Techfuel Pty Limited v Coulson Aviation (Australia) Pty Ltd (No. 2)

Before: Abadee DCJ

Decision: See [46].

Catchwords: CIVIL PROCEDURE – security for costs – plaintiff successful party at hearing – plaintiff applies for release of security – defendant resists release of security – defendant files a notice of appeal – the defendant does not bring any application for stay of monetary judgment in plaintiff’s favour – whether grounds of appeal are reasonably arguable – whether doubt whether plaintiff could pay defendant its costs at first instance if ordered to do so by the Court of Appeal – other discretionary considerations

Legislation Cited: Nil.

Cases Cited: Carter v Mehmet (No. 2) [2021] NSWCA 333
Challenger Group Holdings Ltd v Concept Equity Pty Ltd (No. 2) [2008] NSWSC 1002
Gispac Pty Ltd v Michael Jeweller (Australia) Pty Ltd (No. 2) [2024] NSWSC 356
Huon Shipping and Logging Co Ltd v South British Insurance Co Ltd [1923] VLR 216
Penrith Whitewater Stadium Ltd v Lesvos Pty Ltd [2007] NSWCA 103
Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd (No. 3) [2016] NSWSC 526

Texts Cited: Nil.

Category: Consequential orders

Parties: Techfuel Pty Limited (Plaintiff)
Coulson Aviation (Australia) Pty Ltd (Defendant)

Representation: Counsel:
Mr R D Turnbull (Plaintiff)
Mr D Stanton and Mr A Flick (Defendant)
Solicitors:
Watson Webb (Plaintiff)
Norton White (Defendant)

File Number(s): 2023/00463757

Publication restriction: Nil.

REASONS FOR JUDGMENT

Background

1. On 27 February 2025, I delivered reasons for ordering judgment for the plaintiff (‘Techfuel’) in the sum of $277,000 and for the defendant (‘CAA’) to pay Techfuel’s costs in this matter. [1]

2. By a notice of motion filed on 13 March 2025, Techfuel brought two applications. First, it sought an order to vary the costs order in its favour, so that part of its costs would be payable by CAA on an indemnity basis. Secondly, it applied for a release of security, whose quantum was $100,000, that it had provided pursuant to an earlier order of the Court, made by Andronos SC DCJ on 8 November 2024. The security was paid into Court on 18 December 2024.

3. As to the first application, by consent, I have already varied the costs order, so that some of the costs paid by CAA were ordered to be paid on an indemnity basis. [2]

4. The remaining dispute concerns the second application, the release of the security Techfuel provided. This judgment assumes the reader’s familiarity with the Reasons.

5. On 27 February 2025, Techfuel’s solicitors corresponded with CAA’s solicitors and relevantly indicated that orders would be needed for the return of the funds paid into Court by way of security.

6. On 10 March 2025, CAA’s solicitors indicated that CAA was reviewing my judgment, was considering an appeal and, in those circumstances, it did not consent to the release of security.

7. On 11 March 2025, Techfuel’s solicitors responded to the indication of CAA’s position in its solicitor’s email of 10 March. Techfuel’s solicitors contended that given the success of its client and absent any order that its client pay CAA’s costs, Techfuel was entitled to have security released, irrespective of whether or not the defendant sought a stay of execution or foreshadowed an intention to appeal.

8. The parties have since prepared written submissions following directions made in chambers, which included that the dispute would be determined on the papers. CAA’s written submissions (to which a draft Notice of Appeal was annexed) were dated 21 March 2025. Techfuel’s written submissions were dated 25 March 2025.

Submissions

9. CAA resists the release of the security. It says that Techfuel’s position reflects a principle derived from the decision in Huon Shipping and Logging Co Ltd v South British Insurance Co Ltd [1923] VLR 216 (“Huon Shipping”), which is that a plaintiff who has paid security is entitled to a release if it succeeds at trial and obtains judgment in its favour. Moreover, CAA acknowledges that Huon Shipping has been followed in some decisions at first instance in the Supreme Court of New South Wales.

10. However, CAA says that the principle from Huon Shipping is displaced or subordinated in certain circumstances identified in Penrith Whitewater Stadium Ltd v Lesvos Pty Ltd [2007] NSWCA 103 (“Penrith Whitewater”). In Penrith Whitewater, McColl JA observed as follows:

“30 The critical question in my view is what would happen if the appeal was successful. In that event, subject to any matter which may be argued in the course of the appeal, one would ordinarily expect that the costs order below would be reversed. There is, therefore, a continuing possibility that there will be a call on the bank guarantee.

