Hunter Business Finance Pty Ltd v Australian Commercial and Equipment... [2010] NSWCA 133 | Case summary

MONDAY 31 MAY 2010 HUNTER BUSINESS FINANCE PTY LTD v AUSTRALIAN COMMERCIAL AND EQUIPMENT FINANCE PTY LTD Judgment 1 HIS HONOUR: The respondents have applied for security for the costs of the appeal. For the reasons which follow, security of $100,000 should be ordered. 2 The appellant conducted a finance broking business. The personal respondents or their companies performed broking services from the appellant's premises. There came a time when they established their own finance broking business and ceased to do so. When they ceased to operate from the appellant's premises, files and stored information were removed from those premises, and these materials were used in establishing and conducting the business of their new entity. 3 The appellant brought proceedings against the respondents in which the central issue was whether the clients which the new entity had or gained were clients of the appellant. It claimed for breach of contract, but also for breach of fiduciary duty and on various other causes of action. 4 After a hearing over eight days in early 2003, Gzell J declined to find a fiduciary duty or any basis for liability of the respondents other than breach of contract. His Honour found that the respondents were in breach of contract in their use of the materials, but also found on a cross-claim brought by the respondents that the appellant had been in breach of contract in failing to pay the commissions to which they were entitled. 5 His Honour ordered an inquiry into and assessment of damages against the respondents for their conduct in breach of contract, both before and after the separate entity was established, and also an inquiry into and assessment of damages against the appellant. 6 The inquiry was conducted over two days before Bryson AJ in October 2007. His Honour assessed damages against the respondents at some $16,000, with further damages of about $1,400 against one of them, and damages against the appellant at nearly $17,000. The result in money terms was in smallish sums and honours, if that is the right word, were about even. 7 However, as often occurs, costs then took over. 8 The respondents had made an offer of compromise. That led to Bryson AJ ordering, in a judgment in November 2008, that the appellant pay the costs of the hearing before him on the indemnity basis with an exception as to the costs referable to the cross-claim damages. It also led to Gzell J ordering, in a judgment in September 2009, that the respondents were entitled to costs on the indemnity basis from 21 December 2001. I will later refer to the figure for the respondent's costs. It was substantial. 9 The appeal challenged the decisions below at each of the steps in the proceedings. In substance, the appellant contends that the respondents should have been found liable on a basis entitling it to an account of profits whereby its recovery, it said, should be much greater. It said that even as damages for breach of contract, the damages assessed should have been much greater. It claims a new trial on all issues. 10 The respondents have filed a notice of contention, and they also cross-appeal. They submitted, and the appellant accepted, that the cross-appeal was largely defensive, broadly speaking in that the issues on which the cross-appeal was brought, if it were successful, undermined the appellant's endeavours in the appeal. The respondents said that if the appeal did not proceed, they would not proceed with the cross-appeal. 11 This application is brought under s 1335 of the Corporations Act 2001 (C'th). The first question is whether it appears by credible testimony that there is reason to believe that the appellant will be unable to pay the costs of the respondents if the appeal does not succeed. For the present I will assume the solicitor/client costs of the appeal estimated by Mr Michael Coffey, the solicitor for the appellant, at $80,000 although, as will appear, that is not a figure which I ultimately adopt. It was common ground that the estimates of solicitor/client costs should be discounted, and that the figure for assessed costs should be within the range of 67.5 to 85 per cent of the estimates. I will take 75 per cent. On that basis, the $80,000 becomes $60,000. 12 The appellant's balance sheet as at June 2009 recorded net assets of $187,816 and a loss for the year of $31,420. The latter item may have been affected by legal costs of $103,995, presumably something to do with the proceedings during the 2009 year, but without further explanation the accounts do not provide encouragement for profitable trading. 13 At least two of the asset items in the balance sheet were questionable. One was $122,729 for motor vehicles, office equipment and furniture and fittings, which were taken in at cost less a provision for depreciation. The other, although perhaps not so readily to be regarded as questionable, was $62,047 for unsecured directors' loans. No evidence showed the real worth of these assets. The appellant's failure to produce other or more recent financial information in response to a notice to produce does not assist in inferring in its favour either that the financial position in the June 2009 accounts was realistic or that it does not represent the appellant's correct position without any improvement. 14 The June 2009 accounts did not take account of at least some legal costs for the last hearing before Gzell J. If the appellant fails in the appeal it will also have to bear its own costs of the appeal, which if I follow the assumption above would be in the order of $60,000: they are likely to be more, as the appellant maybe thought to have a greater burden than the respondents. 15 The greater difficulty in the appellant's position, however, is that in the same event there will also have to be brought to account its liability for the trial costs under the indemnity costs order. The recoverable costs on that basis have been estimated by Mr Ross Mason, the solicitor for the respondents, at $636,229. These are recoverable costs, a discounted figure based on costs rendered. In my view, it can be reliably concluded that a sum of that order would have to be paid by the appellant. The appellant would be quite unable to pay that sum, let alone the assumed $60,000 for the costs of the appeal. 