meet an adverse costs order in the proceedings. The letter foreshadowed an application for security for costs if there was not a satisfactory response to that request.
2. By email dated 20 August 2023, the applicant's solicitor advised, among other things, that: Mr Meknas was the alter ego of the applicant; the applicant was unable to pay the sum requested as security for costs; and Mr Meknas did not personally have the resources to pay the requested funds.
3. On 21 August 2023, the appeal was listed for hearing on 22 November 2024. The respondent filed its notice of motion seeking security for costs the following day (22 August 2023).
4. The respondent's application for security for costs was heard by Registrar Jones on 18 September 2023 and determined in favour of the respondent on 4 October 2023. As noted earlier, the Registrar ordered that security in the amount of $35,000 be provided by 25 October 2023, failing which the Registrar ordered that the appeal be dismissed.
5. On 19 October 2023, the applicant filed a notice of motion seeking to set aside the order for security for costs and the dismissal of the respondent's 22 August 2023 motion for security for costs.

Primary judgment

1. The application for review of the Registrar's decision was heard by the primary judge on 23 October 2023. At the commencement of the hearing an application was made by the applicant for an adjournment on the basis that its solicitor needed more time to obtain evidence that, if the order for security for costs were not set aside, the proceedings were stultified. That application was rejected. The application for review was dismissed on 24 October 2023. Her Honour, with commendable promptness, published reasons for the refusal of the adjournment application and the dismissal of the review application on 26 October 2023. There is no complaint here as to the rejection of the adjournment application and it need not be considered further.
2. As to the review application, her Honour, having noted: the applicable principles ([36]); a submission made by the solicitor for the applicant that it was in the interests of justice that the Court conduct a review of the Registrar's decision and accordingly it was not necessary for him to demonstrate House v The King error ((1936) 55 CLR 499; [1936] HCA 40) (House v The King) (or in the alternative that it was significant that Mr Meknas had offered an undertaking to make himself personally liable for the costs of the applicant and that it was erroneous for the Registrar not to have referred to this offer in her reasons) ([37]); the additional material that was before her on the application ([39]); and the respective submissions of the parties ([40]-[42]), reached the following conclusions.
3. At [42], her Honour accepted the submission by the applicant's solicitor that the appeal was arguable (at 40, having noted his submission as being that the prospects of appeal were reasonably arguable). (As will be seen, the applicant complains that this erroneously recorded the submission made by it, albeit only to be found in the written submissions before the Registrar on which reliance was said to be placed when the matter was before her Honour.) Her Honour stated that it was not appropriate to assess the prospects in any more detail, particularly as it could be expected that detailed submissions would be made on the appeal itself. Her Honour noted that this was the approach taken by the Registrar and said that this approach was correct.
4. At [43], her Honour said: Nor do I discern any error in the approach taken by the Registrar to the other factors to which she referred in paragraph 14.3 of her reasons, including that the evidence was insufficient to establish stultification of the proceedings. The absence of evidence as to what happened with the $150,000 is telling. Although Mr Fraser sought to explain it away by submitting that it was dissipated when Mr Meknas went into a downward spiral of drug abuse, this does not sit well with his conviction on charges of drug supply, which is an occupation almost invariably conducted for remuneration.
5. Pausing here, there was a debate in the hearing before this Court as to whether the reference in [43] of her Honour's reasons to paragraph 14.3 of the Registrar's reasons was a typographical error (and had been intended to be a reference to paragraph 14.2) (see AT 17.46ff).
6. At [14] of her reasons, the Registrar addressed the discretionary factors to which the parties had referred pursuant to r 42.21(1A) of the UCPR: at [14.1], the prospects of success of the proceedings; at [14.2], whether an order for security for costs would stifle the proceedings; at [14.3] whether the proceedings involved a matter of public importance; at [14.4] whether the security sought was proportionate to the importance and complexity of the subject matter in dispute; and at [14.5], the timing of the application for security for costs.
7. The applicant submits that her Honour's reference to paragraph 14.3 is a mistake, on the basis that her Honour was dealing at [43] with the question of stultification; but that, if this was intended to be a reference to paragraph 14.3 of the Registrar's reasons, then her Honour had not dealt with the question of public importance (see AT 22.39). The respondent argues that it was not a mistaken reference; and that her Honour was clearly aware of the submissions made about the matter of public importance (having referred to those submissions at [40]-[41]) (see AT 49.4-24).
8. Returning to her Honour's reasons, at [44] her Honour accepted the submissions made for the respondent as to the undertaking said to have been proffered by Mr Meknas. Her Honour did not accept that in the present case such an undertaking was sufficient to avoid an order for security for costs to be made; and her Honour was unable to draw the inference that Mr Meknas' assets "whatever they may be" would be available for enforcement of a costs order unless they were provided as security for costs as ordered.
9. At [45], her Honour said: The history of Eco-Pact, including the changes in its director and shareholder do not warrant the conclusion that Mrs Meknas [Mr Meknas' mother] or Ms Darwich [Mr Meknas' sister] would not stand to benefit from any success by Eco-Pact. In these circumstances, their capacity to contribute to the security for costs is relevant, as the Registrar has found.
10. Pausing here, insofar as the applicant seems to read the above passage as amounting to a positive finding that Mr Meknas' mother and sister would stand to benefit from any success by the applicant in the appeal, I disagree. It is carefully framed in the negative, i.e., that the changes in officeholding/shareholding of the company did not warrant the conclusion that they "would not stand to benefit" from the litigation - a very different proposition.
11. At [46], her Honour made clear that she was persuaded that the order for security should stand for the reasons given by the Registrar as well as for the additional reasons given in her Honour's judgment.

