Murray John Carter v Ian Mehmet t/as ATF Ian G Mehmet Testamentary Trust

(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. per Basten JA in Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [18], citing Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2004) 60 NSWLR 143; [2004] NSWCA 136 and Porter v Gordian Runoff Ltd [2004] NSWCA 171. See also Mr D v Ms P [2020] NSWCA 174 at [31]-[39].

1. Before considering whether any order for security should be made, it is necessary to provide an understanding of the issues in the appeal by reference to the reasoning of the primary judge and grounds of appeal.

The primary judgment and grounds of appeal

1. The respondents (the first to fourth as purchasers and the fifth as guarantor of the fourth respondent) contracted with the appellants to purchase two lots of land in Byron Bay on which an ecological tourist resort then known as the Rainforest Resort was in operation. Lot 1 was owned by the estate and Cathscompany as tenants in common in equal shares, and Lot 10 by The Wheel Resort (by an interdependent contract the respondents separately agreed to purchase the business carried out on the land). The purchase price of the land was $3 million, 76% apportioned to Lot 1 and 24% to Lot 10. The contracts were exchanged on 6 July 2015. What follows is concerned only with the issues concerning the contract for sale of land.
2. After exchange, the respondents became aware of a report indicating that the land was the reputed burial site of two Aboriginal elders of the Bundjalung tribe, Harry and Clara Bray. Under National Parks and Wildlife Act 1974 (NSW), s 5(1), an "Aboriginal object" includes Aboriginal remains which would also be property of the Crown (s 83). The reputed existence of such remains gave rise to a broader dispute as to whether there were any Aboriginal objects in or on the land, and if so, whether their existence constituted a defect in title. The items said by the respondents to answer that description include a memorial stone and plaque recording the burial of Harry and Clara Bray near the site of the plaque.
3. This dispute ultimately led to the purported termination of the contract for sale by both parties. The respondent purchasers did so by notice dated 25 September 2015. On 6 October 2015 the appellant vendors responded, alleging that the purchasers' notice was repudiatory and themselves terminating the contract. The property was subsequently resold by the appellants on 29 November 2015 for $2.525 million.
4. The respondents commenced proceedings in the Equity Division in 2015. They sought recovery of the deposit ($300,000) and damages for wasted costs and expenses and for the value of the lost opportunity to proceed with the development of the land (a claim that was abandoned at the commencement of the final hearing). If they should fail in their claim to have validly terminated the contract, the respondents sought relief from the forfeiture of the deposit under Conveyancing Act 1919 (NSW), s 55(2A). By their cross-claim the appellants sought loss of bargain damages as well as damages for wasted conveyancing costs and expenses. The amount at stake from the appellants' perspective, including the deposit, was about $500,000. They were however at risk with respect to the lost opportunity claim which as formulated is said to have exceeded $6 million.
5. The primary judge upheld the respondents' entitlement to terminate the contract for repudiation, declared that they were entitled to the return of the deposit, awarded damages for wasted costs and expenses of $29,855 and dismissed the appellants' cross-claim with costs: Mehmet v Carter [2020] NSWSC 413 at [708]. The costs of the respondents' claim, which the appellants were also ordered to pay, included the costs of a separate question determination before Darke J (Mehmet v Carter [2017] NSWSC 1067). That determination was overturned on appeal, this Court ruling that it was inappropriate to answer either of the relevant questions, ordering that the costs of the hearing of the separate questions be costs in the cause and making no order as to the costs of the appeal: Mehmet v Carter (2018) 98 NSWLR 977; [2018] NSWCA 305 at [12]. The primary judge's reasons for judgment do not suggest that any different or separate costs order was sought by the appellants in consequence of the respondents' late decision not to pursue their claim for lost opportunity damages on the basis that significant costs were unnecessarily incurred or thrown away.
6. The primary judge held that the respondents were entitled to terminate the contract on three separate bases. Had they not been entitled to do so, her Honour would have exercised the discretion under section 55(2A) and ordered the deposit be repaid.
7. As to the first of those bases, and describing this as the "primary way" in which the respondents put their case, her Honour held that there was a plausible contention that there were Aboriginal remains located on the land, and that their presence was capable of constituting a defect in title. In those circumstances the appellants' refusal to respond to requisitions on title directed to that asserted defect, coupled with their subsequent issue and reliance upon two notices to complete, constituted repudiatory conduct (Judgment [332], [447], [448]). That conclusion is challenged by grounds 4, 5 and 6. Those grounds respectively contend that the primary judge erred in reaching that conclusion, erred in relying upon "reputation evidence" as to the presence of remains on the land (that evidence admitted pursuant to Evidence Act 1995 (NSW), s 72), and erred in not finding that there was an equally plausible contention that there was no defect in title "such that the vendors could not have repudiated the contract on that basis".
8. As to the second of those bases, whilst rejecting the respondents' case that there were in fact (rather than reputed to be) Aboriginal remains on the land, the primary judge held that the memorial stone and plaque constituted an Aboriginal object within section 5(1) and that the constraint posed to the development of Lot 1 by the presence of that object satisfied the rule in Flight v Booth [1834] EngR 1087; (1834) 131 ER 1160. Thus there was a defect in title justifying the purchasers' termination (Judgment [450], [451], [600]-[602]). That conclusion is challenged by grounds 1, 2 and 3. Those grounds take issue with the findings that the memorial stone and plaque was an Aboriginal object and as such that it constituted a defect in title justifying termination of the contract. As to the latter it is contended that if the stone and plaque was such an object it was not the subject of any "property" interest, was a patent defect in title or a defect in quality, did not restrict the lawful use of the land and was not a material or substantial matter for the purpose of the rule in Flight v Booth. Finally, it is said, relying on standard clause 6 and/or special conditions 3, 4, 5 and 6 of the contract, that the purchasers were not entitled to rescind the contract.
9. As to the third basis, the primary judge held that in issuing and insisting upon settlement in accordance with a notice to complete given on 11 September 2015 - at a time when no notice in writing of registration of the transmission application to Mr Carter had been given - and at the same time incorrectly maintaining a claim for default interest (there having been no failure to complete on any earlier date properly appointed for settlement), the appellants repudiated the contract (Judgment [651]-[663]). This conclusion is challenged by grounds 7 and 8 which contend that her Honour erred in concluding that the appellants' conduct was repudiatory because it indicated that the appellants were only prepared to proceed in a manner inconsistent with the terms of the contract (including by not withdrawing their claim for interest) or was such as to convey to reasonable persons in the position of the respondents that they were renouncing the contract.
10. At this point it is to be noted that in answering the fourth of the questions posed for separate determination, Darke J did not consider that an intention to repudiate or renounce the contract should be inferred from the appellants' conduct in refusing to withdraw their claim for default interest. In reaching a "different view" the primary judge referred to and considered his Honour's reasons for so concluding (Judgment [658]-[660]).
11. The primary judge's conclusion as to the exercise of the discretion under Conveyancing Act, s 55(2A) is challenged by ground 9. Finally, the primary judge rejected the respondents' case that there was any misrepresentation as to the development potential of the property. There is no cross-appeal from that holding.

