Taouk v Assure

Taouk v Assure - [2017] NSWCA 160 - NSWCA 2017 case summary — Zoe

Judgment

MEAGHER JA: On 26 June 2017, I heard and dismissed the respondent's application for security for costs. I reserved the giving of my reasons for doing so. These are those reasons.
The primary judge (Sackar J) dismissed the appellant's claims and decided questions of liability raised by the respondent's cross-claims in favour of the respondent: Joseph Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 534. Those claims arose in respect of a property development at Berowra. The respondent was the owner of that property. The appellant provided the respondent with a guarantee and indemnity of the corporate developer's obligations under its agreement with the respondent. He was also the sole director and shareholder of the building company that contracted with the developer to construct the development.
The building work was not completed on time and the developer ultimately failed and has been deregistered. The appellant claimed against the respondent the recovery of payments made by him and others towards the cost of completing the development. He also claimed that those payments gave rise to caveatable interests in the completed strata title units which were owned by the respondent. The respondent brought separate proceedings for the removal of one such caveat and, on 5 September 2016, the appellant was ordered to pay the costs of those proceedings: Assure (NSW) Pty Ltd v Taouk [2016] NSWSC 1234. Those costs have been assessed at $35,784.
The appellant then commenced the proceedings which are the subject of this appeal. In September 2016 and pending the determination of those proceedings, an interlocutory regime was put in place with respect to the disposal by the respondent of the completed strata units. That regime limited the use to which the respondent could put the proceeds of those sales and required that the balance be paid and held in a solicitor's trust account. The terms on which that regime continued included an undertaking by the appellant as to damages, and the provision of security of $100,000 for that undertaking and the respondent's costs of the proceedings.
The primary judge delivered judgment on 4 May 2017. There followed argument about the orders that should be made. On 23 May 2017, his Honour dismissed the appellant's claim, made declarations as to the respondent's entitlement to monies pursuant to the guarantee and indemnity, and entered judgment for the respondent against the appellant for $3,266,518 (omitting cents). Execution of those orders was stayed for 14 days.
The appeal was commenced on 2 June 2017. The appellant also filed a notice of motion seeking an order extending that stay until the determination of the appeal. That application was heard by Simpson JA on 5 June 2017. After some argument, it was resolved by agreement. Upon the appellant paying into Court a sum of $100,000 "as security for the judgment against the appellant", the execution of order 2 made on 23 May 2017 (being the declarations and money judgment) was stayed until the determination of the appeal. At the same time, the Court noted the respondent's undertaking to the appellant to give him written notice of any intention to deal with the remaining strata units in the development.
In these circumstances, the appellant sought an order for security for costs. It relied on the Court's express powers under Uniform Civil Procedure Rules 2005 (NSW), rr 42.21 and 51.50 and on the Court's inherent power. Relevantly, r 42.21(1)(f) provides that the Court may order a party to give security for costs if satisfied that "there is a reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings". Under r 51.50(1), the Court may order security for costs of an appeal in "special circumstances" which have been held to include where there has been delay in prosecuting the appeal or unexplained non-compliance with procedural directions: see, for example, Levy v Bablis [2011] NSWCA 411 at [9] (Giles JA). In relation to the Court's inherent jurisdiction, reference was made to the following statement of Hodgson JA in Green v CGU Insurance Limited [2008] NSWCA 148; (2008) 67 ACSR 105 at [45]: Cases in which security for costs might be ordered against a natural person… outside those provided for in r 42.21 of the UCPR include cases where (in addition to proof that there is reason to believe the plaintiff will be unable to pay the defendants costs) the plaintiff has dissipated assents and/ or has not paid previous costs orders (especially if those costs orders were in favour of the defendant)…
The costs for which the respondent seeks security are the amount of $35,784, being the assessed costs of the caveat proceedings; an amount of $100,000 being the short fall between the security given in the proceedings at first instance and the respondent's likely costs of the those proceedings which the primary judge on 6 June 2017 ordered be paid on an indemnity basis (Joseph Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 778); an amount of $15,000 being the estimated solicitor/ client costs incurred in the appeal up to 15 June 2017; and a further amount of $68,450 being the estimate of the respondent's solicitor/ client costs for preparing and conducting the appeal.
The respondent accepts that it is not sufficient to justify the making of an order for security that it establish that the appellant is impecunious. UCPR, r 42.21(1B) so provides in express terms and, in relation to r 51.50, impecuniosity without more will usually be insufficient: Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [18] (Basten JA, Ipp and Hoeben JJA agreeing); Pi v Zhou [2017] NSWCA 16 at [50], [64] (Payne JA). The position has been the same under the general law from "time immemorial": Cowell v Taylor (1885) 31 Ch D 34 at 38 (Bowen LJ).
The respondent's position in relation to whether the appellant is impecunious was not always clear or consistent. Initially, it was submitted that the appellant was unable to pay the costs of the appeal proceedings from his own assets. Later it was accepted that the appellant did have access to assets, and contended that the respondent would not be able to enforce a costs order against him "without difficulty".
Ultimately, the respondent relied on the fact of that difficulty as well as two other matters as justifying the making of an order for security for costs. The first was that the appellant had in the caveat proceedings and the underlying proceedings, but not in the proceedings in this Court, "engaged in repeated and extensive delay and breached numerous orders of the Court". The second was that there was "reason to believe that the [appellant] has divested assets with the intent of avoiding the consequences of the [appeal] proceedings": r 42.21(1)(f). Each of these matters was also relied on as constituting "special circumstances" within r 51.50(1). In its written submissions, the respondent also maintained that the proceedings before the primary judge and the appeal were brought not for the appellant's benefit but for the benefit of some other person or persons: r 42.21(1)(e). During the course of oral argument, that submission was abandoned.
As to the first of these matters, in Sagacious Procurement Pty Limited v Symbion Health Limited [2007] NSWCA 205 at [53], Mason P described the purpose of exercising the power to stay proceedings brought by an impecunious claimant as being to ensure that the other party is not "oppressed in consequence of the moving party litigating without [financial] responsibility". As his Honour noted, the interest of that party to be protected by the order for security was, as described by King CJ in Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180 at 189, "the loss which may result from inability to recover costs by reason of the impecuniosity of the plaintiff" [or appellant].
The respondent did not contend that the appellant's past conduct gives rise to a significant risk that the respondent will also delay the appeal proceedings or fail to comply with the directions of this Court; and that an order for security should be made to protect it against that risk. The only prejudice which the respondent identifies as resulting from that conduct is the incurring of additional costs in the proceedings below. The appellant has been ordered to pay those costs on an indemnity basis. To the extent that those costs exceed the amount of security already provided in those proceedings and have not been paid, the respondent submits that an order for security for those costs should be made. In other words, the respondent seeks to be protected from losses which may result from its inability to recover not only the costs of the appeal, but also costs incurred at first instance.
However, as Payne JA (Sackville AJA relevantly agreeing at [85]) observed in Pi v Zhou at [62], an appeal will not ordinarily be stayed on the basis that the costs of the primary proceedings have not yet been paid because "the appeal, if successful, would see the award of costs set aside". Their Honours also concluded that the applicant's impecuniosity and failure to pay earlier costs orders in that case did not individually or collectively constitute "special circumstances" so as to enliven the exercise of the Court's discretion to grant a stay: at [64] (Payne JA); [85] (Sackville AJA). The same conclusion follows in this case. The loss against which the respondent seeks to be protected does not arise from the prosecution of the appeal. Accordingly, even if the appellant's impecuniosity were established, this first matter would not justify the exercise of the discretion to require security for the costs of the appeal.
As to the remaining matter, it is first necessary to set out in more detail the relevant background. It is not controversial that under the general law, as well as under rr 42.21 and 51.50, security may be ordered against a natural person, notwithstanding that the person is impecunious, where he or she has divested assets in order to avoid or frustrate an adverse costs order that might be made. In relation to the general law, see Shannon v Australia and New Zealand Banking Group [1994] 2 Qd R 563 at 563-564 and Cherry v Read and Others (Full Court of Federal Court, Black CJ, Sackville, Finn JJ, 21 November 1996, unrep). The requirement in r 42.21 that there be "reason to believe" that a person has divested assets with the relevant intent may be satisfied, in the context of a preliminary assessment based on limited evidentiary materials, if the evidence provides a reasonable basis for such a belief.
On the basis of the material to which I am about to refer, the respondent submitted that there was reason to believe the appellant had caused the trustee of a discretionary trust of which he is a named beneficiary to dispose of two properties at an undervalue with the intention of thereby avoiding "the consequences of the proceedings", which must relevantly be taken to include an adverse costs order.
In support of the worth of the undertakings as to damages proffered or given by him from August 2016, the appellant swore an affidavit which set out a statement of his assets and liabilities, and later affidavits which confirmed the correctness of that earlier statement. Those assets included his "equity" in property and other interests held with other persons via discretionary trusts or shareholdings in companies. Those interests were said to include a 25% share in properties at Belfield and Guildford, in each case held under the discretionary trust. As at 2 August 2016, the total value of the appellant's "equity share" in those assets and funds was said to be $7,189,968. In addition, the appellant deposed to having at that time "full access" to an amount of $372,080 held in the bank account of Edifice Australia Pty Ltd, the builder of the respondent's development, and to a further amount of $150,000 held in his personal bank account.
By late September 2016, the Belfield property was said to have a value of approximately $3.2 million and to be subject to a mortgage of $160,000. At the same time, the Guildford property was said to have a value of approximately $970,000 and to be encumbered by a mortgage of $500,000. It followed that the value of the appellant's one quarter share in the "equity" in each of those properties was at that time $760,000 in relation to the first and $117,500 in relation to the other.
The evidence indicates that in October 2016 the Belfield property was transferred to a company associated with a business associate of the appellant for a consideration of $2 million and that in November 2016 the Guildford property was transferred to someone who may also be a business associate of the appellant for a consideration of $800,000. The respondent contends, assuming the consideration was as stated, that each of these transfers occurred at an undervalue and was to an associate of the appellant.
The respondent then refers to the evidence given by the appellant's solicitor in support of the application before Simpson JA. In that affidavit, the solicitor says that the appellant "does not have the capacity to pay the judgment debt" of approximately $3,266,518. Taking account of that statement the respondent submits as follows: Putting the above together, it is clear that on the face of Mr Taouk's own evidence and instructions that his asset position has declined by at least $3,923,449.86 over the course of the proceedings. Further, this coincides with transfers by the Saint Peter Trust of its largely unencumbered real estate holdings to associates valued at about $4,170,000. Accordingly, the Court would be satisfied that Mr Taouk has substantial divested assets.
It is said to follow, in the absence of any disclosure or explanation by the appellant concerning these transfers or the detrimental change in his financial position, that there is reason to believe that the transfers were undertaken "with the intention of avoiding the consequences of the proceedings".
This evidence does not in my view provide a reason for believing that the transfers of these two properties were undertaken with the intention of avoiding for the appellant the consequence of the enforcement of any adverse costs order. At the outset, it must be noted that the respondent did not suggest that the appellant had, at some time well before the proceedings were commenced, structured his ownership of real-property assets in companies and discretionary trusts in order to obtain practical immunity from an adverse costs order in any future litigation in which he may become involved: cf. Cherry v Read, where the primary judge found that Mr Cherry "had deliberately organised his affairs so that he would not be subject to the vicissitudes of litigation" (p 7). Rather, the respondent's contention was, accepting the existence of those ownership arrangements, that the appellant caused the trust to undertake two transactions with the intention of avoiding the enforcement of any costs order made against him.
The effect of the two transactions, assuming that for whatever reason they occurred at an undervalue, was to reduce the value of the appellant's "equity share" in the assets held within the corporate and discretionary trust structures by about $500,000. That is because the appellant only had a 25% equity share in each of the relevant properties and the net effect of the transactions was to reduce that share by approximately $460,000 in the case of the Belfield property and $45,000 in the case of the Guildford property. However, the two transactions did not have the effect of reducing the appellant's net assets to a level where they were less than the amount of the (then yet to be ordered or entered) judgment and any potential liability for legal costs. Nor did they interpose any additional barrier to proceedings to enforce any money judgment or costs order against those assets. In September 2016, the appellant claimed to have access to assets - moneys in bank accounts and assets held within the corporate and discretionary trust structures - totalling in excess of $7.6 million. Assuming those assets otherwise were and remained available to meet any adverse final judgment or costs order, it could not reasonably be inferred in the absence of any other evidence that the two transactions were undertaken at the behest of the appellant and with the intention of his avoiding or defeating any enforcement proceedings. If at the time those transactions occurred those assets were not able to be the subject of such enforcement proceedings, the fact of their occurrence did not provide a reasonable basis for a belief that the appellant had caused them to be undertaken with the required intent.
This provides a sufficient reason for rejecting the second and remaining basis on which the respondent submitted that it was entitled to an order for security for its costs of the appeal.
Finally, there is another reason why I dismissed the respondent's motion. I was not satisfied that the appellant lacks sufficient assets to satisfy an order for payment of the respondent's costs of the appeal if the latter is unsuccessful. The evidence relied upon by the respondent showed that in September 2016 the appellant claimed to have access to cash funds exceeding $500,000. Since November 2016, he has paid $200,000 into Court by way of security. The statement of his solicitor that he does not have the capacity to pay the judgment debt of $3,266,518 is said to demonstrate that his present net asset position is less than the amount of that judgment. In these circumstances, the respondent's submission that the appellant did not have sufficient assets to satisfy any order for payment of its costs necessarily assumed that any assets that he did have would be exhausted in satisfying the judgement under appeal.
At this point, the outcome of the application before Simpson JA becomes relevant. The respondent accepted an amount of $100,000 as security for the money judgment under appeal. At that time, it did not make any claim for security for costs. In the circumstances, I was not prepared to proceed on the basis that the respondent does not have sufficient security for that judgment under appeal. To do otherwise, when dealing with its security for costs application, requires assuming that the existing security is insufficient and that, whatever it might be, the value of the appellant's assets is less than the amount of that unquantified insufficiency. It follows that the respondent has not established that the appellant does not have sufficient assets to satisfy an order for payment of its costs of a one day appeal, estimated on a solicitor/client basis to be approximately $80,000.
For these reasons, at the conclusion of the oral argument, I dismissed the respondent's application with costs.

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