PORTER v. GORDIAN RUNOFF LIMITED [2004] NSWCA 171

LOWER COURT Court of Appeal single judge JURISDICTION : LOWER COURT 50072/2001 FILE NUMBER(S) : LOWER COURT Hodgson JA JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40823 of 2003

SHELLER JA GILES JA BRYSON JA

Thursday 1 July 2004 ROBERT ARTHUR PORTER v. GORDIAN RUNOFF LIMITED (FORMERLY KNOWN AS GIO INSURANCE LIMITED) AND OAMPS LIMITED

Judgment 1 SHELLER JA: I agree with Bryson JA. 2 GILES JA: I agree with Bryson JA. 3 BRYSON JA: The appellant applies to the Court of Appeal pursuant to s.46(4) of the Supreme Court Act 1970 and Pt.51 r.56 of Supreme Court Rules 1970 to discharge an order for security for costs and an order for costs of three applications. The appellant was formerly managing director of the second respondent, and was involved in civil and criminal proceedings which arose out of events while he was managing director. The appellant as plaintiff brought proceedings 50072 of 2001 in the Commercial List against the respondents as defendants claiming against the first respondent indemnity under an insurance policy and against the second respondent indemnity under a provision of its Articles of Association against costs which the appellant had incurred in the civil and criminal proceedings. After a hearing of 63 days McClellan J, for reasons published on 21 August 2003, made orders on 22 August 2003 which had the effect of dismissing all the appellant's claims. The appellant appealed. The respondents, which are separately represented and are not in the same interest, applied for security for costs of the appeal, by the second respondent's Notice of Motion of 27 January 2004 and the first respondent's Notice of Motion of 17 February 2004. After hearing these Notices of Motion on 23 February 2004 Hodgson JA, for reasons published on 16 March 2004, made this order: 1. I order that the appellant provide security for costs in the sum of $150,000.00 for each respondent, and that if this security is not provided within fourteen days, that the appeal be stayed until such security is provided.

His Honour also dismissed an application by the appellant and ordered the appellant to pay the costs of that application and the respondents' applications for security for costs. 4 The nature of the Court of Appeal's power when asked to discharge an order made by a Judge of Appeal was recently considered by Beazley, Santow and Ipp JJA in Transglobal Capital Pty Limited & Ors v. Yolarno Pty Limited [2004] NSWCA 136 on 19 May 2004. In view of what was then said in the judgment of the Court there is no need for extensive consideration of the power on this occasion. An application to discharge an order is not an appeal and it is not a rehearing de novo: a sufficient ground must be shown upon which the order should be discharged, otherwise the order will stand. The restatement made in Patrick v. Howorth [2002] NSWCA 285 by Heydon JA at para [10] shows that an order will not ordinarily be discharged unless the decision turns on an error of law, a material error of fact or, in so far as it is discretionary, a ground within the principles governing review of discretionary decisions in House v. The King (1936) 55 CLR 499. 5 Part 51 r.16 of the Supreme Court Rules 1970 deals with security for costs and provides:

51.16 Security for costs (1) Where a notice of appeal with appointment has been filed under rule 6, the Court of Appeal may, in special circumstances, order that such security as the Court of Appeal thinks fit be given for the costs of the appeal. cf RSC (Rev) 1965, O 59, r 10 (5). (2) Subject to subrule (1), no security for the costs of an appeal to the Court of Appeal shall be required. (3) Subrules (1) and (2) do not affect the powers of the Court under Part 53 Division 1 (which relates to security for costs).

6 It can be seen that an order for security for costs is to be made if there is a determination that there are special circumstances (which may involve questions of fact or law) and further if there is a discretionary decision to make such an order; otherwise no security is required. 7 Similar Rules of Court or provisions imposing a test of special circumstances before security for costs of appeals is required are found in a number of other jurisdictions. Adoption of this test was a reform in the law of New South Wales by the rules scheduled to the Supreme Court Act 1970, and Part 51 r.16(1) was closely modelled on Order 59 r.10(5) of the Rules of the Supreme Court (Revision) 1965 of England and Wales. Before those rules took effect there were no express provisions dealing with security for costs in common law appeals in New South Wales, whereas subs.81(1) of the Equity Act 1901 (since repealed) required security in every appeal. The amount to be secured or deposited was 100 pounds, a large sum in 1901 but as $200 little more than nominal by 1972. 8 In some other jurisdictions it is the practice to treat the inability of the appellant to pay costs should the appeal be unsuccessful as special circumstances and to order security for costs in such cases. The judgment of Sheller JA in Saba v. National Australia Bank Limited [1999] NSWCA 93 illustrates the unreadiness of this Court to treat impecuniosity of an appellant, without more, as special circumstances within the meaning of Pt.51 r.16(1). An extensive review of the cases, in New South Wales and elsewhere, led the Court of Appeal in Transglobal to say: [30] These and other cases were reviewed by Hodgson JA sitting alone, in Porter v. Gordian Runoff Ltd. & Anor. [2004] NSWCA 69. His Honour considered that the weight of authority in New South Wales supported the view " that impecuniosity " can of itself amount to special circumstances within Pt.51 r.16(1). His Honour qualified this view by saying "I also accept that orders would not normally be made simply because an appellant is impecunious."