Applicant's notice of motion

1. As noted above, the applicant's notice of motion was not stamped as filed until 17 May 2024. Initially, the applicant had filed a notice of intention to appeal (on 20 November 2023). The applicant here accepts that there was no avenue of appeal from the decision of Adamson JA and hence that the wrong procedure had been invoked, the applicant's legal representatives accepting that this was an error on their part (AT 9.1). The applicant (wrongly describing itself on that notice of motion as both an appellant and the plaintiff) then lodged (in the appeal proceedings that had been commenced by the filing of the notice of intention to appeal) its notice of motion invoking s 46(4) of the Supreme Court Act and seeking to have the orders of Adamson JA varied or discharged. The applicant says that the notice of motion seeking judicial review was promptly filed (after the error in procedure was pointed out by the respondent), it being lodged on 27 November 2023, but that there was then delay in the processing of the matter.
2. What appears to have happened was that at about the time of lodgment of the notice of motion there was an application for remitter of the fees that had been paid when the notice of intention to appeal was filed; and the application for judicial review then "did not proceed" until around May this year (AT 9.8). The notice of motion was first listed for directions on 27 May 2024.
3. An application for the variation or discharge of an order of a judge of appeal must be made on notice of motion filed within 14 days after the date on which the order was made or within such extended time as the Court may fix (see r 51.58(1) of the UCPR). In the present case, that time period had expired by 22 November 2023 (which the respondent notes was the date originally listed for the hearing of the appeal) and the notice of motion was not served on the respondent until 21 May 2024. The respondent complains that no explanation for the delay has been offered that would be sufficient to justify the extension sought. The applicant cavils with this and maintains that the explanation is to be found in the mistake of the legal representatives as to the process to be followed.
4. Perhaps more problematic (and which might explain the length of time taken to process the filing of the notice of motion) is the fact that the notice of motion was filed in proceedings which by then had already been dismissed (as an automatic consequence of the orders made by the Registrar) when the extended time for provision of security had expired. The applicant's counsel candidly accepted that he had not turned his mind to that difficulty (AT 9.50). As it is, this procedural imbroglio need not be further pursued given the conclusions I have reached as to the outcome of the grounds of review of Adamson JA's decision.
5. Turning then to the application itself, it is important at the outset to emphasise that the power under s 46(4) is recognised as imposing a heavy burden on an applicant (see Rinehart v Welker (2011) 93 NSWLR 311; [2011] NSWCA 403 at [48]; Collier v Lancer [2013] NSWCA 185 at [20]). What must be established is that there has been a material error of law or fact, misapprehension or disregard of relevant principle in the exercise of the power, or that the decision was plainly unreasonable (see Wentworth v Wentworth (1994) 35 NSWLR 726 at 731 per Mahoney JA).
6. The respondent submits that the scope of review under s 46(4), though expressed in terms reminiscent of the test for House v The King error, is more confined than review for House v The King error because the decisions of a single judge of appeal will almost invariably be discretionary matters of practice and procedure and, if that were the test, then one would be conducting an appeal from the single judge of appeal, whereas the authorities make clear that this is a review not an appeal (see for example Tomko v Palasky (No 2) (2007) 71 NSWLR 61 at 64; [2007] NSWCA 369 per Hodgson JA with whom Ipp JA agreed) (AT 48.15).
7. Of course, in the present case, what we are here dealing with is a review of a review (as was the case in Picos v The Council of the New South Wales Bar Association [2023] NSWCA 218 - see at [97]-[98] per Gleeson JA, with whom Leeming and Payne JJA agreed), which of itself warrants caution in the process of review having regard to the public importance of finality of litigation.
8. Here, the applicant identifies the following errors in the exercise of her Honour's discretion, which the applicant says are such as to warrant that her orders be varied or discharged pursuant to s 46(4).
9. First, failure to take into account a material consideration, being that the appeal from the decision of Griffiths AJA involves matters of significant public importance. Second, failure to take into account a material consideration, being that the appeal has strong, as opposed to merely reasonable, prospects of success. Third, on the issue of stultification, error: by making a wrong finding that it had not been shown that persons who were not shareholders or directors were persons standing to benefit from the appeal, and by failing to give reasons for her Honour's finding; and by taking into account an irrelevant matter, namely her Honour's personal view "about drug dealers having funds". Fourth, failure to take into account the applicant's submission that the application was being used to deny an impecunious party the right to litigate, that the respondent ought to conduct the proceedings as a model litigant would and that model litigants do not normally seek security for costs. I deal with each in turn.

Applicant's submissions

1. In oral submissions counsel for the applicant placed no little weight on the issue of public importance. The applicant argues that this was a material consideration that the primary judge (and also the Registrar) failed to take into account.
2. Relevantly, the applicant identifies the following issues in the appeal as raising matters of public importance. First, the proper construction of "trust money" in ss 129, 240(4)(d) and 244 of the LPUL, the applicant arguing that divergence in construction of s 129 of the LPUL (referring to Wang v Law Society NSW (2009) 73 NSWLR 226; [2009] NSWSC 67 per Schmidt AJ and Wang v Law Society NSW (No 2) [2022] NSWSC 1720 per Basten AJ (together, the Wang decisions)) warrants appellate consideration and noting that the relevant provisions form part of beneficial legislation. Second, the question whether the dominant purpose determines whether money is trust money in circumstances where money is entrusted to a solicitor for more than one purpose (and whose purpose is relevant). Third, whether s 240(4)(d) confers a discretion to disallow a claim on the Fidelity Fund in the circumstances there set out. Fourth, the scope of the term "illegality" in s 240(4)(d). Fifth, whether legal services, not paid for where no bill had issued, constituted a "benefit" under s 244 of the LPUL.
3. The nub of the applicant's submission as to public importance is that the statutory provisions referred to above affect the majority of legal practitioners in Australia and all persons who entrust money to them and (citing Bingham v Bevan [2023] NSWSC 998 per Weinstein J in respect of an application concerning the costs agreement provisions of the LPUL) the applicant argues that the appeal raises a question of general importance in Australia. Further, emphasis is placed by the applicant on what was said in Smail v Burton [1975] VR 776 by Gillard J, with whom Newton and Norris JJ agreed, as to the "fairly well established" practice in that State that, where the decision on the points of law raised in an appeal may affect matters of public importance, the court will generally not order that the appellant provide security for costs notwithstanding the impecuniosity of the appellant (see at 777). The applicant also refers in this regard to Fard v Secretary, Department of Immigration and Border Protection [2016] FCA 1224 per Collier J at [49] and Allison v Murphy [2021] FCA 1551 per Downes J.
4. The applicant argues that the statement by the Registrar (at [14.3] of her reasons) that she had not seen sufficient "evidence" to be satisfied a matter of public importance was involved makes it clear that the Registrar failed to take into account this material consideration; and that the statement by the primary judge that she could not discern any error in the Registrar's approach makes clear that her Honour also failed to take into account this material consideration.
5. In reply submissions, the applicant broadly reiterates its contention that in this case the question of statutory construction is a matter of public importance, having the capacity to affect a large number of people (by way of example, referring to Mastrangelo v Reynolds (2001) 25 WAR 133; [2001] WASCA 347); emphasising that the parts of the LPUL the subject of the application are intended to be beneficial legislation and that legislation affects any person who deposits money with a solicitor not just in New South Wales, but also in certain other States.
6. The applicant also maintains its contention that there is a difference in the two Wang decisions which warrants appellant consideration.
7. As to the multiplicity of purpose not arising, the applicant points to the appeal ground contending that the primary judge's conclusion about that was wrong; and says that it does arise on the appeal.
8. The applicant maintains that the Registrar erred on the question of public importance and that, in her review of the Registrar's decision, the primary judge (though adverting (at [43]) to paragraph 14.3 of the Registrar's judgment), did not actually consider the public importance issue in her judgment. The applicant submits that the Registrar had fallen into error by looking for "evidence" of public importance and that Adamson JA erred by endorsing that reasoning, which resulted in her Honour erring by making her decision without taking into account this material consideration.

