Khaled El Sayed v Sayed El Hawach

Judgment 1TOBIAS AJA: I have before me a notice of motion seeking security for costs of an appeal from the decision of Pembroke J of 20 December 2013. The notice of appeal was lodged on 21 March 2013 and in an earlier judgment I granted an extension of time for the filing of that notice of appeal on that date, which was one day after it ought to have been filed in accordance with the rules. The present application is made pursuant to Pt 51 r 50 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and it is common ground that in order for the respondents, who are the applicants for security, to succeed they must initially persuade the Court that there are special circumstances. 2If the Court is so persuaded then it still has a discretion as to whether or not an order should be made for security. The relevant principles do not appear to be in dispute and they are conveniently set out in the written submissions of Mr Chan, for which I am most grateful. Relevantly, those principles were identified in the decision of this Court in Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [18] where their Honours identified the following principles: "(1) no order for security should be made in the absence of 'special circumstances'; (2) consideration of what may constitute special circumstances should not be fettered by some general rule of practice; (3) impecuniosity, without more, will usually be insufficient; (4) an order may be appropriate if the appeal is shown to be hopeless, unreasonable or of an harassing nature; (5) where a bona fide and reasonably arguable appeal would be stifled by an order for security, such an order should usually not be made; (6) the subject matter of the appeal, including an issue as to the liberty of the individual, or a public interest may provide a reason for not imposing a security order which would stifle the continuation of the appeal." 3In the present case there is no issue but that the second appellant, which is a company, has no assets and that the first appellant is impecunious. The evidence indicates that he owes the National Australia Bank a very large sum of money and that it has issued a creditors' petition to sequestrate him which has not yet been resolved. The basis of the claim for security as set out in the written submissions of the second and third respondents, which were adopted by the first respondent, is that not only are the appellants impecunious but also that their case below was, and on the appeal is, inherently weak. It is further asserted that success in the appeal would bring no substantial benefit to the appellants. 4It was also submitted that the appellants have demonstrated a lack of bona fides and that the appeal was only intended to harass and annoy the respondents. It was finally submitted that the appellants had not been fully frank about their financial position. 5The submissions of the appellants assert that notwithstanding that the first appellant is clearly impecunious, he had nevertheless been upfront and forthright admitting that fact. It was also submitted that security should not be ordered against him where there was a bona fide arguable point of law, and that to order security would stifle the proceedings presumably upon the basis that the first appellant himself does not have funds sufficient to pay the amount of any security, if ordered. 6The appellants further accept that once the respondents establish that the appellants would be unable to meet any costs order on the appeal, a matter that is admitted, the burden lay upon the appellants to show why security should not be ordered. Reference was also made to whether there were persons standing behind the party against whom security is sought, as to whether those persons were in a position to financially support the litigation. 7I was referred by the appellants to two particular decisions of which the first is that of Young J in Lysmar Pty Ltd v Lee [2000] NSWSC 662 where his Honour in an application for security for costs of proceedings at first instance made a number of comments upon which the appellants rely. The first, at [7], is that ordinarily the Court expects an application for security be made as soon as reasonably practicable after the commencement of the proceedings. 8The second, referred to by his Honour at [16], is that the Court will not make an order for security of costs unless the costs are likely to be properly chargeable to the client, which required, so his Honour said, evidence that a costs agreement in respect of the litigation had been entered into. If a costs agreement is not tendered on an application for security, his Honour said, the Court may well infer there is no such agreement. I am not prepared to draw such an inference in the present case. Of course I am now dealing with an appeal and it is probable that a costs agreement was entered into in relation to the original proceedings before the primary judge. In any event, I would only regard it as a fairly minor factor in the scheme of things. 9The issue of delay is of more concern in that the evidence indicates that the question of security was not foreshadowed at all by the first respondent, or his solicitor, and was not foreshadowed by the second and third respondent's solicitor until a letter was forwarded to the then solicitors for the appellants on 13 May 2014 in which the issue of the appeal being filed out of time was apparently raised for the first time and an indication was given that even if an extension of time was granted, the second and third respondents intended to move for security. 10The notice of motion in the present case for security was not filed until 12 June 2014, one month after it was foreshadowed. In the meantime the appellants had proceeded to advance the appeal by taking two steps, each of which would have been costly. The first was to file a red book and later an amended red book and the second was to file submissions which were in fact filed four days after the notice of motion for security was filed but which, I would infer, were well underway before 12 June, notwithstanding they were not filed until 16 June. 11As pointed out by Beazley P, in Golden Mile Property Investments Pty Ltd (in liquidation) v Cudgegong Australia Pty Ltd [2014] NSWCA 224 at [45], being the second decision to which I was referred, a factor that may tend against the making of an order for security is the likelihood that the order would stifle or stultify the appeal. Her Honour stated that while proof of stultification will require as a starting point a demonstration that an impecunious plaintiff is unable to provide security, it is also necessary to consider the positions of others who "stand behind" the plaintiff who may be able to satisfy an order for security. 12Her Honour then referred to what fell from Sheppard, Morling and Neaves JJ in their joint judgment in Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1 at 4 where their Honours made it clear that a Court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless the party against whom security is sought establishes that those who would stand behind it and who would benefit from the litigation if it is successful are also without means. 13In the present case, according to the material before me, the relevant trust the subject of the litigation is a discretionary trust in which the main beneficiaries are the second respondent and the son of the first appellant. It is therefore clear that the latter has an interest in the outcome of the appeal, for if it is successful, so that the trustee is controlled by his father, the first appellant, it is possibly more likely that there will be a distribution of the whole or part of the trust assets in his favour. 14However, no evidence was put before me as to the financial position of the first appellant's son. Yet it seems to me, in the absence of any evidence to the contrary, and given that the onus lies upon the appellants, once impecuniosity is established, to persuade the Court as to why security should not be granted, that I am able to infer that the son of the first appellant is in a position to stand behind the appellants in relation to the costs of the appeal, including any order for security that may be made, especially if that costs order is of an amount which is relatively modest. 15Nevertheless, it is still a precondition to the exercise of the Court's discretion to grant security that the respondents establish special circumstances. Although the second and third respondents, in submissions adopted by the first respondent, assert that the appellants have demonstrated a lack of bona fides and that the appeal is calculated to harass and annoy the respondents and that the appellants have not been fully frank about their financial position, those are findings that I would not be prepared to make. 16A stronger point, it seems to me, is that the appeal is inherently weak, although not hopeless and, further, that success in the appeal would bring no substantial benefit to the appellants. I have some difficulty with the latter submission given that the first appellant's son is a beneficiary and may be in a stronger position to receive some distribution under the trust where the trustee is controlled by his father, although the second appellant, who would be the trustee, would obviously have to comply with the duties of its office. 17Of more concern is the question of whether the appellants' case is inherently weak. There is no doubt that the appellants, understandably given the findings of fact of the primary judge including those on the issues of credit, have attempted to confine their appeal to what is asserted to be a question of law only. Having given some consideration to the submissions of the parties in relation to that point, and accepting that I have not had the time to consider them in detail, I am not convinced that it should be found that the point is so weak as not to be arguable. Whether it succeeds or not may be another matter, but in my view it is sufficient to avoid special circumstances if at least the point is arguable and in my view I consider that it probably is. 18Accordingly, in my view the respondents have not established special circumstances as a consequence whereof the application for security is refused. I would therefore order that the amended notice of motion filed today be dismissed with costs.