31 I am mindful of the starting principle for an application for a stay that the successful parties are entitled to the fruits of their judgment. However where it appears that there is an arguable case on the appeal that the primary judge ought to have characterised the agreement which he found and, in circumstances where that agreement related to an interest in land, that there may also be arguments concerning Statute of Fraud issues and a matter relating to delegated authority, the bank guarantee ought, in my opinion, to remain in place to constitute security for the costs of the proceedings at first instance. It does not, in other words, constitute security for the claimants’ costs of appeal. The first instance proceedings were those in relation to which the bank guarantee was ordered. In circumstances where, as I have concluded, the claimants are at risk if the judgment is paid over, the risk which Bell J identified in granting security for costs also appears to me to remain a live concern as to the first instance costs.”

11. By its written submissions on the application, CAA said it intended to appeal my Judgment and it contends that its proposed grounds of appeal are arguable. It also says that Techfuel’s impecuniosity, which underscored the order for security, had not changed.

12. Techfuel submitted the discretion to release the security falls to be exercised upon the peculiar facts and circumstances. As a starting point, Techfuel succeeded. Ordinarily, it should not be deprived the fruits of its success, including obtaining the benefit of the costs order in its favour. The decision in Penrith Whitewater was not ‘binding’ but was, rather, the decision of a single Justice of Appeal on the basis of the particular facts and circumstances that were before McColl JA. Indeed, if any decision on principles guiding the exercise of discretion was binding, it is the Court of Appeal’s decision in Carter v Mehmet (No. 2) [2021] NSWCA 333 (“Carter”); which post-dated Penrith Whitewater (without referring to that earlier decision). Although the decision in Carter concerned an application for release of security provided by the (successful) appellants for the respondent’s costs of appeal, the approach of the Court of Appeal should follow here by analogy. Alternatively, Penrith Whitewater was distinguishable. There was a stay application before her Honour and an (amended) notice of appeal had been filed. Neither of those circumstances applied here. Similarly, in Gispac Pty Ltd v Michael Jeweller (Australia) Pty Ltd (No. 2) [2024] NSWSC 356 (“Gispac”), a notice of appeal and motion for a stay had been filed. All that existed in this case was a bare indication by CAA of its ‘intention’ to file an appeal. The time for it to do so would expire on 27 March 2025. Further, Techfuel contends that the Judgment addresses each of the ‘grounds’ indicated in the draft notice of appeal, so that although its grounds of appeal were arguable, CAA’s prospects on appeal were ‘weak’.

CAA’s filing of its appeal

13. On 27 March 2025, subsequent to Techfuel’s provision of submissions, in which it took the point that CAA had not filed a notice of appeal, CAA filed a Notice of Appeal. A brief comparison between the content of the notice of appeal and the draft notice of appeal supplied under cover of the defendant’s submissions resisting the release of security indicates substantial but not identical correspondence with the earlier draft.

Applicable principles

14. The authorities that relate to the exercise of discretion to release security provided by a successful plaintiff to cover the defendant’s costs at first instance, in anticipation of a prospective successful appeal, were recently considered in Gispac per Gleeson J at [22]–[32]. His Honour followed the approach of McColl JA in Penrith Whitewater at [30]–[31], cited above.

15. The decision in Carter, relied upon by Techfuel, concerned a vendor-purchaser (and guarantor) dispute. The successful vendors had been ordered to provide security for the purchasers’ (and guarantor’s) costs of appeal. They obtained judgment in their favour and subsequently applied for the release of the security they had provided for the purchasers’ and guarantor’s appeal costs. The Court of Appeal applied the principle enunciated by Professor Dal Pont, reflecting the Huon Shipping principle, to the effect that:

“Case authority dictates that a plaintiff who pays money into court as security for the defendant’s costs of the action, and succeeds in the action and secures a costs order in his or her favour, is entitled to have that money paid out of the court as soon as judgment is entered … .”

16. The Court of Appeal in Carter indicated that whilst it was open for the respondents to apply for special leave from its decision (which the respondents had not done), even in that future event, the Court would disregard the prospects of the respondent succeeding with any such application for special leave. Its judgment should be treated as correct until it was overturned. It did not matter to the Court of Appeal that the successful appellants were “plainly impecunious”: indeed, on one reading of the judgment, that might have been treated as a reason why the security should be released forthwith.

17. In Gispac, which was decided after Carter, Gleeson J noted that Huon Shipping was not referred to in Penrith Whitewater, and further, that no submission was made in the case before him that Penrith Whitewater was wrongly decided. It had, rather, been followed in multiple decisions at first instance.

18. His Honour alluded to the same proposition from Professor Dal Pont identified in Carter (referred to earlier) which supported the Huon Shipping line of authority. Nevertheless, his Honour distinguished Carter; observing that in that decision there was no evidence of any intended appeal (or application for special leave to appeal), nor were submissions filed opposing the release of security. In Gispac, the unsuccessful defendant had, by contrast, filed a notice of appeal and had also filed a notice of motion seeking a stay of execution of the monetary judgment.

19. I agree with Techfuel that the observations of McColl JA do not, with respect, necessarily amount technically to a binding statement of general principle and further, that the question of how to exercise the discretion depends upon the facts. I agree further that unlike in this case, McColl JA was dealing with a formal stay application; in the course of which only an informal and verbal application for the release of security was brought. Nevertheless, her Honour’s approach has, as indicated, been followed in multiple judgments in the Supreme Court of New South Wales at first instance including the recent decision in Gispac.

20. In Gispac, the unsuccessful defendant (appellant) filed an application for stay and a notice of appeal.

21. As a result of CAA’s filing of a notice of appeal on 27 March 2025, the only material point of distinction between the circumstances of Gispac and the circumstances is that CAA has not brought any stay application.

22. Techfuel argues that it is paradoxical that the defendant should resist the release of security when it has not sought a stay of execution of the judgment – a feature of the litigation in both Penrith Whitewater and in Gispac. That is to say, it is paradoxical that whilst CAA does not take steps to prevent enforcement of a monetary judgment of $277,000 (plus interest) it does seek to prevent the release of the security in a not insignificantly lesser amount.

23. The omission by an unsuccessful defendant to bring a stay application did not, however, preclude application of Penrith Whitewater in the decision of Young CJ in Eq in Challenger Group Holdings Ltd v Concept Equity Pty Ltd (No. 2) [2008] NSWSC 1002 (“Challenger Group”).

24. Further I do not consider, at the level of principle, that what McColl JA observed in Penrith Whitewater is conditioned upon a stay application being brought by an appellant who resists security provided in the proceedings at first instance by the respondent.

25. I propose to follow the approach in Penrith Whitewater.

26. I now consider the questions identified by Gleeson J in Gispac (at [33]) that the critical questions in deciding whether or not to release the security in the context are whether: (i) the appeal grounds are reasonably arguable, and (ii) there is a reason to doubt that the plaintiff would be able to satisfy any order to pay defendant’s costs of the hearing at first instance, if the defendant’s appeal succeeds.

Arguable appeal grounds?

27. The test of ‘arguability’, for this purpose, is not demanding. In this respect, I note that the first proposed ground of appeal (“Issue 1”) in the hearing concerned the construction of part of a term in the contract. Questions of construction of a commercial contract are notoriously those upon which minds may differ. It was the existence of a constructional dispute in Penrith Whitewater that was adverted to by McColl JA in her enunciation of the principle in that case. I am satisfied that the defendant’s construction was reasonably arguable.

28. The fourth proposed ground of appeal (“Issue 4”) dealt with the issue of penalty. This issue plainly did have substantive and independent significance separate from Issue 1. As indicated in the Reasons, arguments about the scope and application of penalty doctrine have been a feature of several recent appellate decisions at the highest level. It suffices for me to say that the defendant’s argument in relation to this issue is also reasonably arguable.

29. The second proposed ground of appeal (“Issue 2”) concerned the defendant’s argument concerning the relevant part of the clause being void for uncertainty. In my Reasons, as was evident in the sub-heading preceding [113] in the Reasons, this argument came be subsumed within, if not dealt with alongside, the defendant’s construction argument. It was not apparent to me at the hearing, and it is not apparent now, that if I was correct in my determination of the construction argument, then the defendant’s argument for avoidance of the clause would have independent operation or force.

30. The third ground of appeal (“Issue 3”) concerned the defendant’s argument that the rights and obligations under the agreement between the parties were ‘coterminous’ with the defendant’s rights and obligations with a third party. Similar to issue 2, my reasoning in respect to this issue was also subsumed within, or dealt with conjunctively with my determination of Issue 1.

31. In view of what I have said about Issues 1 & 4, it is, however, unnecessary for me to decide whether the proposed grounds 2 and 3 are also reasonably arguable.

32. It is unnecessary for me to go further and purport to assess the strength of any of these grounds.

Reason to doubt the plaintiff’s capacity to pay the defendant’s costs at first instance?

33. Inherent in the orders of Andronos SC DCJ was the (jurisdictional) finding that there was reason to believe that if ordered to do so, the plaintiff would be unable to pay the defendant’s costs. Indeed, his Honour noted that the plaintiff had ultimately conceded before him that it would be unable to meet an order for costs in the sum estimated by the defendant. Aside from argument about quantum, the only other issue before his Honour was whether security should not be ordered on a variety of discretionary grounds.

