Mohareb v Harbour Radio Pty Ltd

Security for costs

1. Rule 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") states six circumstances in which courts to which the Rules apply (of which the Supreme Court is one) may, on the application of a defendant, order a plaintiff to give security for costs. Relevantly, by r 42.21(1)(f), an order may be made against a plaintiff where there is reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings in which the order is sought.
2. In addition to the power conferred by UCPR r 42.21, the Supreme Court has an inherent (or implied) power to make such an order: Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443; Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 at [34]-[35].
3. Subrule 1A of r 42.21, introduced in 2013, states (non-exhaustively) considerations to which the court may have regard when asked to exercise the power conferred by the rules. These, relevantly, for present purposes, include: (a) the prospects of success or merits of the proceedings, (c) the impecuniosity of the plaintiff, (d) whether the plaintiff's impecuniosity is attributable to the defendant's conduct, (e) whether the plaintiff is effectively in the position of a defendant; (f) whether an order for security for costs would stifle the proceedings, (g) whether the proceedings involve a matter of public importance, (j) the costs of the proceedings, (k) whether the security sought is proportionate to the importance and complexity of the subject matter in dispute, (l) the timing of the application.
4. By subr (1B) an order for security for costs may not be made under r 42.21 against a natural person merely on account of impecuniosity.
5. Rule 42.21 is generally reflective of principles developed in earlier decisions. It may be taken that the considerations itemised in subr (1A) are relevant to the exercise of the inherent jurisdiction. The prohibition on ordering security for costs against a natural person only on the ground of impecuniosity reflects a principle of common law applicable to the exercise of the inherent jurisdiction.
6. Generally speaking, courts are reluctant to make security for costs orders against litigants who are natural persons: see Mr D v Ms P [2020] NSWCA 174 at [31]-[39].
7. An application for security for costs should be made promptly: see Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [68] ff and the cases there cited. A defendant in possession of sufficient information to justify an order who stands by while a plaintiff expends resources (and time) on preparation may fail if an application is later made: Morris v Hanley [2001] NSWCA 374.

Relevant chronology

1. The following chronology is drawn from the findings of fact made by the primary judge.
2. Between 2013 and 2016 the applicant lived on Scotland Island, in the northern beaches of Sydney. He became involved in litigation with at least three of his neighbours.
3. In May 2016 the Attorney-General unsuccessfully sought orders under the Vexatious Proceedings Act 2008 (NSW) that the applicant be prohibited from commencing any proceedings without the leave of the court, and staying proceedings he had already commenced: The Attorney General for the State of New South Wales v Mohareb [2016] NSWSC 1823.
4. On 21 January 2018 the applicant committed an act of bankruptcy as a consequence of which, on 5 November 2018, a sequestration order was made against him. His trustee in bankruptcy elected, pursuant to s 60(2) of the Bankruptcy Act 1966 (Cth), to discontinue the defamation proceedings, but the applicant exercised his right, under subs (4), to continue the actions in his own name.
5. On 16 July 2018 Mr Matthew Palmer, one of the applicant's litigation opponents, sought orders under the Vexatious Proceedings Act that the applicant be prohibited from instituting or pursuing any proceedings against him and that any current proceedings by stayed. That application was not heard and disposed of until 7 August 2019.
6. On 17 May 2019 (erroneously stated in [34] of the primary judgment as 17 March 2019) the defamation proceedings were allocated a joint trial date of 3 August 2020, with an estimate of four weeks.
7. On 7 August 2019, dealing with Mr Palmer's application under the Vexatious Proceedings Act, Fagan J ordered that the applicant be prohibited from instituting any proceedings against Mr Palmer in NSW, or any new proceedings against any person in NSW (without affecting any interlocutory process or appeal in already commenced proceedings): Palmer v Mohareb [2019] NSWSC 975.
8. On 28 August 2019 the applicant filed a notice of appeal against those orders. Judgment on the appeal is presently pending.
9. At or about the same date solicitors acting for the Fairfax respondents were advised by Ms Olsen, a solicitor acting for the Harbour Radio respondents, that the applicant's trustee in bankruptcy was investigating the transfer of certain funds to a bank account in Egypt in the applicant's name. It is not clear precisely when Ms Olsen came into that information. It emerged from a report to creditors of the applicant's trustee in bankruptcy dated 17 January 2019. The solicitors took steps in August and September 2019 to ascertain the position by seeking, by various means, production of documents relevant to any such transactions.
10. The applicant responded to a notice to produce served on him by saying that he had no knowledge of any such documents. That such payments had been made was confirmed on 1 October 2019 following production of documents by the Westpac Bank in response to a subpoena. Those documents show that, on 30 and 31 March 2016, $100,000 was transferred to the Egypt account in two tranches. The source of the transferred funds was an account in the St George Bank held in the name of the applicant's mother, Ms Hanna, to which the applicant had unlimited access and which he operated for his own purposes. The deposit in the St George Bank came from the sale, on 29 March, of gold held by Ms Hanna in the Perth Mint, which she sold on the applicant's advice, and the transfer of the proceeds of the sale to Ms Hanna's St George Bank account.
11. There was no explicit evidence from the respondents' witnesses that the first they learned of the transfer of $100,000 out of Australia was in August 2019. Such evidence should have been explicit, because providing a full explanation for the lengthy delay should have been at the forefront of the application. But Mr Mohareb did not contest this, either at first instance or in this Court, the primary judge so found, and the inference was supported by the flurry of subpoenas and notices to produce that ensued.
12. Following the discovery of the transfer of the St George funds to the Egypt account, on 24 October 2019 each respondent filed a notice of motion seeking an order for security for costs. Affidavit evidence was filed and a hearing took place before the primary judge on 26 November 2019.