Respondent's submissions

1. The respondent says that the mere fact that questions of statutory construction might be raised on the appeal did not satisfy the Registrar that the appeal involved a matter of public importance and that the fact that her Honour did not supplement the Registrar's reasons for disposing of that submission does not mean that it was not considered by her Honour. The respondent submits (and I agree) that her Honour was clearly aware of the applicant's submission about the public importance of the appeal (referring to the primary judgment at [40]-[41]).
2. Further, the respondent argues that the questions of construction identified in the applicant's submissions (at [4]-[12]) either do not arise or do not involve matters of public importance in any relevant sense. The respondent says that the proposition that money paid to a solicitor for the purpose of defrauding creditors was not paid in the course of, or in connection with, legal services of the kind provided in the ordinary course of legal practice is hardly a surprising conclusion. As to a submission by the applicant that the result in this case makes s 240(4)(d) otiose or almost entirely redundant, the respondent argues that the Wang decisions to which the applicant refers (of Schmidt AJ and Basten AJA) are of limited relevance and do not involve inconsistent constructions of "trust money", each being explained by their facts (referring to the first instance judgment at [138]).
3. The respondent says that no question about multiplicity of purpose could arise, because Griffiths AJA declined to find that the payment had multiple purposes (first instance judgment at [160]); and that the other questions identified in the applicant's submissions at [9]-[11] either do not arise (such as whether Ms Saldaneri's services conferred any "benefit", a matter the respondent says was conceded below) or arise only in the alternative.

Reply submissions

1. The applicant says that where there are clear errors asserted, as it contends that there are here, courts can and do consider those errors as a factor in determining whether or not to order security (citing by way of example Brown v King [2022] NSWCA 75 per Kirk JA at [36]ff and [49]ff). The applicant complains that, instead of addressing its submissions that it had good prospects arising out of those clear errors, Adamson JA seems to have misunderstood the submission (her Honour stating that it had been put by Mr Fraser that the appeal was merely "arguable" - see primary judgment at [42]), and treated the applicant's prospects as a neutral factor in making her decision and did not address the arguments being put.

Determination

1. The submission that her Honour failed to take into account the issue of public importance as a material consideration in reviewing the Registrar's decision is not sustained. Her Honour clearly made reference to the submissions made by both parties on the issue as to public importance.
2. In oral submissions in this Court, it seemed initially to be accepted by the applicant that there would have been no complaint had her Honour simply noted the competing submissions without needing to resolve that issue (see AT 19.45ff), but then it was argued that the primary judge should have resolved that issue, identifying it as a central tenet of the case.
3. However, it must be borne in mind that what her Honour was doing was reviewing the Registrar's decision. The Registrar was not satisfied that the issue sought to be raised on the appeal (statutory construction) was a matter of public importance, but went on to say that the extent to which that factor must be considered in the exercise of the Court's discretion was reduced, noting the findings on stultification. In other words, while the Registrar did not consider this factor to have been established, it had reduced weight in any event because of the findings on stultification. So the Registrar took this consideration into account but did not regard it as determinative and the primary judge discerned no error in that approach.
4. Whether there was an infelicitous reference to lack of sufficient "evidence" is beside the point (although I must say I do not accept that the question of public importance of an issue is necessarily something that could not be the subject of evidence). In any event, the material before this Court makes clear that the Registrar did take it into consideration and the complaint here is as to the weight put on that factor (which is not the proper basis of a challenge on review of her reasons). Insofar as complaint is made that the primary judge either erroneously referred to [14.3] of the Registrar's decision or, if not, failed to give reasons on this issue, the explanation for the reference to [14.3] at [43] of her Honour's decision was coupled with reference to the other reasons the Registrar there gave. It is tolerably clear that her Honour was referring to the reasons throughout [14] of the Registrar's decision. As to the adequacy of her Honour's reasons, it must be remembered that her Honour heard the applicant for review in the referrals list, made orders the following day extending the time for provision of security, and published reasons for that decision with expedition two days later - in circumstances where the appeal was listed for hearing the following month. The criticism of her Honour's reasons in those circumstances is misplaced. Her Honour sufficiently made clear at [40]-[41] that she understood the submissions that had been made and that she saw no error in the Registrar's consideration of that issue.

Applicant's submissions

1. As to the strength of the applicant's appeal, the applicant complains that it had submitted (in written submissions not orally) that it had not just reasonable prospects of success but a strong case; and that neither the Registrar nor the primary judge properly considered this factor.
2. The applicant submits that this was a case where the strength of the appeal could (and should) have been evaluated (referring to the observation of this Court in Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [98] (Live Board)).
3. In reply submissions the applicant says that it is not contended that Adamson JA was bound to embark upon a detailed consideration of the prospects of success. However, the applicant complains that the submission had been put by it not merely that the prospects were arguable but, rather, that they were good ([16]-[21]) and that her Honour was being asked by both parties to evaluate the prospects to some extent anyway because the respondent had asserted that they were poor, and went on to address at length on it (referring to T 45.26 ff).