Whether there should be an order for security

1. Addressing first the financial position of the appellants, it is accepted that each is impecunious and unable from his or its own resources to provide any security for costs of the appeal. The evidence also suggests that the residuary beneficiaries of the estate, a major creditor of the estate (the solicitor), and the minority shareholders in The Wheel Resort are unwilling to provide financial support to the litigation. Relying on this being the position, the appellants contend that any order for security for costs will stultify the appeal and deny them a "just determination on the merits".
2. However, there must also be considered in this context the position of the lawyers - whether their position is that of creditors or contingent creditors or otherwise - who stand to benefit from the successful prosecution of the appeal by the recovery of their unpaid costs and expenses from the hearing at first instance. Ordinarily the Court is not justified in declining to order security on the ground that it would stultify the relevant proceedings unless it is established that those who stand behind the litigation, and would benefit from it if successful, are also without means: see Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4; Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 at 123; and PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; 65 ALJR 642 at 643 (McHugh J). Whilst the stated position of the lawyers is that they will not provide security, it is not established that they do not have the means to do so.
3. As Basten JA observed in Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd [2014] NSWCA 417 at [51] in relation to an appeal, assuming that an order for security in any significant amount will stultify the proceeding, the interests to be weighed in the balance are the potential loss to the appellants of not being able to pursue their appeal on the one hand and the risk that the respondents will suffer unrecoverable financial loss for the costs of the appeal on the other. The process of weighing those interests necessarily directs attention to the merits of the appeal.
4. To succeed, the appellants must overturn each of the three bases on which the respondents' right to terminate was upheld. In that event the appellants would succeed on their cross-claim for loss of bargain damages and the relief sought under section 55(2A) would not be an answer to that claim. The appellants describe their prospects of succeeding on this basis as "at least reasonable".
5. Addressing those prospects, as to the first basis on which the respondents must succeed (adopting the numbering used above), their understandably brief written argument does not engage with the admissibility of the "reputation evidence" or consider the other evidence (including admissions made by Mr Carter) on which the "plausible contention" finding was based. Nor does that argument address the finding that the appellants' conduct in not responding to requests that they show and make clear title amounted in the circumstances to a repudiation.
6. As to the second, it is pointed out that the primary judge's finding that the plaque and memorial was an Aboriginal object was expressed to have been reached with "considerable hesitation" (Judgment [600]). It is also said that her Honour failed properly to consider the particular contentions raised by ground 3. The primary judge noted those contentions at Judgment [358]-[367]. Whether all are dealt with is not easy to determine without the benefit of argument focussed on that question. As to the third basis on which the appellants must succeed, they emphasise that when determining separate question 4 Darke J upheld this argument (at least insofar as the asserted repudiatory conduct related to maintaining the claim for default interest) in their favour.
7. As Bell P reiterated in Mr D v Ms P at [45], it is usually neither possible nor desirable on an application such as this to undertake any detailed analysis of the prospects of success of the appeal. That is particularly so with respect to this appeal where each of the three bases on which the respondents' termination was upheld involves difficult factual and legal questions in relation to which the Court does not have the benefit of full written submissions, or access to the underlying evidentiary material.
8. Approaching that assessment more generally, as I must, whilst there are arguable grounds for challenging her Honour's relevant conclusions, the prospect that the appellants will successfully overturn each and all of them is not readily apparent. That is particularly so in relation to the two bases on which her Honour found the appellants to have repudiated their obligations under the contract. For that reason, in weighing the respective interests of the parties for the purposes of this application, I proceed on the basis that the more likely outcome of the appeal is that it will fail.
9. I turn now to specific matters relied on by the parties. First, the appellants say that the respondents are "in a significant way the authors of [the appellants'] financial position". That is said to be so because "significant costs were wasted by the separate question determination and the interlocutory appeal", which in turn were undertaken at a time before the respondents' "lost opportunity" claim was abandoned and when it was thought the determination of separate questions might avoid a lengthy trial. The late abandonment of that claim is also said to have resulted in the wastage of further costs.