[31] We would not state the conclusion to be drawn from the cases in the same terms as did Hodgson JA. If anything, the weight of authority is to the effect that something more is usually required. It may be however, that our view may involve no more than looking through a different edge of the prism of this line of authority.

9 In his Honour's reasons for the order which we are asked to discharge, to which the observations in Transglobal at paras [30] and [31] relate, Hodgson JA did not act on impecuniosity alone. 10 On behalf of the appellant it was contended, and the respondents did not dispute, that the effect of the order for security for costs will be that the appeal will not proceed as the appellant is not in a financial position to give security as ordered. The appellant's evidence in support of his application shows, in the clearest way, that he has not had any income since November 1998, that he has no assets apart from clothing and a few household possessions and that in most of his litigation, counsel and solicitors have acted for him on a pro bono basis. In his affidavit he said: (Application Book p122) "In the circumstances I would not be in a position to comply with any order for security for costs which might be made at the present time. If security for costs is ordered against me it will have the inevitable effect that my appeal will be stifled and will not be able to be determined on its merits." He also said: "The only people who stand to benefit from my success in this appeal are my legal advisors who are my creditors. I was not funded to run any of the litigation to which I have referred herein." The exact contractual terms on which the appellant's counsel and solicitors have acted are not in evidence; it seems likely that the liabilities for costs which he has incurred are largely conditional upon success, and so it may not strictly be correct to say that he is indebted for those costs. It has not been established by evidence whether the appellant in fact can make arrangements to be represented by lawyers who will conduct the appeal notwithstanding his being impecunious. It should in my understanding be taken that Hodgson JA regarded it as a reasonable prospect that the appellant would be able to make some such arrangement so as to proceed with his appeal. 11 It was Hodgson JA's view at para [40] of his Honour's judgment that "the appeal will inevitably be an extremely long one." Hodgson JA said: "… [the appellant's] legal advisors have a large stake as a matter of fact in the success of the appeal," but did not regard the appeal as one being brought on behalf of the appellant's legal advisors. See judgment at para [41]. 12 His Honour found at para [42] [42] It is also significant that the respondents stand to lose, as a result of the appeal, if it is unsuccessful, a further sum which they estimate as being over $300,000.00 each.