The applications for security

1. The applicant acknowledged that if he were unsuccessful in the defamation proceedings he would be unable to meet any consequential costs order.
2. The respondents did not rely on UCPR r 42.21(1)(f) as the source of power to make the orders they sought. They invoked the court's inherent jurisdiction. They contended that the applicant had "effectively made himself litigation proof" by having no assets in his own name "nor visible or available income".
3. The applicant relied, among other arguments, on what he contended was the strength of his case.
4. Although the transfer of funds was squarely raised in the affidavit evidence of the respondents, in his lengthy affidavit (running to 40 pages) the applicant did not address that question. In oral evidence he said that he did not know how the money came to be in the account in his name and that it was not his money.
5. Each of the defendants provided evidence of the costs already incurred and the anticipated costs of a trial. In round figures, the Fairfax respondents have incurred costs of $175,000 to date, and anticipate costs of the preparation and trial of $250,000. The Harbour Radio respondents have incurred costs of $150,000, and anticipate further costs of $220,000; the State of NSW has incurred costs of $176,000, and anticipates further costs of $213,000.
6. On 29 November 2019 Adamson J ordered the applicant to provide security for costs by paying into court on or before 20 December 2019 the sum of $75,000 to comprise security in the amount of $25,000 for each of: (a) the Harbour Radio respondents; (b) the Fairfax Media respondents; and (c) the State of NSW. Her Honour further ordered that if security was not provided as directed the proceedings be stayed from 21 December 2019. She ordered the applicant to pay the respondents' costs of the notices of motion.

The primary judgment

1. The primary judge did not accept the applicant's evidence that he had no knowledge of the funds in his name in the Egypt bank account and that it was not his money. She found his evidence in this respect to be "evasive, non-responsive and hesitant". She found him to have been deliberately untruthful.
2. The primary judge gave a number of reasons for the orders she made. In doing so she took into account such of the considerations itemised in UCPR r 42.21(1A) as were applicable. Her Honour:

• rejected a contention by the applicant that his claim was essentially "defensive" (cf subr (1A)(e)) saying: "He is, in form and substance, the plaintiff in the defamation proceeding." (at [53]);
• noted that impecuniosity of a plaintiff: "… is relevant to the potential oppressiveness of an order for security as well as to the potential prejudice which a successful defendant will suffer because of the inability to recover costs": Li v State of New South Wales [2013] NSWCA 165 at [49];
• was satisfied that, at least by the end of March 2016, the applicant had arranged his affairs so that he would not be susceptible to the burdens of litigation (at [56]);
• rejected the suggestion by the applicant that the defendants bear responsibility for his present impecuniosity, noting that, on his own admission, he had not worked for years (cf subr (1A)(d)) (at [58]);
• found that there was no relevant delay in bringing the applications, noting that prior to acquiring knowledge of the transfer of funds to Egypt, and that the respondents had no basis for investigating the applicant's financial affairs (cf subr (1A)(l) (at [59]);
• rejected the applicant's contention that his case was strong; she found herself not in a position to judge the relevant strengths of the applicant's and the respondents' cases (at [60]);
• found no evidence that an order for security would stultify the proceedings (subr (1A)(f) (at [61]);
• noted the "notorious" discrepancy, or disproportionality, between costs and quantum of damages in proceedings for defamation, particularly where the defendant invoked the defence of justification (at [64]).

