John Caines Management Pty Ltd v Adrenalin International Powersports Pty Ltd

REASONS FOR JUDGMENT 1 This is an application by notice of motion, filed on 29 March 2004, seeking that the appellants provide security for costs. The principal proceeding is an appeal from a judgment of a single judge of the Court, delivered on 10 March 2004 in Adrenaline International Powersports Pty Ltd v John Caines Management Pty Ltd [2004] FCA 206. The learned primary judge pronounced reasons for judgment on 10 March 2004. On that day, his Honour directed that the parties bring in minutes of orders to give effect to the reasons for judgment. In fact, prior to the date on which his Honour had ordered that the minutes of orders be filed, the parties approached his Honour and he made orders in relation to everything except the costs of the proceeding. Some time later, his Honour resolved a controversy between the parties, as to whether costs should be ordered on an indemnity basis, by ordering that the appellants pay them on a party-party basis. 2 The power of the Court to require security for costs is found expressly in s 56(1) of the Federal Court of Australia Act 1976 (Cth) under which the Court or a judge may order an applicant in a proceeding in the Court, or an appellant in an appeal to the Court, to give security for the payment of costs that may be awarded against him or her. The power is thus a discretionary one. Authorities have laid down over the years principles by which the exercise of the discretion may be guided when a Court is called upon to exercise it. 3 In the present case, it is common ground between the parties that the standard by which I am to judge the application for security is that referred to by Hill J in Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 at 50,636, where his Honour said that the test was whether: 'on the balance of probabilities…there is a substantial risk that the respondents may not, if judgment be given in their favour, be reimbursed in full for their costs as taxed.' 4 I therefore take the standard that the respondents to the appeal must satisfy as being whether, on the balance of probabilities, there is a substantial risk that they will not be able to recover their costs if they succeed in defeating the appeal. 5 The appellants have relied on very little material; their only affidavit material of any significance is to correct a couple of misapprehensions in the respondents' material, as to whether one of the appellants has ever been made bankrupt, and as to the date on which the principal behind another entered into a composition with his creditors. The case falls, therefore, to be determined by reference to the material filed on behalf of the respondents. 6 In the appeal, there are six appellants. The sixth appellant is a company, in effect controlled by the second, third and fourth respondents to the appeal. As part of the appeal, the individual appellants seek to exercise rights of that company that they contend have not been exercised by those who control it. The first appellant is a corporation and there is no material at all as to the nature of its assets. I have been asked to assume, and am prepared to assume that, being a private company, the first appellant does not have significant assets. That leaves the second, third, fourth and fifth appellants, who are all natural persons. The material before the Court discloses that each of them has an interest in real property. In some cases those interests are by way of joint tenancy or tenancy in common and in some cases there are encumbrances by way of mortgages registered in relation to the properties. The fact is, however, that those four appellants do have interests in real estate, which are likely to be significant. 7 The evidence discloses that, at least so far as is known to the respondents, the second appellant was employed full-time as a schoolteacher. The third and fourth appellants have been involved in business ventures, or in the performance of work, although the income declared by them in their tax returns for the years ended 30 June 2001 and 30 June 2002 has been in relatively low figures. The fifth appellant has also had involvement in business ventures, although the income from those ventures seems to have found its way into a unit trust, of which a corporation is a trustee, and from there to another corporation which is trustee of a superannuation fund, so it is difficult to see how the fifth appellant has greatly significant income. 8 When the application first came before me on 21 April 2004, there was no material from any individual respondent about their knowledge of the assets or financial resources of the appellants. Counsel for the respondents sought an adjournment of the application on that day. I granted it, in part to enable the appellants to amend their notice of appeal, so as perhaps better to address the orders that were made by the primary judge, but also for the purpose of giving the respondents an opportunity to say what they could. I did express surprise on that occasion that the respondents, who had been business associates of the appellants, had not committed themselves to any statement as to the financial resources of the appellants. The only material that was available was that of the respondents' solicitor, who had conducted searches relating to the ownership of real property and to the question of past bankruptcies. It now appears to be accepted that the fifth appellant has not previously been made bankrupt, and that none of the other individual appellants has been made bankrupt, but one natural person involved with the first appellant previously made an arrangement or composition with his creditors. 9 The significant factor in the present case is one which, to some extent, is common ground between the parties. One of the orders made by the primary judge on 18 March 2004 was a declaration to the effect that three of the individual appellants, between them, are entitled to a 2.95 per cent shareholding in the company which is the first respondent to the appeal. That company, it appears, has an asset consisting of cash to the value of approximately $16.4 million, being the net proceeds of sale of the asset, the land, which is at the very heart of the dispute between the parties. On any view, the shareholding, even to the extent of 2.95 per cent in that company, must be an asset of considerable value. Counsel for the appellant suggests that I should simply accept that, on a mathematical calculation, it is worth $483 800. I do not necessarily accept that, because the asset is not a share of the cash, it is a shareholding in the company that owns the cash. I do accept, however, that it must be of considerable value. 10 The net effect is that, so far as the evidence on this application goes, between them the second, third, fourth and fifth appellants have substantial assets and so far as the evidence goes, have the availability of income. In these circumstances, it seems to me strange that the respondents have sought to attempt to establish that there is sufficient impecuniosity to warrant an order for security for costs. 11 The respondents say that the appellants already owe them the costs of the proceeding at first instance. The trial was long. They have submitted a detailed bill of costs for taxing, which presently stands at $719 000. Again, as I do not accept the direct mathematical calculation of the value of the shareholding of the appellants, I do not accept that the bill of costs for the trial will be taxed at anything like $719 000. It will, however, amount to several hundred thousand dollars. 12 The estimate of the costs of the appeal for the respondents, which has been made by a costs consultant, is in the vicinity of $120 000 (down, I might say, from the staggeringly high $250 000 that the respondents' solicitor initially estimated). Against that, the appellants' costs expert has made an assessment in the region of $50 000. The truth probably lies somewhere in between. 13 In my view, even taking into account that the appellants currently have a significant liability for the costs of the trial, it is not established that they do not have sufficient assets between them against which the respondents, if they are successful in the appeal, could levy execution for their costs. In essence, the respondents have failed to show sufficient impecuniosity to justify the order. 14 I should make some comments about other points that were argued. One of the issues that counsel for the respondents has urged me to take into account was what he characterised as the extreme difficulty facing the appellants in the way in which they have framed their appeal. He drew attention to a number of paragraphs in the amended notice of appeal, filed on 7 May 2004, in order to suggest that the appeal was very largely one challenging the findings of fact made by the primary judge, including findings of fact based on findings of credit. There is no doubt that the notice of appeal does, in many respects, challenge findings of fact. That is not all it does.