13 In my view the likely great length of the hearing on appeal, and the correspondingly great costs to the respondents are important factors and it was correct for Hodgson JA to have regard to them. This is not a case where additional costs of an appeal are a relatively small part of the financial burden which will fall on the respondents if successful. The amount of security for each respondent which his Honour ordered falls far short of the projections of their costs of which they gave evidence, and far short of complete protection. 14 Senior counsel for the appellant submitted that as the appellant has been found by the Primary Judge to have acted dishonestly and to have engaged in conduct that amounts to the commission of serious criminal offences, the order for security for costs will prevent the appellant from challenging these serious findings; and this should be a fundamental consideration when the Court of Appeal exercises its discretion. The findings of McClellan J indeed do include findings, expressed with clarity and vigour, that in a number of ways there was dishonesty on the part of the appellant including conduct which, on the face of things, appears to be criminal. (However criminality cannot be clearly established by anything other than criminal proceedings, which in the appellant's case have been brought to an end by nolle prosequi.) Counsel referred to the appellant's success in other litigation, including the criminal proceedings which were discontinued. It was submitted to the effect that the findings of McClellan J if they stand seriously blemish the appellant's personal character and suitability to hold responsible positions in commerce, and will end any prospects of his continuing a career in positions such as his former position as managing director of the second respondent. It was contended that the appellant has a vital personal interest in maintaining the appeal so as to defend and protect his name and reputation, and that Hodgson JA did not give appropriate weight to this factor. 15 The effect of the findings of McClellan J if not reversed will probably be grave for the appellant, much in the way his counsel depicted. The severity of the personal impact on the appellant and the intensity of his need to pursue an opportunity to reverse McClellan J's findings do not appear among the grounds argued on behalf of the appellant before Hodgson JA as recited in his Honour's judgment at paras [30]-[35]; but they could not have escaped attention as they have an obvious and prominent claim for consideration, reinforced by the clarity and vigour with which adverse findings were expressed by McClellan J. The subject certainly did not escape the attention of Hodgson JA who said at para [43]: [43] I accept that the decision has very serious consequences for the appellant, financial and otherwise; and that it will be most unfortunate if an order for security prevents him pursuing his right of appeal. 16 His Honour was aware, too, that there is a likelihood that requiring security for costs would stifle the appeal and have adverse consequences for the appellant. The nature of the issues, including issues of fact relating to credibility in which the appellant claimed, in effect, that several persons had conspired against him to give a false account of events in which they participated, appears to mean that the ultimate outcome of the proceedings, whatever it is, will have severe adverse implications for the reputation of the appellant or alternatively for the reputations of several persons whose evidence and credibility he attacked; those persons also have business careers, and could point to the likelihood of similar adverse outcomes for them and their careers as the appellant's counsel has referred to. In my view, no part of his Honour's address to this matter raises any doubt about the manner in which his Honour's discretion was exercised. 17 Senior counsel for the appellant further contended that there is a public interest in the appeal and that this is relevant for the question whether special circumstances exist. It was submitted that there are significant public policy implications of a litigant being unable to test serious findings which would establish criminal conduct. It was contended that the public policy implications are all the more important in that, in the present case, the appellant asked the Primary Judge to disqualify himself on the ground of apprehended bias, and that matter is the subject of two of his numerous grounds of appeal. It was contended that other issues of public interest in the appeal include the appropriate standard of proof necessary in a case where findings which would establish criminal conduct were made (the Briginshaw principle) and a number of insurance issues including requirements of disclosure and the meaning of good faith. 18 I leave aside for the moment the contention that the Primary Judge should have disqualified himself on the ground of apprehended bias. I do not think that the other matters referred to by counsel are issues in the appeal in relation to which public interest is of great importance. There is of course a public interest in the due administration of justice and in securing that the findings on which civil litigation is disposed of, including findings seriously adverse to the character of litigants and witnesses, are reached on correct principles; and in this sense public interest is involved in many appeals. However there are no elements which I would regard as giving this appeal and its continued conduct a real claim to be in the public interest; grave and serious as the implications of findings are both for the appellant and, if reversed, for other persons whose conduct and evidence he impugned, the interests involved are primarily of a private character and special to the appellant and those persons. The Briginshaw principles were established by authority of a decision of the High Court of Australia in Briginshaw v. Briginshaw (1938) 60 CLR 336 and have often been considered and applied, and any question relating to them involved in the appeal is likely to relate to their correct application rather than to establishing their contents. Insurance issues relating to disclosure and the obligation of good faith are frequent subjects of litigation and I see nothing in the present case which would require the appeal to be classified as a matter of public interest, in any sense different from appeals generally. 19 It was contended that it is relevant to the application of Pt.51 r.16 of the Supreme Court Rules 1970 and the special circumstances test that the claim of the appellant is for a new trial. This contention is based on an observation in the judgment of A L Smith LJ in Hall v. Snowden, Hubbard & Co. [1899] 1 QB 593 at 594: The ordinary rule of this Court is that, except in applications for new trials, when the respondent can shew that the appellant, if unsuccessful, would be unable through poverty to pay the costs of appeal, an order for security for costs is made.