10. The evidentiary material before me does not permit any assessment to be made as to the correctness of this contention. Furthermore one might expect, if that was the position, that a special costs order would have been sought. No such application was brought. In the circumstances this matter is not made out.
11. Secondly, the appellants contend that some of the issues in the appeal are "novel" and involve questions of principle likely to be of general application to conveyancing practitioners. For that reason it is said there is a public interest served in not making an order for security which would prevent the determination of those issues on appeal. To the extent this litigation does raise any issues having that character, the appellants do not pursue their resolution for that purpose. Their motivation, as is made plain by ALG's correspondence, is to succeed in their "speculation", which includes the recovery of the significant costs incurred at first instance. Private litigation pursued for private purposes sometimes raises issues which may be of general interest or application. However ordinarily that is not a reason for not making an order for security where one would otherwise be made.
12. Thirdly, the respondents submit that Mr Carter has in various ways - it is not necessary to pursue the detail - shown reluctance to disclose his address. That may or may not be so. It is not however a matter to be taken into account in this case as weighing in favour of an order for security on the basis that the enforcement of any costs order might be made more difficult. Here the practical reality is that if the appeal is dismissed any order for payment of the costs of the respondents will not be satisfied: cf UCPR r 42.21(1)(e); and Pi v Zhou [2016] NSWCA 148 at [34].
13. Fourthly, and most significantly, the respondents submit that the appellants' lawyers are creditors or contingent creditors whose ability and willingness to provide security must be considered because they stand to benefit from the successful prosecution of the appeal beyond being paid their costs of the appeal incurred on a "no win-no fee" basis.
14. The present case does not concern a claim for personal injury. In such litigation the supply of legal services on a "no win-no fee" basis ensures access to justice for impecunious plaintiffs. For that reason, including in appeals in which the lawyers may stand to recover earlier unpaid fees as well as those incurred in the appeal, there is a general practice not to order security: see the observations of Handley JA in de Groot v Nominal Defendant [2004] NSWCA 88 at [29].
15. However that is not the present case. In Porter v Gordian Runoff Ltd [2004] NSWCA 69 at [41], whilst the amounts in issue were much higher than in this case, Hodgson JA considered a factor in favour of an order for security to be that the appellant's legal advisors were owed substantial amounts of money giving them a "large stake" in the success of the appeal. The relevance of that factor, as his Honour's reasons imply, is that lawyers with such an interest may reasonably be expected to provide some financial support for the prosecution of the appeal. The application to discharge that order on review was dismissed (Porter v Gordian Runoff Ltd [2004] NSWCA 171). In dismissing that application Bryson JA, with whom Sheller and Giles JJA agreed, likewise considered (at [32]) that the fact that the appellant's lawyers stood to benefit if the appeal was successful supported the making of an order for security.
16. The lawyers in this case have made clear that they are not prepared to "lodge" funds by way of security for the costs of the appeal. In that respect their position is different from that of the lawyers in Tyneside where at the time of the application for security before Sackville AJA (see [75], [77]), there was no evidence that they were not prepared to advance funds by way of security. In the absence of such evidence his Honour was not satisfied that the appeal would be stultified, and made an order for security. However where there is a communicated unwillingness of a creditor or other third party to provide financial support, there remains a question whether it would nevertheless be reasonable that they do so if they wish to secure the continuation of the litigation. That being the correct approach was confirmed in Madgwick v Kelly (2013) 212 FCR 1; [2013] FCAFC 61 where Allsop CJ and Middleton J said (at [83]) that "unwillingness in itself is not determinative, and the question of the reasonableness of any unwillingness to contribute must be considered in determining what is fair in all the circumstances".
17. When addressing that question in LRSM Enterprise v Zurich Australian Insurance Ltd [2014] NSWCA 88, Barrett JA (at [44]) drew a distinction between the position of what he described as mere "arms-length trade creditors" and those who have some more particular connection with the debtor company or the litigation, such as was the position concerning the solicitors in Tyneside "who were willing to continue acting in the litigation on the deferred payment basis". In relation to the former, his Honour (at [43]) accepted that there was a question whether such trade creditors should be regarded as "standing behind" a moving party in the relevant sense.