16 The appellant relied in response to this on some money paid into court by Mrs Karen See-Ball. In 2001 Mr Ian Ball, one of the directors of the appellant, and his wife Mrs See-Ball gave a guarantee operating as security for the costs of the appellant. They promised that if the appellant did not pay the "Secured Defendants" they would pay the amount of the costs ordered to be paid by the appellant to the extent that those costs related to the period after 23 November 2001. In the course of an application following judgment below in which the respondents claimed Mareva relief, there was paid into court by Mrs See-Ball the sum of $458,956, with the intent that it be available if necessary against the trial costs under the guarantee. 17 The appellant properly recognised that there was a caveat in relation to the availability of this money, but submitted that, having regard to the money, it should not be concluded that it would be unable to pay the costs of the appeal if it were unsuccessful. 18 In my view, even if the $458,956 were in some manner offset against the appellant's financial position in the event that it does not succeed in the appeal, there would probably still be a shortfall and reason to believe that the appellant would be unable to pay the respondent's costs. 19 But I do not think that there should be any offset. That is because, as the caveat I have mentioned recognised, in March this year solicitors for Mrs See-Ball wrote to the respondent's solicitors asserting that at the time she signed the guarantee she did not fully understand the effect and extent of the transaction; that she received no benefit from the obligation she was purporting to guarantee; and that in the circumstances, which included that the respondents knew she was married to Mr Ball and did not ensure that she received independent advice, enforcement of the guarantee would be unconscionable and it was liable to be set aside. The letter conveyed Mrs See-Ball's instructions that any further attempt by the respondents to enforce the guarantee against her would be vigorously defended. 20 It is true, as the appellant submitted, that nothing has been done by Mrs See-Ball to apply for an order setting aside the guarantee. In the circumstances it is perhaps understandable that she would not do anything, but would await events and action by the respondents. However, at the very least resort to the $458,956 is problematic. It is not the appellant's money. If the respondents can get access to it against the trial costs, it will not be without a fight. 21 Notwithstanding the existence of that sum in court, in my opinion it does appear by credible testimony that there is reason to believe that the appellant will be unable to pay the respondent's costs if the appeal is unsuccessful. 22 The next question is whether, in the exercise of the discretion under s 1335, I should make an order requiring that security be given. The respondents accepted that the application should be dealt with on the basis that there was a fairly arguable case on appeal. The appellant for its part did not submit that the appeal would be stultified if security had to be provided, or invite attention to the financial positions of those behind the appellant. Rather, the appellant relied on the $458,956 in court as the reason why the discretion should be exercised favourably to it. Without repeating what I have earlier said, because resort to it is at best problematic I do not think that the presence of that money in court weighs against ordering security in an appropriate sum. In my view, security should be ordered. 23 The remaining question, then, is the amount. There were two estimates. I have referred to the estimate of Mr Coffey. The estimate by Mr Mason was a solicitor/client amount of $147,412, which when reduced to 75 per cent of that figure, is approximately $110,000. That was the amount for which the respondents sought an order. 24 It was accepted that the experience of both solicitors enabled them to proffer their estimates. Neither was cross-examined. The difference between them lay largely in the times each took for the preparation for and the conduct of the hearing of the appeal. 25 Necessarily, I must take a fairly broad approach to resolving the difference. In doing so, I do not accept the appellant's submission that Mr Mason had been guilty of an about face and, as I understood it, that the estimate to which I have referred should be downgraded in its value for that reason. Mr Mason had made an earlier estimate of about $200,000. However, he explained in his affidavit that he had made a re-estimate, and that it was based on different input from counsel of the time they considered would be required. That seems to me to be an acceptable explanation. 26 Mr Mason's estimate was a little more detailed than that of Mr Coffey, and it seems to me to be closer to the likely figure for what will clearly enough be a quite complicated and time-consuming appeal. In line with the broadness to which I have referred, and making an even broader assessment of some little contribution to the preparation and hearing time for such part of the cross-appeal as might not be properly described as defensive, in my opinion a figure of $100,000 is the figure that should be taken. 27 I should refer to a dictum of Young JA in Nicholls v Michael Wilson and Partners Limited [2010] NSWCA 100 on which the appellant relied. His Honour said at [16] that - "Ordinarily, it would be very exceptional if even in a complicated appeal, orders for security for costs were made greater than $75,000 but, of course, this general comment will need to be considered along with the facts of any subsequent case." 28 Considerations of proportionality may well mean that the full amount of anticipated costs will not be ordered. There may be other considerations. However, as his Honour said, it must depend on the facts of the individual case. 29 Here, at least in the appellant's eyes, there was much at stake by way of increased damages. For both parties the costs have come to control the proceedings, and large costs sums are involved. It was of course accepted by both parties that Young JA was not specifying some kind of necessary cap. One would hope that an appeal, even a complicated appeal, could be presented in such a way that costs would not reasonably be incurred in large sums, and perhaps his Honour had that in mind. Nonetheless, on the evidence before me I have arrived at the figure of $100,000, and I do not think that there is reason then to order security in a lower figure, for considerations of proportionality or otherwise. 30 The orders that I make are -

Hunter Business Finance Pty Ltd v Australian Commercial and Equipment Finance Pty Ltd

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