His Lordship did not state why an application for a new trial should not fall within the ordinary rule, and no reason suggests itself readily. As the ordinary rule to which his Lordship referred is not followed in New South Wales, the exception to it is of limited importance. 20 It seems that in the Nineteenth Century the Court of Appeal of England did not regard a motion for a new trial after trial by jury as an appropriate case for ordering security for costs; it is not clear whether this was based on a view that such a motion was not an appeal within Order LVIII r.15 of the Rules of Court then in force or on the view that it was appropriate to continue the earlier practice of Common Law Courts and the Queen's Bench Division; see Heckscher v. Crosley [1891] 1 QB 224 and Hall v. Snowden, Hubbard & Co. An application for a new trial was seen as characteristic of common law litigation in which the earlier practice did not include ordering security for costs, whereas appeals generally were associated with Equity business in which a deposit of money as security for costs was required generally, in a similar way as later in New South Wales under s.81 of the Equity Act 1901. In my opinion Nineteenth Century practice about new trial applications in England should have no influence on the application of Pt.51 r.16, which extends to and should be applied to appeals generally. 21 Counsel also referred to Cowell v. Taylor (1883) 31 Ch D 34 in which the Court of Appeal of England did not require security for costs to be given by a plaintiff who sued as trustee in bankruptcy and who was himself insolvent, and there was no reference to a Rule of Court regulating security for costs or imposing a test of special circumstances. This authority should have no influence in the present case as the decision relates to costs at first instance, not to the costs of an appeal. 22 The appellant's counsel also made submissions relating to the merits of the appeal, and contended that Hodgson JA did not take a correct view, or did not give appropriate weight to the merits of the appeal in determining whether to order security for costs. It was submitted that it is not necessary to show that an appeal is likely to succeed, and that all that is necessary is to show that the appeal has some substance. As counsel observed, it is not possible properly to consider the merits of the appeal in an application for security for costs. This is a characteristic difficulty of applications for security for costs generally; the merits of the proceedings, at first instance or on appeal, are relevant to the question whether security should be ordered, but it is not possible to attain a clear understanding of the merits in advance of a full hearing. 23 The appellant challenged a number of decisions of McClellan J. upon the construction and effect of documents, for which it is difficult to see that questions of credit and credibility have any significance. These included rulings adverse to the appellant on the meaning and effect of a Deed of Release given by the appellant to the second respondent. Hodgson JA was of the view that the appellant had an arguable case on the effect of the Deed of Release. His Honour also accepted that the appellant had some chance of success on some questions relating to the effect of the insurance policies issued by the first respondent. Success in these challenges would not however bring with it success in the appeal; there are other issues upon which the appellant would also have to succeed for which reversing credit findings is essential. As the appellant's senior counsel put it, to get through to an ultimate victory, essentially the appellant would have to overturn findings of fraud and criminal conduct, because the indemnity under the Articles of Association would not respond to such conduct, and indemnity under the insurance policy would not respond to such conduct either. 24 Hodgson JA made a review of the merits of the appeal and the appellant's chance of success at paras [38] to [40] of his Honour's reasons. After reviewing several issues on which it was his Honour's view that the appellant had some chance of success or an arguable case his Honour said: [40] However, success on matters such as this would not result in a successful appeal, unless the appellant was also substantially successful in his challenge to the factual findings, essentially to the effect that he acted dishonestly. So long as those findings stand, it seems clear to me that the appellant's claim against both respondents would fail. In my opinion, there is no way which is fair to both parties that the appellant's challenges to these findings can be split up for separate determination. It follows, in my opinion, that the appeal will inevitably be an extremely long one; and also that it will be a difficult one for the appellant to win, when what is required is that he overturn factual findings of a primary judge which were to a substantial extent dependent upon the primary judge's assessment of the credibility of witnesses who gave evidence before him. 25 The view that the appeal will be a difficult one for the appellant to win when what is required is that the Court of Appeal overturn factual findings which to a substantial extent depend on the Primary Judge's assessment of credibility is a view which could not be challenged, and counsel for the appellant accepted that there is difficulty of that kind. Having regard to the terms in which findings adverse to the appellant and his credit were made by McClellan J, the difficulties in the path of the appeal are formidable and if anything were understated in the findings of Hodgson JA. 26 However this view must be taken with the nature of the challenges made by the appellant to the conduct and findings of the Primary Judge. It was contended that there was a systematic failure in the approach of the Primary Judge to findings of facts, in particular that his Honour failed to apply the correct standard of proof, and to consider relevant evidence on a great many significant matters set out in Sched.2 to the Notice of Appeal. The Notice of Appeal specifies 197 grounds of appeal and Sched.2 sets out, on 50 pages, several hundred matters of which it is complained that the Primary Judge failed to refer to them, or to consider or place sufficient weight on them. The Notice of Appeal appears to refer to, and to challenge almost every significant conclusion expressed by the Primary Judge in his Honour's judgment; hence its baffling length extending over 81 pages. Plainly the appropriate presentation and consideration of an appeal on these grounds would require case management followed by a lengthy hearing occupying some weeks. 27 The first two grounds of appeal are as follows: Grounds of appeal relating to apprehended bias and the appropriate standard of proof 1. His Honour erred in failing to disqualify himself on the grounds that his conduct of the trial would have given a fair minded lay observer a reasonable apprehension that His Honour might not bring an impartial mind to the resolution of the questions he was required to decide (interlocutory judgment on 26 May 2003). Particulars The Appellant refers to the submissions made on 22 May 2003. 