Salfinger v Napiat Pty Ltd

REASONS FOR JUDGMENT 1 On 18 November 2011 the primary judge (Foster J) made a sequestration order against the estate of the appellant (Mr Salfinger). On 9 December 2011 Mr Salfinger filed a notice of appeal against his Honour's judgment. The petitioning creditor, now the respondent to the appeal, seeks security for its costs. 2 Section 56 of the Federal Court of Australia Act 1976 (Cth) authorises the Court to order that an appellant in an appeal under Div 2 of Pt III give security for costs. Rule 36.09 of the Federal Court Rules 2011 also makes provision for the making of an application to the court for an order requiring an appellant to give security for the costs of an appeal. 3 Mr Salfinger's notice of appeal indicates that he is acting for himself. It specifies his address for service as "C/o Tom Glynn, Level 7/37 Bligh Street, Sydney NSW 2000, Australia". It specifies his address as "2306 Calendonia Drive, North Vancouver BC V7G 1T9, Canada". 4 The interlocutory application filed by the respondent does not specify the amount of security which the respondent seeks for its costs of the appeal. However, an affidavit of Mr Clement Gye, the solicitor for the respondent, indicates that the respondent seeks security for costs in the sum of at least $40,000. 5 Mr Salfinger, who presently resides in Canada, participated in the hearing of the interlocutory application by telephone. A copy of an affidavit affirmed by Mr Salfinger was sent to the Court shortly before the hearing commenced. It is not clear whether it was also sent to the respondent's solicitors, but counsel for the respondent was provided with a copy of the affidavit during the course of hearing. 6 Mr Salfinger's affidavit consists of 8 paragraphs. During the course of the hearing I ruled on the respondent's objections to it and rejected paras 6 and 7. 7 Mr Salfinger's affidavit shows his address as 4360 Agar Drive, Richmond, BC, Canada which is different to that given in his notice of appeal. He states in the affidavit that he has been a permanent resident of Canada since 1991. He also states that he is in the process of becoming a Canadian citizen. In para 5 of this affidavit Mr Salfinger states: My appeal to this matter is based on the argument of a denial of natural justice as I was not given the right to appear at court by video link and for other matters. Had I been allowed to appear and present the evidence of my residency and been allowed to explain the Family Court files that were presented by Napiat in this Court there would never have been an order against me. [Errors in original] Mr Salfinger also states in his affidavit that the proper place for any bankruptcy action against him was Canada where he has lived for over 20 years and where he has assets. 8 The primary judge found that Mr Salfinger was indebted to the respondent for an amount of $804,478.55 pursuant to an order made by Cowdroy J on 15 October 2010. His Honour was satisfied that, as at the date of the hearing of the bankruptcy petition, that amount was still owing by Mr Salfinger to the respondent. 9 The primary judge made a number of other findings relevant to jurisdiction to make a sequestration order against the estate of Mr Salfinger. In particular, his Honour made findings that Mr Salfinger, as at the date of the act of bankruptcy: was ordinarily resident in Australia; had a dwelling-house in Australia; was personally carrying on business in Australia. 10 While Mr Salfinger was critical of these findings, he did not direct me to any material in evidence before the primary judge that cast doubt upon their correctness. 11 It is apparent from the reasons of the primary judge that there was evidence to show that in the period from mid to late February 2010 until at least mid May 2011 Mr Salfinger lived at 1 Davena Street, Daniella in Western Australia and that he worked as a consultant during that period. The evidence appears to have included a record of proceedings in a family law matter in which Mr Salfinger asserted to a judge of the Family Court of Western Australia that he was, as at 14 April 2011, ordinarily resident in Western Australia. 12 It is also apparent from the reasons of the primary judge that Mr Salfinger chose not to give evidence. Paragraph 5 of Mr Salfinger's affidavit asserts that he "was not given the right to appear at court by video link". To the extent it is suggested by Mr Salfinger that he had a right to give evidence by video link, this is based upon a misconception. In any event, there is no evidence before me to indicate that Mr Salfinger made any application for an order allowing him to give evidence by video link or, if such an application was made, how it was resolved. 13 A number of other matters emerged during the course of the interlocutory hearing which are relevant to the respondent's application for security. 14 First, Mr Salfinger informed me that he had not yet provided a statement of affairs to his trustee. He told me that he had not done so because he is solvent. I put aside for the moment the fact that Mr Salfinger was required to provide his trustee with a copy of his statement of affairs prepared and filed in accordance with s 54(1) of the Bankruptcy Act 1966 (Cth) (the Act) within 14 days of the day on which Mr Salfinger was notified of the sequestration order. What is more significant, for present purposes, is Mr Salfinger's statement that he is solvent. While his affidavit does not go into any detail in relation to his financial circumstances, it does indicate that he has assets in Canada. 