Respondent's submissions

1. The respondent accepts that it would have been open to the Registrar to have conducted a more detailed analysis of the prospects of the appeal but says that the Registrar was not required to do so (r 42.21(1)(a) being permissive). The respondent says that the Registrar was not necessarily in a position to form any further view about the prospects of the appeal (other than that the appeal was reasonably arguable, not hopeless), given the nature of the issues in the proceedings and the relative brevity of the written and oral submissions before her.
2. Similarly, the respondent submits that her Honour was not bound to undertake a detailed consideration of the prospects of success of the appeal and that no error can have been involved in the course her Honour took, not least because of the broad scope of the power of review being exercised and the urgent circumstances in which the application for review arose, with the hearing of the appeal less than one month away. In any case, for the following reasons, the respondent submits that a more detailed analysis of prospects (which the respondent maintains were poor) would have told against granting the application for review.
3. Briefly, as to the appeal grounds themselves, the respondent says the following.
4. As to Ground 1 (the $20,000), the respondent says that the unchallenged finding by Griffiths AJA that the applicant intended the $20,000 to be applied by Ms Saldaneri in payment of her legal costs, and that there was no failure to pay or deliver that money, means that there was no default. The respondent argues that even if (as the applicant's contentions as to value assert) Ms Saldaneri overcharged the applicant and failed to comply with invoicing requirements, what the Fidelity Fund provides compensation for are "defaults" (relevantly, failures to pay or deliver trust money in accordance with instructions where the failure arises from a dishonest act or omission). The respondent points out that the Fidelity Fund does not afford compensation for breaches of invoicing requirements.
5. As to Grounds 2 and 3 (the $80,000), it is noted that Griffiths AJA found that the $80,000 was paid to Ms Saldaneri for the purpose of depriving Eagle Boys (a creditor of both the applicant and Mr Meknas) of that amount (first instance judgment at [65], [145], [160]); those findings being based in part on an oral concession and involving the rejection of other, inconsistent denials (first instance judgment at [63]-[65]). The respondent says that it was properly conceded before the Registrar that the findings attract appellate restraint. The respondent says that the applicant has not identified any basis for contending that Griffiths AJA's findings are glaringly improbable or contrary to compelling inferences; and that the fact that the money was lent to the applicant by Mr Meknas does not raise any doubt about the findings (since Mr Meknas and the applicant were joint debtors of Eagle Boys and had a mutual interest in concealing the funds).
6. The respondent says that, in light of Griffiths AJA's findings, the conclusion that the $80,000 was not "trust money" is the inevitable result of the application of the definition of that term. The respondent says that money paid to a solicitor to defeat or delay creditors is not entrusted "in the course of or in connection with the provision of legal services" (which is defined in s 6(1) of the LPUL to mean "work done, or business transacted, in the ordinary course of legal practice"). It is noted that Griffiths AJA not only found that concealment was the dominant purpose of the payment but also expressly declined to find that the payment had any other subsidiary purpose (first instance judgment at [160]).
7. The respondent contends that a payment made to a solicitor for the purpose of concealing funds is not made in connection with legal services (and hence it was not necessary to rely upon s 240(4)(d)). The respondent says that the fact that in some cases s 240(4)(d) would otherwise be engaged does not make the latter provision otiose, as Griffiths AJA concluded (first instance judgment at [133]-[135]).
8. The respondent emphasises that Griffiths AJA's decision to disallow the claim in an amount of $80,000 under s 240(4)(d) was made only in the alternative; and says that the correctness of that decision will not arise but that in any event the applicant's challenges to that decision are uncompelling.
9. In this regard, the respondent makes the following submissions. First, that it follows from the applicant's acceptance that the money was loaned to it by Mr Meknas (referring to the applicant's submissions at [15]) that the money was the property of the applicant before it was paid to Ms Saldaneri for the purpose of defrauding the applicant's and Mr Meknas' mutual creditor, Eagle Boys. The respondent says that the payments to Ms Saldaneri were therefore capable of contravening the relevant provisions of the Corporations Act. (The respondent does not press the argument based on the Bankruptcy Act raised by its notice of contention.) Second, the respondent says that the fact that Mr Meknas knew that the payments were dishonest and improper, and took steps to disguise their true purpose (first instance judgment at [65], [161]) provides an ample basis for a finding that the applicant knew or ought reasonably to have known of their illegality. Third, that, assuming that s 240(4)(d) permitted rather than required Griffiths AJA to disallow the claim in an amount of $80,000, the brief reasons given for that discretionary decision do not disclose error. The respondent argues that the finding that the applicant knew or ought to have known that the payments to Ms Saldaneri were illegal was, in itself, a powerful reason to disallow the claim in the full amount of $80,000. The respondent says that, in circumstances where the application of s 240(4)(d) arose only in the alternative, his Honour was not obliged to do more than note that he was unpersuaded any other result should follow (first instance judgment at [172]).
10. As to Ground 4 (the value of work done), the respondent says that this challenges a finding about valuation, which is quintessentially a discretionary decision. The respondent says that, although it arises only in the alternative, the finding is a further barrier to substantial success on the appeal.
11. As to Ground 5 (the $10,900), the respondent notes that this is the difference between the total amount of $55,000 withdrawn by Ms Saldaneri from her trust account (see first instance judgment at [50]) and the sum of two other amounts ($25,600, which Ms Saldaneri paid to the applicant from her office account on 27 October 2014 (first instance judgment at [53]) and $18,500, being the value attributed to her legal services by Griffiths AJA for the purposes of s 244(1)(a)). The respondent says that this claim involves a departure from the manner in which the applicant conducted its case before Griffiths AJA (see first instance judgment at [4]-[8]) and it cannot be advanced for the first time on appeal. The respondent says that, in any case, the claim is misconceived since claims on the Fidelity Fund may only be made for "pecuniary loss" and the movement of funds by a solicitor from a trust account into a personal account may, but need not, give rise to pecuniary loss. The respondent says that it will not give rise to pecuniary loss where the technical breach of trust accounting rules is subsequently made good by payment or delivery in accordance with the client's instructions. For that reason, the respondent says that the applicant cannot avoid bringing into account the amount of $15,000 paid by Ms Saldaneri at its direction on 30 June 2016 (first instance judgment at [79]), as it now seeks to do by its framing of this ground. It is noted that the value of that payment exceeds $10,900.
12. Finally, the respondent says that in the framing of this ground, Eco-Pact relies on the finding that the value of Ms Saldaneri's legal services was only $18,500. The respondent notes that that finding related to the application of s 244(1)(a). The respondent says that it had nothing to do with whether the application of the first $20,000 in payment of her fees involved a "default" within s 219 of the LPUL.

Reply submissions

1. In reply submissions, the applicant responds to the criticism made by the respondent as to the prospect of appeal as follows.
2. The applicant says that Griffiths AJA's finding (first instance judgment at [124]) that Ms Saldaneri had legitimately withdrawn $20,000 for her fees is inconsistent with his actual findings in relation to the $20,000 at [39]-[44]. It is noted that cl 88(3) of the Legal Profession Regulation 2005 (NSW) (Regulation) only applies to the withdrawal of trust money, not its receipt, and that the costs agreement only authorised Ms Saldaneri to pay her "outstanding costs, disbursements and expenses in accordance with [that clause]". The applicant says that as no tax invoice was ever issued (first instance judgment at [44]) there could not have been outstanding costs when Ms Saldaneri withdrew the $20,000; and no other authority was given to her to withdraw that amount.
3. Further, the applicant says that whether the pecuniary loss is $94,468 or $74,468, that is not to be confused with the amount in issue in the appeal. The applicant says that the costs of making the application to the Fidelity Fund are payable upon a claim being successful (LPUL s 242); and that, given that the applicant's current solicitors' costs in respect of that application (prior to commencement of proceedings) are of the order of $29,906.25 plus GST, plus interest, in either case that brings the amount in issue in the appeal to well over $100,000.
4. Contrary to the respondent's submissions at [8] and [9], the applicant says that Griffiths AJA's findings about purpose are challenged in the appeal grounds (referring to grounds 2(b)-(e)). Further, the applicant says that, while the purpose of the $80,000 may be relevant to determining whether the payment was connected with the provision of the legal services (as defined in LPUL s 6) by Ms Saldaneri at the time the $80,000 was paid, it is not relevant to determining whether the $80,000 was paid "in the course" of Ms Saldaneri providing those legal services.
5. The applicant says that, contrary to the respondent's submissions at [12], the finding that there was no failure to pay or deliver trust money is challenged (referring to grounds 1(a)-(d)).
6. As to the respondent's contention that an intention on the part of the appellant that trust money be applied to payment of costs means that there can be no failure to pay or deliver if the moneys are in fact applied to payment of those costs, the applicant says, first, that the applicant's and Ms Saldaneri's intention as to when Ms Saldaneri was entitled to apply the $20,000 to payment of her costs was set out in the costs agreement, and, second, that, even if the costs agreement, s 261 of the Legal Profession Act 2004 (NSW) and cl 88 of the Regulation are disregarded, then there was still a failure to pay or deliver in respect of the majority of the $20,000 in this case. It is noted that Griffiths AJA found (first instance judgment at [176]) that Ms Saldaneri would have been entitled to charge $18,500 for all of the work she did for the applicant. The applicant says that Ms Saldaneri could not lawfully apply the $20,000 to payment of her costs of doing work on other matters without the applicant's authority, which was never sought nor given. The applicant contends that the evidence will show that Ms Saldaneri's actual costs for her work on the QBE claim were much less than $10,000 (without any net benefit therefrom) and accordingly that there was a failure to pay or deliver all or most of the $20,000 payment.
7. The applicant submits that Ms Saldaneri's action in dishonestly paying herself the $20,000 in breach of s 261 of the Legal Profession Act 2004 (NSW) and cl 88 of the Regulation was a default as defined in s 219 of the LPUL which caused the applicant to suffer a pecuniary loss (not that she failed to comply with invoicing requirements or overcharged for her services). If it is the case that Ms Saldaneri is held not to be in default (as defined in LPUL s 219) to the extent that she was entitled to be paid costs in relation to the QBE claim, then the applicant submits that the amount to which she was so entitled was zero or a sum much less than $10,000.
8. As to Grounds 2 and 3 (the $80,000), the applicant says that, contrary to the respondent's submissions at [13] and [14], it was not the "inevitable result" of the application of the definition of "trust money" that the $80,000 paid by the applicant was not trust money. The applicant submits that the grafting of the dominant purpose test and imposed disqualifying factor of "improper" conduct by a solicitor by the primary judge (first instance judgment at [106]) onto the clear wording of the legislation was not warranted.
9. The applicant says that, at the time of its payment, Ms Saldaneri was providing legal services to the applicant, including the conduct of the QBE claim and advising in relation to the Eagle Boys claim. The applicant contends that the $80,000 was paid "in the course" of Ms Saldaneri providing those services and, on that basis alone, is "trust money". The applicant contends that the payment of the $80,000 was also "connected" to the provision of those services.
10. The applicant contends that a purpose, if not the dominant purpose, of the $80,000 payment was to provide funds to prosecute the QBE claim. It is said that Griffiths AJA accepted (first instance judgment at [58]) Mr Meknas' account of the discussion which he had with Ms Saldaneri and as a result of which the applicant made the $80,000 payment. That account (which his Honour referred to as an important conversation from Mr Meknas' affidavit) appears in the section of the first instance judgment headed "Findings of fact". The applicant notes that it included Ms Saldaneri saying to Mr Meknas: Just keep avoiding being served [by Eagle Boys]. We just need to keep the QBE case going … We need to make sure there are enough funds to fight the QBE claim and it would be best if that cash [the $80,000] was put into my trust account.
11. I note that the above conversation went on to include the following from Ms Saldaneri (not included in the applicant's submissions): No-one will be able to touch it there. It will be safe from any creditors who try to bankrupt you. The $80,000 will be safer in trust. You should transfer the money to my account and break it up. Call the payment 'legal fee payment' …
12. The applicant says that its intention in making the $80,000 payment was that it be used to keep the QBE case going and that this is also apparent from the first instance judgment (at [29]-[31], [38]-[39], [41], [43], [50], [59], [72], [74], [93] and [100]). It is noted that Mr Meknas' answer in cross-examination which is set out in the first instance judgment at [63] was to the effect that his intent in making the $80,000 payment was to delay paying Eagle Boys. The applicant says that Griffiths AJA appears to accept this was his intent (see first instance judgment at [65]) where his Honour said that "I accept Mr Meknas' earlier oral evidence and his explicit and candid acknowledgement that, when he arranged for the $80,000 to be transferred, he wanted to deprive Eagle Boys from getting access to that money, at least for the time being". The applicant contends that on the basis of those findings, Griffiths AJA's finding that the sole purpose of the $80,000 payment was to deprive Eagle Boys from ever getting paid is glaringly improbable and contrary to compelling inferences. The applicant rhetorically asks why, if its only intention was to "deprive" Eagle Boys, it would have paid the initial $20,000 to Ms Saldaneri or paid any of its other creditors.
13. Contrary to the respondent's submissions at [14] and [15], the applicant says that s 240(4)(d) of the LPUL clearly contemplates payment of a claim in relation to an illegal "transaction". The applicant says that there is no rationale for excluding from the operation of s 240(4)(d) illegal transactions that involve the payment of money into the trust account, particularly where the claimant has no knowledge of the illegality nor ought reasonably to have had such knowledge. The applicant submits that the proper construction of s 129 is fundamental to both the obligations of solicitors to record and account for the receipt and payment out of trust money and to the operation of the Fidelity Fund scheme (and that this is a ground upon which the appeal is brought). The applicant argues that if Griffiths AJA's construction is correct, then the application of s 240(4)(d) will not arise and s 240(4)(d) will be almost entirely redundant.
14. Contrary to the respondent's submissions at [16], the applicant says that it was its avowed intention to delay paying Eagle Boys to facilitate the continued prosecution of the QBE claim, so that, in the end, all creditors including Eagle Boys would get paid from the anticipated proceeds of the QBE claim. The applicant contends that that was not an intention to defraud creditors within the meaning of s 596 of the Corporations Act; nor was the payment of the $80,000 to the solicitor, in conformity with her advice to do so, a fraudulent concealment of it within the meaning of s 590 of the Corporations Act.
15. The applicant says that the primary judge accepted that the money was lent by Mr Meknas to the applicant; and the applicant emphasises that it was lent for a specific purpose (namely, for the purpose of it being paid into the solicitor's trust account to pay the costs of conducting the QBE claim). It is noted that the payments were designated as "legalfeepayment" [sic] as the solicitor requested (first instance judgment at [63]). The applicant says that, prior to being lent to it and paid to that trust account, the creditors of the applicant had $80,000 less than they had immediately upon it being lent. The applicant says that, once it was paid to the solicitor, it was still property of the company and that the whereabouts of the funds were obvious. The applicant says again that it was not a gift or transfer within s 596 of the Corporations Act nor a removal of property within s 590.
16. The applicant says that the only questions were whether it resulted in a concealment and one which was fraudulent, on the criminal standard (pursuant to s 590), and whether or not there was an intent to defraud within s 596, in circumstances where Mr Meknas was avowedly trying to delay payment, not to defraud them, but in order that all creditors got paid. It is submitted that the respondent attempted to graft state civil law in the form of s 37A of the Conveyancing Act 1919 (NSW) onto Commonwealth criminal law in order to get to proof of defrauding. The applicant says that it is unclear exactly how Mr Meknas was supposed to have known, when having been advised to do it by his solicitor, that that was an offence, merely because he was a director (first instance judgment at [164], 166).
17. As to the respondent's submissions at [18], the applicant says that if the $80,000 was trust money, then if ever there were a case where the discretion under s 240(4)(d) should be exercised in favour of a claimant, noting that Griffiths AJA found (first instance judgment at [72]) that if Ms Saldaneri had communicated an offer of settlement to Mr Meknas, then Mr Meknas would have accepted that offer. The applicant says that, if so, it would never have entered administration and Mr Meknas would never have been bankrupted and there could be no question of offences having been committed and s 240(4)(d) would not have been in play.
18. As to Ground 4 (the value of the work done), the applicant cavils with the respondent's submission (at [19]) that the value of the work done is a quintessentially discretionary decision. The applicant says that, even on a lump sum assessment, a court will not undertake the task unless there is sufficient material before it to enable it to do so (citing Colquhoun v District Court of New South Wales (No 2) [2015] NSWCA 54 at [6], [7]).
19. The applicant says that Griffiths AJA was determining, on a factual basis, on the basis of evidence before him, the value of the work done. The expert evidence relied upon by Griffiths AJA was a report from a cost consultant stating that Ms Saldaneri expended 88.2 hours of her time on at least nine different matters, with no breakdown of that 88.2 hours between the matters provided, nor any particulars of how the cost consultant assessed how those 88.2 hours of time had been expended. The applicant says that Griffiths AJA included time expended by Ms Saldaneri on those other unconnected matters in arriving at his valuation of the "benefit" of Ms Saldaneri's work, which the applicant contends he was not entitled to do. The applicant submits that the report was nothing more than an unsupported ipse dixit and should have been rejected.
20. As to Ground 5 (the $10,900), the applicant says that it set out in its written submissions to Griffiths AJA all of Ms Saldaneri's misappropriations; and that it did not seek to avoid bringing into account the $15,000 repaid by Ms Saldaneri on 30 June 2016. The applicant says that in the proceedings before Griffiths AJA, it submitted that the $15,000 repayment in June 2016 was to be applied against the whole of the net amount of its claim, and not against one or other of the claim components. The applicant says that this issue arises as a result of Griffiths AJA's finding in disallowing its claim in respect of the $80,000. The applicant says that, even if the respondent's submission at [20] is correct, the consideration of the issue on appeal requires no further evidence and no prejudice is pointed to by the respondent. The applicant says that the amount of the claim is not sought to be expanded on appeal.

Determination

1. The competing submissions in this Court as to the prospects of appeal highlight the appropriateness of the course adopted by both the Registrar and the primary judge in not embarking on a detailed consideration of the prospects of success.
2. In many or most cases it will not be possible to form a meaningful view as to the strength of an appeal beyond that it is reasonably arguable (Live Board at [98]). In an exceptional case where it is contended that the prospects are stronger, then it is incumbent upon the respondent to an application for security for costs to demonstrate why that is so. That will ordinarily be because there is conceded material error or else there is material error which can be demonstrably established and concisely within a short interlocutory application. It will be difficult to demonstrate material error in the absence of full submissions and those aspects of the record of the trial which are necessary to establish it. Because applications for security for costs should be made promptly, they will usually be heard and determined before the appeal books have been prepared.
3. Further it is to be borne steadily in mind that it cannot be the case that in order to determine an application for security for costs, there should be a full hearing of the merits of the appeal as if it were the appeal.
4. Precisely the same considerations apply in those exceptional cases where it is contended, in support of an application for security for costs, that the prospects are not even reasonable but weak.
5. Accordingly, in the ordinary course applications for security for costs are determined on the basis that it is sufficient to proceed if the prospects are reasonable. If an applicant for security wishes to contend that they are weak, it is incumbent upon the applicant to establish why that is so, which will be difficult to do without engaging with the submissions on appeal and the record of the trial. Conversely, if an appellant which opposes an application for security wishes to contend that its prospects are strong or very strong, it will be difficult to do so without developing the submissions it will make on appeal, by reference to the record of the trial.
6. This was not done in the present case, either before the Registrar or before the primary judge. The fact that the appellant (in written submissions to which the primary judge was not taken in any detail during the course of the hearing) considered the prospects to be "very strong" does not change that. I do not accept that, on a review of the Registrar's decision, her Honour should have embarked on the very exercise that an appellate bench would carry out on the hearing of the appeal.
7. The primary judge's reasons on this aspect of the application were, with respect, quite correct.

Applicant's submissions

1. The applicant submits that the primary judge wrongly found that (although expressing this in the negative) that Mr Meknas' mother and sister stood to benefit from the appeal proceedings; and complains that her Honour did so without reasons. The applicant says that there was no challenge to the evidence as to their absence of involvement in the affairs of the applicant up until the time that they ceased to be director/shareholder of the applicant, noting that it was accepted by the respondent and noted by the Registrar that the applicant was Mr Meknas' alter ego. The applicant says that Mr Fraser's affidavit of 12 September 2023 showed comprehensively that neither Mr Meknas' mother nor his sister was a person who stood to benefit; and that this left only Mr Meknas.
2. As to the observation by the primary judge that drug supply is an occupation almost invariably conducted for financial remuneration, in rejecting evidence that the applicant's funds had been dissipated as a result of Mr Meknas' downward spiral of drug abuse, the applicant says that the two propositions are "probably unrelated". Indeed, the applicant goes so far as to say that drug supply for financial remuneration is not a notorious fact of which judicial notice could be taken.
3. The applicant says that the evidence of the almost total dissipation of assets and of drug addiction was given on information and belief from Mr Meknas; and the applicant says that Griffiths AJA found Mr Meknas to be a truthful witness (referring to the first instance judgment at [25]).
4. I interpose here to note that Griffiths AJA did not make a positive finding as to Mr Meknas' truthfulness. Rather, his Honour said that he did not find that Mr Meknas was an untruthful witness; but his Honour then went on to make clear that this did not mean that he accepted unreservedly all Mr Meknas' written and oral evidence, noting that he had concerns about the reliability of some of Mr Meknas' evidence and referring to the need for the evidence to be corroborated by relevant documentary material. There is a well understood distinction between reliability of evidence and truthfulness. Not positively finding Mr Meknas to be untruthful or dishonest (or the opposite) does not equate to a finding of reliability or credibility.
5. The applicant submits that the proper finding, on the balance of probabilities and on the basis of the unchallenged evidence of Mr Fraser, was that Mr Meknas was in prison, was receiving legal aid, that he had about $396 to his name as per his September 2023 bank statement and could not fund the appeal.

Respondent's submissions

1. As to stultification, the respondent emphasises that the onus lay on the applicant to show that the persons standing behind the appeal, and who would benefit from its success, were without means. As to the complaints made by the applicant in relation to the reasoning on this issue, the respondent makes the following submissions.
2. First, as to the evidence given as to the use of the sum of $150,000 paid to the applicant in September 2021 out of a settlement with LawCover, the respondent says that the critical point was the "absence of evidence as to what happened with the $150,000" (see primary judgment at [43]), save for the generalised hearsay given by Mr Fraser. The applicant says that her Honour's comments about drug supply "almost invariably [being] conducted for remuneration" were an illustration of forensic difficulties raised by the absence of satisfactory evidence of Mr Meknas' financial circumstances in circumstances where the onus of proof was on the applicant and that this was not a finding that Mr Meknas was likely to have profited from the supply of illicit drugs. The applicant says that, in any event, these observations were "additional" to the Registrar's reasons.
3. Second, as to the evidence of who stood to benefit from the appeal, the respondent points to the fact that both Mr Meknas' mother and his sister had previously made loans to Mr Meknas or the applicant (although each was said to have been repaid); that the applicant had adduced evidence by its solicitor (largely unsupported by documentary evidence) that they were unwilling (and in Mrs Meknas' case, partly unable) to provide financial assistance; and that each had previously been involved with the applicant (as sole director and secretary; and as shareholder, respectively). The respondent submits that the Registrar was right not to be satisfied that Mrs Meknas and Ms Darwich were unwilling or unable to assist with the provision of security; and points to the finding by Adamson JA that the very recent change in the applicant's officers and shareholdings did not itself "warrant the conclusion that Mrs Meknas or Ms Darwich would not stand to benefit from any success by Eco-Pact" (see at [45]).
4. Further, the respondent submits that even if Adamson JA's treatment of either of those issues involved error, the applicant's solicitors themselves are persons who stand to benefit from the disposition of the appeal, pointing to the evidence filed by the applicant in support of the present notice of motion stating that the applicant is indebted to them for approximately $120,000 ("in part" dependent on the outcome of this appeal). The respondent notes that the solicitors paid the $7,341 filing fee for the appeal. The respondent submits that in circumstances where a very substantial fraction of any recovery would be payable by the applicant to its solicitors, the respondent is entitled to look to them for security.

Reply submissions

1. The applicant accepts that it had the onus of proof on this issue. However, insofar as the respondent makes complaint at [33] concerning hearsay evidence, the applicant says that the bank statement was not hearsay. Further, the applicant notes that the application was an interlocutory application and that evidence on interlocutory applications is normally given by way of hearsay evidence, which is permitted by s 75 of the Evidence Act 1995 (NSW) provided the source is disclosed. The applicant says that the sources of the information were disclosed and that the fact that it was hearsay was therefore largely irrelevant. The applicant further notes that no one was requested for cross-examination about the evidence of dissipation of funds which were received in 2021.
2. It is noted that the application before the Registrar was being heard some two years later, in circumstances where Mr Meknas was in prison (Mr Fraser's affidavit sworn 12 September 2023 at [49(c)]); and where Mr Meknas was on Legal Aid and there was evidence of unpaid legal costs owing to his solicitor (which costs themselves formed part of the respondent's argument that the solicitors should themselves provide security for costs). The applicant says that if that evidence was to be challenged, Mr Meknas and/or his mother and sister should have been requested for cross examination (and no one was).
3. The applicant accepts that the Court was not bound to accept evidence, even unchallenged evidence, but says that there was no reason why the evidence should not have been accepted either by the Registrar or by Adamson JA. It is submitted that, instead, the Registrar found at [14.2] (inferentially) that "chain of custody" evidence to verify the exhaustion of the $150,000 was required.
4. As to Adamson JA's reference to "the absence of evidence as to what happened with the $150,000" as "telling" (primary judgment at [43]), the applicant says the following. First, that the security hearing before the Registrar came on very quickly and that instructions for the issue of subpoenas could not be obtained at short notice with a client in prison, for the reasons set out in Mr Fraser's 19 October 2023 affidavit. Second, the applicant says that it raises the question of how to prove a negative. It is noted that Mr Fraser deposed on information and belief that there were no other bank accounts in the name of Mr Meknas. The bank statement from 15 May 2023 was exhibited. The applicant says that even if a range of earlier bank statements from that sole bank account were produced, all that would most likely show, given that the last bank statement had a negligible balance, is that withdrawals had been made from the account whether by way of cash withdrawals or transfers. The applicant says that those withdrawals or transfers would then need to be followed up, and if paid to other accounts, those accounts would need to be followed up; and that the evidence produced by that process may still not be sufficient to demonstrate what happened with the $150,000. The applicant argues that the exercise would be entirely disproportionate with s 60 of the Civil Procedure Act 2005 (NSW).
5. Third, the applicant points out that the evidence of the dissipation of the money, Mr Meknas' imprisonment, the applicant's and his impecuniosity, Mr Meknas' poor physical and mental health and drug use, and the legal costs was admitted and not objected to. The applicant says that therefore there was not an absence of evidence of impecuniosity of Mr Meknas, and the finding by Adamson JA to the contrary was wrong. Fourth, the applicant says that by reason of that evidence, at that point (although it accepts it bore the overall onus on the point), the evidential onus (the burden of adducing evidence) shifted to the respondent to challenge it and/or adduce contrary evidence. The applicant points out that the respondent did neither (either before the Registrar or before Adamson JA). Thus it is submitted that the evidence should have been accepted by both the Registrar and Adamson JA.
6. The applicant says that, to the extent that Adamson JA rejected its force on the basis that it was "no evidence" that finding was wrong. To the extent that her Honour did not accept that evidence based upon of her view of drug suppliers, the applicant says that that was both an irrelevant consideration and not a sufficient basis for rejecting expenditure of money from the account. It is submitted that if that reasoning supposedly went to the issue of there being a possibility of some sort of other money from drug dealing "lying around and somehow available", the finding about drug dealers and especially one in prison, was a non sequitur, did not bear on the question and was thus still an irrelevant consideration.
7. The applicant says that there is also an inherent contradiction in the respondent's position concerning the impecuniosity of Mr Meknas. The applicant says that, on the one hand, the respondent alleges that he has not proved impecuniosity and, on the other hand, it says that in circumstances where Mr Meknas says he has no assets, the undertaking he offered is valueless (reference here being made to the transcript at T 49.44, T 50.23-34).
8. As to the respondent's submission at [35], the applicant argues that there is no basis for the proposition that because a person has previously lent money either to a company, or to a director of a company, that person becomes a person either standing behind that company or who stands to benefit from its success in litigation. The applicant says that it was never established that the mother and sister stood to benefit from the litigation in the sense accepted by the Full Court of the Federal Court (Sheppard, Morling and Neaves JJ) in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4. The applicant says that the unchallenged evidence from Mr Meknas' mother and sister (conveyed I note on information and belief by Mr Fraser) was that they were not prepared to lend money to the applicant. The applicant notes that the evidence as to their financial means showed that they were both of advancing years and limited means. Insofar as the respondent's submissions at [35] refer to their refusals being "largely unsupported by documentary evidence", the applicant says that they were not lending institutions to whom loan applications had been made and refused; rather, they are human beings who were in another country at the time Mr Fraser's affidavit was sworn. It is noted that Mr Fraser, an officer of the court, deposed to what he was told; and there was no challenge to this evidence.
9. As to the position of the solicitors, the applicant says that the respondent's submissions at [36] overstate this. It is noted that Mr Fraser deposed (and he was not cross-examined about it) that if the appeal succeeds, there is a real possibility that his personal share of the proceeds would be $14,953.12 and that he is not prepared to provide security ([60]-[61]). The applicant says that it is unlikely that any "substantial fraction" of any moneys recovered are likely to be paid to the solicitors. The applicant points out that the authorities cited by the respondent about solicitors providing security all predate the costs decision in the Ben Roberts-Smith litigation.
10. The applicant says that solicitors do not have to become entrepreneurs and subject themselves to the potentiality of adverse costs orders for the fact of being owed money by a client by offering security for a client's costs. The applicant says that the suggestion that they should do so has been rejected in Zakka v George Elias t/a Cadmus Lawyers [2012] NSWCA 277 by Macfarlan JA (Zakka), and Flip Out Thornton Pty Ltd v Flip Out-Trampoline Arena Franchises Pty Ltd [2023] NSWSC 1094 by Stevenson J.
11. Reference is made to Madgwick v Kelly (2013) 212 FCR 1; [2013] FCAFC 61 where the Full Court at [44] agreed with the primary judge who regarded it as a remarkable proposition that a lawyer acting under a conditional costs agreement is relevantly standing behind the litigation or is standing to benefit. Reference is also made to Zakka, where Macfarlan JA considered that the potential benefit to the major creditor was not of such magnitude as it could be expected to expose itself to adverse costs orders to fund the litigation and it could not realistically be expected to fund it.