2. His Honour should have disqualified himself on the grounds that his conduct of the trial would have given a fair minded lay observer a reasonable apprehension that His Honour might not bring an impartial mind to the resolution of the questions he was required to decide. 28 The appellant's counsel did not attempt to embark, even in a preliminary way, on the large review of events at the trial which it would be necessary to undertake if the Court of Appeal were to come to some view on the prospects of the appellant succeeding in the claim of apprehended bias; and the corresponding exercise was not undertaken before Hodgson JA either. 29 The submissions made on the 45th hearing day on 22 May 2003 before McClellan J were exhibited to an affidavit which was read before Hodgson JA. The exhibit comprises pp 3130 to 3147 of the transcript of proceedings on that day. Mr Hayes QC then appearing for the appellant presented at length an application that the Primary Judge disqualify himself on the ground of apprehended bias. In a submission developed at great length and in detail it was contended that the Primary Judge had given every indication of prejudgment from the first day of the hearing, that with the exception of one question, his Honour had only asked questions favourable to the respondents; that his Honour had acted as a third cross-examiner of the appellant in all practical effect, had not asked witnesses adverse to the appellant any question, and was unsympathetic when asked to give directions limiting cross-examination or mitigating the burden of extended cross-examination on the appellant. It was further submitted that the Primary Judge had differentiated considerably in his approach to counsel for the appellant from his approach to counsel for the respondents, and had taken a more stringent view on rules of evidence, pleadings and procedural matters against the appellant than otherwise. These and other instances in support of the claim of apprehended bias were developed at length. 30 This issue gives the appeal an element of public importance. Lengthy and particular as the Notice of Appeal is, grounds 1 and 2 could not be addressed without close attention, in case management, to a more careful and complete enunciation of the matters complained of than simply a recurrence to the submissions made by Mr Hayes QC on 22 May 2003. Those submissions, it may be necessarily, were not accompanied by detailed reference to instances, transcript passages and specificities which it would be necessary for the Court of Appeal to have available if it were to dispose of these grounds. It is clear enough that the complaint was made, that it was made at length and that there must be a great deal of particular material to which the Court of Appeal must have regard if it were to understand the complaint and to come to a conclusion on whether or not such complaint is justified. On the material put before Hodgson JA and again before the Court on the application to discharge the order, it is not in my opinion possible to come to any clear or reliable view about the likely outcome of this ground of appeal. No real examination of this material and of factors indicating what is the likely outcome was made before Hodgson JA, and in my view no reliable appraisal can be made by the Court of Appeal; it is difficult to perceive further than that there is a vigorous complaint, under which a great deal of material must lie, but senior counsel for the appellant told us to the effect that the dimensions of the complaint were such that he was not able to make an examination of its strengths and weaknesses as part of his submissions. 31 I recognise that this complaint in its nature confers a public interest element on the appeal. Further, it was suggested that Hodgson JA had left it out of account when he said, in his para [40], that the appeal would be a difficult one to win, because his Honour was not in a position to come to a clear view of the prospects of the grounds of appeal founded on the complaint being upheld. I do not think, however, that there was an error in this respect in his Honour's exercise of discretion. His Honour was alive to the grounds of appeal, see para [34]. The prospects of their success must be regarded as neutral, since the appellant did not seek to demonstrate their strength. So far as a reasonably informed view could be arrived at, as to overturning the factual findings, the indications were that the appeal would be a difficult one to win. In view of the way in which this issue was presented to us on the application for discharge we should also take the view that the appellant's prospects of success on this ground are not a significant factor. 32 There remain weighty considerations favouring an order for security for costs. The financial burden which the costs of the appeal will impose on the respondents is very great. The appellant's own evidence shows that he is quite unable to meet any obligation to pay costs, either at first instance or on appeal, and his own affidavit is to the effect that the persons who stand to benefit from success in the appeal are his lawyers. I feel that there may be some element of hyperbole in this, and that complete success may bring some surplus to the appellant above his obligations for legal fees; to pay his debts is itself an advantage, but that is not the effect of what his affidavit says. Each of the respondents has spent over $1,000,000 on the litigation already, and what each has spent is more than the whole claim made against both. This will be considerably increased if the appeal does not succeed and they obtain further orders for costs of the appeal. Although certainty is not available the probabilities, so far as they can be seen, favour the respondents' succeeding in the appeal, and do so by a considerable degree. Although the respondents have obtained an overwhelming success so far, they have no protection on their claim of costs against the appellant. Even though security for costs is likely to stifle the appeal, the respondents' claim for this protection is a very strong one. The appellant's prospects of success exist and must be recognised, but it must also be concluded that they have not been shown to be strong, and that the material put forward relating to the prospects of success on the ground of apprehended bias is not material on which a clear favourable view can be formed. 33 In my opinion it has not been established that the grounds upon which Hodgson JA ordered security for costs were erroneous in any respect, or that his Honour's discretion miscarried. 34 For these reasons the Court of Appeal should refuse to discharge those orders, and should dismiss the Notice of Motion with costs.

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