respondent on appeal)
N Weinberger (Respondents on notice of motion
appellants on appeal)
Source
Original judgment source is linked above.
Catchwords
respondent on appeal)
N Weinberger (Respondents on notice of motionappellants on appeal)
Judgment (3 paragraphs)
[1]
Background
Much of what follows is drawn from various judgments of this Court and the Supreme Court to which reference will be made.
Ms Bale is the only child of the late Michel Schein, and the executor of Mr Schein's estate.
Prior to his death, and until 21 February 2011, Mr Schein was the proprietor of commercial real estate in Forest Lodge, NSW which was subject to a mortgage in favour of Suncorp-Metway Ltd ("Suncorp"). In August 2006 Mr Schein's wife of 56 years (and the mother of Ms Bale) died. In 2007 Mr Schein made an enduring power of attorney in favour of Ms Bale, which he revoked in June 2008. In May 2008 Mr Schein remarried. His second wife, "Chyna" (sometimes "China") Richardson took the surname Schein. In June 2008 Mr Schein made a power of attorney in favour of Ms Schein. Ms Bale unsuccessfully sought orders in the Civil & Administrative Tribunal of NSW relating to the revocation of the original power of attorney.
From time to time between 2006 and 2010 Mr Schein experienced difficulties in meeting his mortgage obligations and in 2009 he offered the Forest Lodge property for sale by auction. Bids failed to meet the reserve price and the property was passed in.
In 2010 Mr Albert Darwiche became aware of the property. On 9 February 2011 Mr Darwiche incorporated Kimberley Developments Pty Ltd ("Kimberley') and became its sole shareholder and director. Kimberley's articles of association provided for "Class A" and "Class B" shares. On 21 February 2011 Mr Schein entered into what purported to be a joint venture agreement with Mr Darwiche. At that time Mr Schein was about 80 years of age. The document purporting to record the joint venture agreement was signed by Mr Schein and Ms Chyna Schein, both in the space provided for Mr Schein's signature. Mr Darwiche did not sign the document. The document purported to record that Mr Darwiche had agreed, at Mr Schein's request, "to jointly develop the [Forest Lodge] property"; that Mr Schein would transfer the Forest Lodge property to Kimberley in consideration of $590,000, to be provided in part by the repayment of Mr Schein's existing mortgage debt; and the issue to Mr Schein of 60% of the "Class B" shares in Kimberley. There were other provisions it is not necessary to detail. From 2010 there was evidence that Mr Schein was experiencing cognitive decline.
On 1 March 2011 the transfer to Kimberley of the title to the Forest Lodge property was registered, with a stated consideration of $590,000. The mortgage to Suncorp, which then stood at about $285,000, was discharged with funds provided by Super Start Batteries Pty Ltd, a company of which Mr Theofanis Trigas was the sole director.
In or around February 2016 Mr and Ms Schein separated and Mr Schein returned to live with Ms Bale. In 2018, acting as Mr Schein's tutor, Ms Bale commenced proceedings in his name. As the case was ultimately presented, Ms Bale claimed orders setting aside the 21 February 2011 purported agreement and the transfer of the Forest Lodge property, on the basis of fraudulent misrepresentation and/or unconscionable conduct.
On 9 April 2021 Mr Schein died aged 90. He was then suffering from advanced dementia. The proceedings were continued by Ms Bale acting as the executor of his estate. Ms Bale named Kimberley, Mr Darwiche, Mr Martin Churchill, Ms Chyna Schein, Mr Trigas, and Super Start Batteries Pty Ltd respectively as the first to sixth defendants. (Martin Churchill was a solicitor, now incarcerated for serious offences who acted for all parties on the transfer of the Forest Lodge property).
In their defence Messrs Darwiche and Trigas contended that, in addition to the payment by Super Start Batteries of about $285,000 for the discharge of the Suncorp Mortgage, they had paid to Mr Schein a sum of $302,000 in bank notes, in bundles which Mr Schein counted.
The proceedings came before Ward CJ in Eq in late 2021. On 23 June 2022 Ward P (as her Honour was by then) made a series of orders and declarations: Bale v Kimberley Developments Pty Ltd [2022] NSWSC 820. Her Honour found that Kimberley, through Mr Darwiche, had taken unconscientious advantage of Mr Darwiche's superior position with respect to Mr Schein. Her Honour rejected the evidence of Mr Darwiche and Mr Tigras that they had paid about $300,000 to Mr Schein in cash. She found that Mr Darwiche and the defendants' witnesses were not credible and that in some respects the evidence given by Mr Darwiche was not plausible.