The application for leave to appeal and the proposed appeal

1. The principles governing the grant of leave to appeal are well established: "82. ... Generally speaking, it is only appropriate to grant leave in matters that involve issues of principle, questions of public importance or in circumstances where it is reasonably clear that an injustice has occurred by reason of error in the judgment, going beyond what is merely arguable": The Age Company Ltd v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26.
2. Where the judgment against which leave to appeal is sought is discretionary (as is here the case) the principles stated in House v The King (1936) 55 CLR 499; [1936] HCA 40 are to be borne in mind. Particular reticence is to be exercised where (as also is here the case) the judgment is one pertaining to matters of practice and procedure: Adam P. Brown Male Fashions Pty Ltd v Philip Morris Incorporated (1981) 148 CLR 170 (at 176-177); [1981] HCA 39, citing with express approval In the Will of Gilbert (dec) (1946) 46 SR (NSW) 318 at 323.
3. The applicant's draft notice of appeal contains 13 grounds. His Summary of Argument identifies six areas of contention. Not all pleaded grounds of appeal are covered in the Summary of Argument.
4. First, the applicant took issue with the primary judge's failure to evaluate the strength of his claim. He relied on authority to the effect that there may be cases where the strength of the case is relevant to the exercise of discretion: Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [97]-[101]. In his oral argument the applicant placed particular emphasis on what he contended was the strength of his defamation claim.
5. That the strength of the case may be relevant to the exercise of the discretion is, no doubt, correct, but it is not in every case that an assessment of merit can be made. In his submissions the applicant appears only to have relied on the perceived strength of his claim that defendants had published material defamatory of him. That reflects a misunderstanding of the nature of a defamation claim, in which the defence(s) may be all important.
6. In proceedings for defamation it is very often the case that the plaintiff's prima facie case - publication of defamatory imputations - is relatively easily proved. The respondents accepted that the applicant's case in defamation is arguable. They have given extensive and detailed particulars of their defence of justification. If successful, that will be a complete defence to the applicant's claims.
7. There was no error in the primary judge declining to attempt an assessment of the strength of the applicant's case. Had she done so, and had she gone on to assess the apparent strength of the defences, the outcome may well have not favoured the applicant.
8. While the merits of a proceeding may, in an appropriate case, be taken into account, there is no requirement that that be done and in this case, the nature, extent and complexity of the defences is such that an attempt to assess relative merit would have been unproductive and may have entailed disproportionate costs to the parties contrary to s 60 of the Civil Procedure Act 2005 (NSW). A security for costs application should not be turned into a mini trial of the merits of the proceedings.
9. The applicant's second point concerned the primary judge's denial of his claim that his current financial circumstances are the result of the respondents' conduct. The applicant relied on the decision of this Court in Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11 at [34]. All that can be drawn from that case is that, in the absence of evidence, no assumption can be made either that the plaintiff's impecuniosity was caused by the defendant, or that it was not. The primary judge noted evidence that the applicant had not worked for some years prior to the publications. There was no evidence that the applicant's present circumstances can be attributed to the publications on which the applicant sues. To the contrary, the evidence suggests, strongly, that his present circumstances result from a long history of unsuccessful litigation instigated and pursued by him. There was no error in this respect.
10. The applicant's third point was that, contrary to the primary judge's finding, his claim was defensive. The primary judge said, simply: "53. … He is, in form and substance, the plaintiff in the defamation proceedings." There is no error in this finding. It is plainly correct. The applicant is the initiator of the litigation.
11. By his fourth point, the applicant took issue with the primary judge's finding that the order for security would not "stifle the proceedings". The primary judge was not satisfied that the applicant did not have available to him resources through family members. She was careful to fashion the order and specify an amount that, the evidence indicated, the applicant had the resources to pay. The amount nominated did not remotely approach the amounts already expended by the defendants, let alone the estimated costs of the proceedings should they go to trial.
12. The evidence of the bank transfers plainly established that, as at March 2016, the applicant had access to sufficient funds to meet the order. He gave no evidence that the funds transferred to Egypt had been dissipated.
13. No error in this finding has been identified.
14. The applicant's fifth point concerned the timeliness of the applications. More than two and a half years elapsed between the commencement of the proceedings and the applications for security. The applicant asserted (and continues to assert) that the applications for security should be refused because, inter alia, the respondents delayed in bringing them. He pointed to a number of circumstances that indicated that the respondents were well aware (or should have been aware) prior to October 2019 that his financial position was poor. Curiously, he submitted that the finding of the absence of relevant delay was attributable to the failure (the subject of his first point) of the primary judge to take into account the merit of his claims. The connection is not apparent.
15. The circumstances on which the applicant relied to establish prior knowledge in the respondents of his circumstances were:

• that he was living "in very modest rented premises" on Scotland Island and seeking to relocate to even more modest accommodation;
• that the respondents asserted "(or at least insinuate[d])" in their defences that he sought to coerce the owner of the prospective alternative accommodation in order to obtain "ever more inclusions/advantages as part of the rental arrangement";
• that the respondents knew from his documents that he did not have a steady income and was seeking to adopt a more frugal lifestyle as a result of "professional burnout";
• that the respondents asserted that all his court proceedings were vexatious;
• that the respondents asserted that he had repeatedly disregarded and/or deliberately disobeyed court orders;
• that the respondents knew that, in the majority of his proceedings, he had appeared unrepresented, not by choice but through impecuniosity;
• that the respondents asserted that, not only was his case in defamation weak, but that they insinuated that it was also vexatious. It may also be assumed that the respondents were aware of the applicant's bankruptcy.

1. The applicant relied on the decision in Morris v Hanley at [30] in support of the proposition that an order may be refused where, without explanation, a defendant who is in possession of knowledge of the relevant facts does not act promptly in seeking an order for security.
2. The respondents, however, have provided some explanation for the delay. The explanation was that, until they became aware, through the trustee's report to creditors, that the applicant had, or may have, transferred funds overseas, they had no basis for seeking production of documents that would or might establish any movement of funds or divestment of assets. That is of itself no answer to the applicant's argument that, independently of the overseas funds transfers, the respondents were in possession of sufficient information to warrant making an application.
3. While it may be accepted that the respondents were in possession of some relevant information - for example, they included in their defences some references to the applicant's failure to pay costs orders - it is not at all clear that the other circumstances on which the applicant relied would have been sufficient to justify a security for costs order, or were even relevant to such an application. Most of those other circumstances relied on by the applicant do no more than indicate impecuniosity - of itself, not capable of justifying an order against a natural person. No prejudice has been occasioned by reason of the delay, and security, appropriately, was not sought in relation to already-incurred costs.
4. Any application, if made before the evidence of the overseas transfers of funds came to light, would necessarily have failed if based only on the applicant's impecuniosity: cf UCPR r 42.21(1B). The position is no different when the inherent power of the court is invoked. Any such application, prior to the discovery of the overseas funds transfers, would have had to depend on the applicant's history of disregarding costs orders. Such an application may or may not have been successful. It was legitimate for the respondents to bide their time until they were in possession of evidence that strengthened their position. Once they came into possession of the trustee's report they acted promptly in issuing notices to produce and subpoenas that brought forward the relevant evidence and, thereafter, in making the applications.
5. There was no error in the primary judge's approach to the issue of timeliness.
6. The sixth point made by the applicant is an assertion that the primary judge was wrong in finding that there was no issue of public importance in his defamation proceedings. He argued that there is a "convergence" of three "matters of public importance" these being (doing the best we can with the applicant's formulation): 1. that the "normal day to day workings of the justice system are inconsistent with the presence of self-represented litigants", and are hostile to the entitlement to self-representation; 2. the prevailing emphasis on case management, and the statement, in s 56 of the Civil Procedure Act 2005 (NSW), that the overriding purpose of that Act is to facilitate a just, quick and cheap resolution of the real issues in proceedings; 3. an asserted conflict of views among members of the judiciary concerning "the status of individuals" in society.

Conclusion

1. The application for leave to appeal has not been shown to involve any issue of principle, any question of public importance, or any injustice. Leave to appeal should be refused.
2. It is worth noting, however, that this case has unusual features. As indicated above, orders for security for costs against plaintiffs who are natural persons are rare. So too are orders in applications for security which are not made promptly. On the other hand, several aspects of the case give significant support to the discretionary decision of the primary judge. They include the applicant's history of failure to comply with costs orders; the transfer of money to an overseas account; and the applicant's prevarication and lack of frankness in his evidence on that subject. Those unusual circumstances explain why, in this case, an order for limited security for costs was made against a natural person plaintiff more than two years after the litigation had been commenced.
3. Further, it is to be noted that the order made by the primary judge was very significantly less than that sought by the respondents. She considered it appropriate to take a "staged approach" and ordered security necessary to allow for "immediate pre-hearing preparation". Any application for further security would have to be considered in light of the circumstances then prevailing. However, only if there were a material change of circumstances would there be an occasion for a further application for security in the weeks or months preceding the trial, and any such application would need to deal with the prima facie unfairness of a plaintiff who provides substantial security not being permitted to have his litigation go to trial.
4. The following orders will be made: 1. leave to appeal refused; 2. the applicant to pay the respondents' costs of the application.

Amendments 28 October 2020 - Headnote - second line date 2017 changed to 2019 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 October 2020