34. One of the issues agitated by CAA in the hearing, in response to Techfuel’s alternative claim for damages, was that the plaintiff breached an implied term in its contract with the defendant that it not be insolvent. I expressed doubt (at least) as to whether Techfuel’s claim for damages could succeed if it failed on its money claim, although (in obiter) I did indicate that there was no such implied term (to give business efficacy to the contract). [3] I therefore did not determine the factual question whether at or about the time when the agreement was terminated, Techfuel actually was insolvent.

35. However, that unresolved question as to what Techfuel’s position actually was in 2023 is not determinative. In Challenger Group Young CJ in Eq (at [7]) rejected the plaintiff’s argument that Penrith Whitewater was distinguishable because in the circumstances of that case, there was no finding of insolvency or impecuniosity of the party providing the security.

36. In the Reasons (at [75]–[81]), I referred to some other matters relevant to the question of Techfuel’s solvency in 2023. Most of those matters were uncontested. They do not dispel doubt as to whether Techfuel would be able to pay CAA’s costs at first instance should CAA succeed in its appeal.

37. On the facts before Andronos SC DCJ, it was apparent that the whole of any benefit derived from a successful outcome for the plaintiff would accrue to the creditors under the proposed Deed of Company Arrangement.

38. Techfuel submitted that it is the company’s creditors who effectively placed themselves at risk through the litigation. To restrain the release of the security would, Techfuel contends, effectively amount to a preference to the interests of an unsuccessful litigant over the interests of the plaintiff’s creditors. One might think however, that this would commonly occur where a corporate plaintiff, who is actually in, or on the brink of entry into, external administration, brings or maintains a claim for damages and consents to or is ordered to provide security. It provides no proper answer to CAA’s concern that Techfuel will be unable to pay CAA’s costs at first instance if CAA succeeds with its appeal, and, as might presumptively be expected, the costs order currently in Techfuel’s favour is set aside, and substituted by an order that it pay CAA’s costs at first instance.

39. For the purposes of the present application, it is sufficient for me to find that the concerns about the plaintiff’s position that gave rise to the orders made by Andronos SC DCJ have not dissipated. No new facts favourable to Techfuel’s financial position, other than its favourable monetary judgment – albeit that following CAA’s lodging its appeal that “asset” might now be regarded as contingent – have emerged in this application, since Techfuel provided its security.

Other discretionary matters

40. I would also note that this is not a case where the successful plaintiff has offered any appropriate substituted form of security for the defendant’s costs at first instance, which might justify the release of the monies paid into Court (Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd (No. 3) [2016] NSWSC 526 per Ball J at [99]–[100]).

41. To adapt what Gleeson J observed in Gispac at [46] here, should there be a material change in Techfuel’s financial position, this is a matter that could be taken up by it in the Court of Appeal.

42. Finally, although, of course, it would be a matter for the Court of Appeal, the course remains potentially open for Techfuel to seek an order for post-judgment interest should CAA’s appeal fail in order to compensate Techfuel for the additional period, pending determination of the appeal proceedings, where release of the security has been withheld.

Costs of the notice of motion of 13 March 2025

43. I have noted the two applications in the motion. Techfuel’s first application to vary the costs order was successful, with the order made on 18 March 2025.

44. Subsequent to Techfuel’s filing of its motion, the only contest on the motion was the issue of the release of the security.

45. Similar considerations arise to those addressed by Gleeson J in Gispac: the defendant consented to a variation of a costs order but successfully resisted the plaintiff’s application for release of security. A similar result should apply here. I have also applied a ‘broadbrush’ approach.

Orders

46. Noting that order 1 in the motion has previously been made, the orders of the Court are:

47. The plaintiff’s notice of motion dated 13 March 2025 is otherwise dismissed.

48. The plaintiff (Techfuel) is to pay 85 percent of the defendant’s (CAA’s) costs of the notice of motion filed 13 March 2025.

Postscript

47. In the course of reviewing the Reasons for the purpose of dealing with the application to release the security, the Court observed that there was an error at [164], which paragraph was contained in the section of the judgment addressing penalty doctrine. The existing paragraph featured the statement that it was Techfuel that bore the onus of proof, and cited authority for the statement. The correct position was that it was CAA which bore the onus of proof. The judgment has since been amended under the slip rule; and that amendment has been notified to the parties.

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Endnotes

Techfuel Pty Limited v Coulson Aviation (Australia) Pty Ltd [2025] NSWDC 34 (‘the Reasons’).

On 18 March 2025.

179], [190] in the Reasons.