Relevantly to the present proceedings, her Honour made orders (i) setting aside the 21 February 2011 transfer, (ii) directing Kimberley within 28 days to transfer the title of the Forest Lodge property to Ms Bale as executor of Mr Schein's estate, (iii) ordering Ms Bale to pay a little over $288,000 to Super Start Batteries or, if so directed by that company's director, to Mr Trigas, (iv) ordering that that amount be charged on the Forest Lodge property after its transfer, and (v) declaring that Kimberley held the Forest Lodge property on constructive trust for Mr Schein (and for the benefit of his estate).
In consequence of her Honour's order that the Forest Lodge property be transferred to Ms Bale it was necessary that an accounting be made of amounts received by Kimberley by way of rent or other income from the property, and that the amounts paid by Super Start Batteries to discharge the Suncorp mortgage be repaid. Her Honour ordered that the matter be referred to a court appointed referee for determination of the amounts to be paid pursuant to those orders.
Kimberley, Mr Trigas, Super Start Batteries and Mr Darwiche appealed to this Court against the orders. On 2 February 2023, subject to one variation of the orders, the appeal was dismissed: Kimberley Developments Pty Ltd v Bale [2023] NSWCA 25. On or about 26 July 2023, in accordance with Ward P's orders, Kimberley transferred the Forest Lodge property to Ms Bale. That left outstanding for determination the accounting process which Ward P had ordered be conducted by a court appointed referee. That was the subject of the variation in the orders made by this Court: in lieu of referral to a referee, Leeming JA was appointed to quantify the monetary adjustments and allowances to be made in accordance with Ward P's orders. Having conducted that exercise, Leeming JA ordered Ms Bale to pay Kimberley the sum of $301,560.99: Bale v Kimberley Developments Pty Ltd (No 3) [2023] NSWSC 973.
On 15 November 2023 Kimberley and Mr Darwiche filed a notice of appeal against the orders of Leeming JA. In substance the appellant's contend that the amount Ms Bale was ordered by Leeming JA to pay to Kimberley is inadequate and failed to include amounts that should properly have been brought into account. That is the appeal that is listed for hearing on 8 March 2024, and in respect of which Ms Bale seeks security for costs.
In support of the application Ms Bale relied upon an affidavit sworn by her solicitor, Ms Sionea Breust, on 11 December 2023. In a paragraph (para 6) to which objection was taken, Ms Breust asserted that the Forest Lodge property was the only asset owned by Kimberley. I reserved ruling on the objection. I now uphold the objection and reject the paragraph. Ms Breust provided no source material for the statement. It is not at all apparent that she had any means of knowledge of the asset position of Kimberley. I was urged by counsel to take into account the long history of the proceedings and draw an inference that Ms Breust was aware of Kimberley's assets position. I decline to do so. In the absence of any identification of the source of Ms Breust's assertion it is likely to be supposition, speculation or hearsay. I do not take into account paragraph 6 of Ms Breust's affidavit.
Ms Breust's affidavit evidence discloses the following. On 23 November 2023 Ms Breust wrote to the solicitors for Kimberley and Mr Darwiche. She observed that the appeal was brought only in the names of Kimberley and Mr Darwiche. Ms Breust said that Mr Darwiche had previously advised both the court and her office that he was indigent, and that he had been unrepresented for significant parts of the proceedings before Ward P and had advised that that was because he could not avoid legal representation. Ms Breust asserted that Kimberley owned no property and appeared to have no income. She asked the solicitors to advise how the appellants "intend to meet any possible adverse Cost Orders", and to provide evidence of their capacity to do so. Ms Breust said:
"Our client is concerned that your clients have purposely chosen to file the Appeal in the names of [Kimberley] and [Mr Darwiche] to avoid paying any such Orders."
Ms Breust indicated that, in the absence of a satisfactory response, Ms Bale might file a notice of motion seeking security for costs.
Mr Weinberger, acting for Kimberley and Mr Darwiche, replied on 1 December 2023. He pointed out that, as a result of the court's orders, and the transfer of the Forest Lodge property to Ms Bale, and Ms Bale's payment of $301,560.99 in accordance with the orders of Leeming JA, "the net value of what Ms Bale received was therefore approximately $4.2 million", while Kimberley, as a result of the outcome of the proceedings, had "lost a net value of approximately $4.2 million". Mr Weinberger stated that, if it were correct that Kimberley owned no property and appeared to have no income, that was the direct result of the outcome of the proceedings.