18. However the lawyers in this case are not "mere" arms-length trade creditors. Their position is similar to that of the solicitors in Tyneside. They have resolved with Mr Carter that the appeal should proceed on a "speculative" basis. In the absence of that arrangement the appeal could not proceed. Their doing so makes it necessary for the respondents to incur costs which they will not recover (in the absence of any security) in the more likely event that the appeal fails. Addressing the question of fairness as between the appellants (and those "standing behind" them) and the respondents, it is reasonable that those lawyers provide some financial support to secure the continuation of the appeal. There is however a difficulty in determining the amount of that contribution in the absence of evidence as to the quantum of the unpaid fees and the particular arrangements between the lawyers and Mr Carter, all matters which from the appellants' perspective could have been clarified.
19. The second creditor to which the respondents make reference is the solicitor creditor of the estate for professional fees totalling $85,000. That solicitor has also indicated that he is not willing to contribute any amount towards the costs of the appeal. However he is in no sense "standing behind" the appellants in relation to the conduct of the appeal. In addition it would not be reasonable to expect him to contribute funds to the conduct of proceedings between the appellants and respondents in circumstances where he initially acted on behalf of both parties in relation to the contract for sale which is the subject of the proceedings.
20. Finally, the respondents rely on the fact that they seek security for costs in appeal proceedings where there has already been a determination adverse to the appellants (as to which see Mr D v Ms P at [38] citing Tran v The Commonwealth [2009] FCA 921 and Tait v Bindal People [2002] FCA 322) and significant legal costs have been incurred by both parties. They contend that the injustice in exposing them to incurring costs which will not be recoverable in the event that the appeal is unsuccessful is exacerbated in circumstances where their costs at first instance have not been paid, and are not likely to be paid.
21. Taking these matters into account, there are special circumstances which justify an order for the provision of security.
22. The appellants and their lawyers have resolved to pursue an appeal which is more likely to fail than not. Because of their impecuniosity, in the absence of any provision of security, the respondents face the reality of incurring substantial further legal costs with no realistic prospect of recovering them if the appeal is unsuccessful. Each party has already incurred substantial legal costs at first instance. In the case of the respondents the order that those costs be paid by the appellants has not been satisfied. In the less likely event that the appeal succeeds, in addition to obtaining judgment for an amount of about $500,000, the appellants stand to recover their costs incurred at first instance. The beneficiaries of their doing so are the lawyers and others whose fees at first instance remain unpaid. For that reason they have joined with the appellants in pursuing that outcome.
23. Whilst I am satisfied that an order for security should be made I am not satisfied that it should be made in the amount sought (being $80,000). Looking at the matter as between the appellants and those who stand behind them, and the respondents, and allowing that the lawyers' unpaid fees are at least $70,000, it is reasonable to expect that they might contribute $40,000 towards the provision of security. Whilst security in that amount does not secure all of the respondents' estimated party and party costs, it takes account of the impecuniosity of the appellants, their interests in prosecuting the appeal, and goes some way towards meeting the further cost consequences to the respondents in the event the appeal proceeds and is unsuccessful.
24. There remains the question of the costs of this application. In my view those costs should be the respondents' costs in the appeal. I note, with significant concern, that the evidence reveals the respondents' solicitor-client costs of this application to exceed $30,000. The security which I have ordered is not to be applied in satisfaction of those costs. Nor does the order I propose contemplate that those costs should be the subject of a separate application for security.
25. Accordingly the Court orders: 1. The appellants provide within 14 days security in the sum of $40,000 for the respondents' costs of the appeal either by payment of that amount into Court or in such other form as the appellants and respondents may agree before that time expires. 2. Stay these proceedings until the appellants have provided security for the respondents' costs of the appeal in accordance with order 1. 3. Order that the costs of the respondents' notice of motion dated 14 October 2020 be the respondents' costs in the appeal.

Amendments 17 March 2021 - Added "SC" following counsel's name. 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: 17 March 2021