Determination

1. Both the Registrar and the primary judge appropriately considered the issue of stultification. The criticisms made by the applicant as to aspects of her Honour's reasons on this issue do not grapple with the fact that this was a factor to be weighed in the overall assessment of whether security should be ordered. In that regard, her Honour's observation as to drug dealers engaging in that course of conduct for financial renumeration is not only not unreasonable but it was also clearly not determinative in her Honour's reasons.
2. I say that the observation was not "unreasonable" because, at least sitting in the Court of Criminal Appeal, one does not often see cases of altruistic drug-dealing (if at all); but, in any event, the more relevant issue is that here was an impecunious director who, on his own account, had expended his (or the company's) funds on illicit drug taking and gambling (albeit also on some personal expenses) and had in effect chosen to put it out of his capacity to meet the costs of litigation that was on foot; and who was not able to explain in any detail where that money had gone. A "chain of custody" statement was not what was being required. Rather, the "telling" aspect of Mr Meknas' account (given through Mr Fraser on information and belief) was in my opinion that Mr Meknas had chosen to dissipate funds and has thus put himself in the position where he was impecunious and where the full financial picture was not clear on the material before the Court.
3. As to the complaint made in respect of Mr Meknas' mother and sister not being shown not to be standing to benefit from the litigation, as noted above, there was not a positive finding that they did stand to benefit from the litigation. Moreover, the coincidence in timing as to the removal of Mr Meknas as a director is something that gives rise to at least the inference that the change in the company's control was effected so as to put the litigation out of control of anyone who might be in a position to provide funds. I accept the fact that Mr Meknas' relatives had apparently lent money to him or the company in the past says nothing about their ability or willingness to do so in the future but that was not the basis for the observation that it had not been shown that they did not stand to benefit from the litigation.
4. As to the position of the solicitors, I accept that it cannot be assumed that they should proffer themselves as the source of funding for the litigation. Nevertheless, to the extent that they seem likely to benefit from the litigant, this is not an irrelevant consideration.
5. There was no error established as contended for in the ground of review in my opinion.

Applicant's submissions

1. Finally, the applicant complains that the primary judge failed to take into account its submission that the respondent, as a well-funded litigant, representing thousands of solicitors in NSW and being fully aware of the incarceration of Mr Meknas, should not have sought security in this matter (one involving important issues of construction) and that it had done so in order to stultify the appeal. The applicant accepts that this argument was not pursued directly in oral submissions. However, the applicant says that it expressly relied upon its written submissions on the review application and that those submissions were not abandoned. Complaint is made that this issue was not dealt with by Adamson JA.
2. The applicant says that the amount of security sought was modest; that the Fidelity Fund has "deep pockets" (disclosed in its published accounts); and that a determination by this Court of the proper construction of the relevant provisions of the LPUL is likely to save thousands of dollars more in costs relating to determinations by the Council itself and appeals therefrom to single judges.
3. The applicant says that, if allowed to proceed, the appeal has good prospects of success raising significant matters of public importance, not just in NSW but also in other states of the Commonwealth. The applicant contends that the respondent should be concerned to ensure that the Fidelity Fund is being properly administered according to law, especially given that in many cases the claim amount will not be sufficient to justify the costs of appealing a refusal of the claim to the Supreme Court. Hence it is argued that the proper exercise of discretion was that the application for security for costs be dismissed and that the above issues be determined at appellate level.
4. The applicant (contrary to the respondent's submissions at [30]) does not accept that its submissions about the respondent's application being used to deny an impecunious party the right to litigate were not pressed before Adamson JA, nor does it accept that this was oblique. The applicant reiterates that reliance was placed on the written submissions. The applicant says that "seemingly" time ran out because of the applicant's emphasis before Adamson JA on the prospects of success. The applicant says that this does not mean that the denial of an impecunious party argument was abandoned and reiterates that it was not abandoned. The applicant complains that this was not addressed by Adamson JA and the applicant presses this argument on review on the basis that it was not considered by her Honour.
5. The applicant repeats its submission in reply that the accounts of the Fidelity Fund are published online; that the amount of security sought and ordered was modest. The applicant says that it is likely that more time has been spent on arguments over security than the amount of security itself; and the applicant says that it is difficult to resist the inference that the respondent, knowing of the prospects of the appeal succeeding should it be able to proceed, and knowing, or having a very good idea of the financial circumstances of the appellant and its alter ego, he having given evidence from prison, instituted the application for security in a thus far successful attempt to prevent them going ahead. Contrary to the respondent's written submissions at [31] the applicant says that the costs order made by the primary judge shows that legal expenses of defending claims do not always come out of the fund itself.

Respondent's submissions

1. The respondent maintains that the primary judge was not required to address every submission made to the Registrar (however obliquely); and that there was no error on the part of the primary judge not expressly adverting to the model litigant submissions (which were not orally made to her Honour).
2. The respondent submits that, in any case, the submissions are without merit. The respondent says that model litigant obligations are no bar to seeking security for costs on proper grounds, including from impecunious parties, because well-resourced model litigants have a legitimate interest in preserving the funds they are charged with administering. The respondent says that having "deep pockets" would not, even if established by evidence adduced before Adamson JA, support the serious allegation that its application for security was made for the purpose of denying the applicant its right of appeal. The respondent says that, given that its legal expenses of defending claims come out of the Fidelity Fund, it has a strong interest in preserving the value of the Fidelity Fund against unmeritorious claims by impecunious claimants.

Determination

1. I do not accept that the respondent's obligations as a model litigant in some way precluded it from seeking security for costs. The respondent quite properly has an interest in preserving funds in the management of the Fidelity Fund. Nor do I consider there is a basis on which to infer that the application for security for costs was motivated by some improper purpose of precluding an impecunious party of exercising its appeal rights. The very modest amount that was ordered by way of security (that the applicant emphasises in suggesting that there was an improper purpose in the application) bespeaks a proper appreciation of the respondent's responsibilities. It is evident that the respondent will have been put to the expense of costs already. In those circumstances the not disproportionate claim for security for costs is understandable.

Conclusion

1. While I consider that the delay in the filing and service of the notice of motion is unsatisfactory, I accept that it was in large part due to error on the part of the applicant's legal representatives as to the process to be followed. In those circumstances, notwithstanding the force of the respondent's argument as to the merits of the application, I would extend the time for the filing of the notice of motion but, for the reasons above, would dismiss the notice of motion. Accordingly, I propose the following orders: 1. Extend the time for the filing of the applicant's notice of motion to 17 May 2024. 2. Dismiss the applicant's notice of motion with costs.
2. LEEMING JA: I agree with Ward P.
3. PRICE AJA: I agree with Ward P.

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