In response to Ms Bale's suggestion that the appellants had "purposely chosen to file the appeal in the names of [Kimberley] and [Mr Darwiche] and avoid paying" any costs orders, Mr Weinberger observed that the order made by Leeming JA affected only Kimberley and that Mr Darwiche was an appellant because "he is the controlling mind and will, and sole shareholder" of Kimberley.
[2]
Security for costs
Orders for security for costs on appeal to this Court are provided for by Uniform Civil Procedure Rules 2005 (NSW), r 51.50, which relevantly provides:
"(1) In special circumstances, the Court may order that such security as the Court thinks fit be given for costs of an appeal.
(2) Subject to subrules (1) and (3), no security for costs of an appeal is to be required.
(2A) …
(3) Subrules (1), (2) and (2A) do not affect the powers of the Court under rule 42.21 (which relates to security for costs)."
The intent of subr (3) is unclear. Rule 42.21 applies generally to the provision of security for costs in the Supreme Court. In subr (1) six circumstances which may justify an order for security for costs are set out. Those presently relevant are:
(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so.
and
(f) that there is reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings."
The power to order security for costs pending an appeal was previously conferred by the Supreme Court Rules 1970. Those provisions were in terms substantially similar to UCPR r 51.50(1) and (2); they required that "special circumstances" be established, and provided that, in the absence of special circumstances, no security for the costs of an appeal to the Court of Appeal shall be required. The principles applicable to an application for security for costs under the Supreme Court rule pending an appeal were laid out in Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2004) 60 NSWLR 143; [2004] NSWCA 136, and helpfully summarised by Basten JA in Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 as follows at [18]:
"(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 a 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, and
(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."
Counsel for Ms Bale relied on the decision of Macfarlan JA in Yu Xiao v BCEG International (Australia) Pty Ltd [2022] NSWCA 223, in which an order for security for costs pending appeal was made. There appears in that case to have been two principal reasons for a conclusion that special circumstances justifying an order existed. First, the trial judge in that case had found (in conclusions not challenged in the notice of appeal) that the appellants (who were the defendants in the first instance proceedings) had "maintained a fabricated defence … from a position of special advantage" sufficient to warrant an indemnity costs order. Second, during the course of the trial, one of the appellants had taken steps to execute documents to encumber his assets, and had, indeed, continued to do so even after orders restraining him from doing so, to which he had consented, were made.
It is not clear what Ms Bale sought to gain from Macfarlan JA's decision. There is no comparable delinquency in this case. It is true, as I have outlined above, that Ward P found, in effect, that Mr Darwiche had fabricated evidence about the payment of the $300,000 to Mr Schein. But there was no evidence that Mr Darwiche or Kimberley attempted to dispose of assets that might otherwise be available to meet a costs order, and, indeed, it was central to Ms Bale's claim that Kimberley had no assets to dispose of, and that Mr Darwiche was indigent.
Nor can anything helpful to Ms Bale's case be drawn from the identification of the appellants. Ms Breust apparently saw something sinister in the fact that only Kimberley and Mr Darwiche were appellants in the current appeal. Reference was made by counsel to a notice of intention to appeal filed in December 2022, following the orders of Ward P, in which Kimberley, Mr Trigas and Super Start Batteries, but not Mr Darwiche, were nominated as proposed appellants. But counsel was unable to identify in any of the previous parties any appellable interest in the orders made by Leeming JA.
It is well accepted that a relevant consideration pointing to refusal of an application for security for costs is that any impecuniosity on the part of the appellant is attributable to the conduct of the respondent who is the applicant for security. That appears to be the principle on which Mr Weinberger relied in his response to Ms Breust's letter. However, what Mr Weinberger called a "loss of net value" to Kimberley was attributable solely to the loss of the Forest Lodge property which Kimberley had by its (and Mr Darwiche's) unconscionable conduct obtained. There is now no challenge to the findings of Ward P to that effect. Such a loss is scarcely a reason for refusing a security for costs order, and I do not take that circumstance into account.
I am, nevertheless, satisfied that Ms Bale has failed to establish the "special circumstances" necessary before an order can be made.
The notice of motion is dismissed with costs.
[3]
Amendments
08 February 2024 - Change to case title
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Decision last updated: 08 February 2024
Solicitors:
SCB Legal (Applicant on notice of motion)
Weinberger Lawyers (Respondents on notice of motion)
File Number(s): 2023/294430
Decision under appeal Court or tribunal: Supreme Court of NSW
Jurisdiction: Equity Division
Citation: [2023] NSWSC 973
Date of Decision: 18 August 2023
Before: Leeming JA
File Number(s): 2018/237019