15 The effect of the sequestration order made by the primary judge was to vest Mr Salfinger's property in his trustee in bankruptcy. But it does not follow that Mr Salfinger is not in a position to comply with an order for security for costs. One matter not addressed in his affidavit or his oral submissions is his ability to arrange for the provision of security with the assistance of a third party such as a relative, friend or business associate. 16 Mr Salfinger told me that he would be represented at the hearing of the appeal by senior and junior counsel. This would suggest that he has access to funds which can be used to pay legal fees in relation to his own representation in the appeal. 17 Mr Salfinger did not suggest in evidence or submissions that he would not be able to comply with an order for security for costs in the sum sought by the respondent. Nor am I willing to assume that he will be unable to comply with an order that he provide security for costs in a reasonable amount. 18 There are three other matters that are of obvious relevance to the question whether Mr Salfinger should be required to provide security for the respondent's costs. 19 First, Mr Salfinger is now a bankrupt. It is often assumed that the prospects of recovering costs from a bankrupt are likely to be very poor, but that is not necessarily so especially in the case of a solvent estate. Still, in circumstances where Mr Salfinger has yet to provide his trustee with a statement of affairs I must accept that there is a substantial risk that he will not be able to satisfy any order for costs made in favour of the respondent. 20 Secondly, the question of whether or not a sequestration order should be made has already been the subject of adjudication by a judge of this court following a contested hearing at which Mr Salfinger was represented by counsel and solicitors. As Bowen CJ said in J & M O'Brien Enterprises Pty Ltd v The Shell Co of Australia Ltd (No 2) (1983) 70 FLR 261 at 264: One matter which is generally considered in relation to applications for security for costs in relation to proceedings at first instance is what prospects of success the plaintiff has in the proceedings. If the plaintiff has a strong and apparently meritorious case the court is reluctant to make an order which may have the effect of shutting the plaintiff out. In the case of an appeal the position is slightly different. For one thing the plaintiff has had his day in court. 21 Thirdly, whatever the true position may have been previously, it seems clear that Mr Salfinger is now resident overseas. The fact that the sole appellant is resident out of the jurisdiction provides a further basis for awarding security for costs. 22 I am mindful that a sequestration order has significant consequences for the person in relation to whom it is made. It changes a person's legal status in a way that affects his or her liberty. This is an important consideration when determining whether to require an appellant to provide security for costs: Hood Barrs v Heriot [1896] 2 QB 375 (CA). Nevertheless, the circumstances of the present case are somewhat unusual. In addition to the appellant's bankruptcy there is the fact that he is resident overseas and the fact that he has failed to provide his trustee with a statement of his affairs. In the circumstances, I am satisfied that an order for security for costs should be made. 23 As I have mentioned, Mr Salfinger asserted that he is solvent. If he is solvent, he may be able to obtain an annulment of his bankruptcy pursuant to the provisions of Div 5 of Pt VII of the Act. However, he would have no prospect of obtaining an annulment in circumstances where he had not complied with his obligation to prepare and file a statement of affairs. He should prepare and file his statement of affairs in accordance with the requirements of the Act without further delay. 24 It seems to me likely that the hearing of the appeal will occupy one day. Mr Gye's affidavit allows for 53 hours of preparation by the solicitors for the respondent in addition to preparation by counsel. This is in addition to six days' work by counsel (including preparation of written submissions and his appearance on the appeal) included in Mr Gye's estimate. 25 I think Mr Gye's calculations reflect an unduly pessimistic view of the time that the legal representatives of the respondent are likely to be required to spend preparing for the appeal. In particular, it seems to me unlikely that the matter will require preparation by a partner or senior solicitor of 30 hours or thereabouts which is what is allowed for in Mr Gye's estimate. 26 While Mr Gye's estimate may ultimately prove correct, I think I should take a more conservative approach in estimating the costs likely to be incurred by the respondent in resisting Mr Salfinger's appeal. 27 I am satisfied in all the circumstances that an appropriate amount which Mr Salfinger should be ordered to provide by way of security for costs is $25,000. The security must be provided within 21 days by way of payment into Court or by the provision of security in some other form acceptable to the Registrar. The respondent should have liberty to apply on 7 days notice for an order dismissing the appeal in the event that such security is not provided. The costs of the interlocutory application shall be the respondent's costs in the appeal. 28 There will be orders accordingly. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas.