Tomanovic Multiown Pty Ltd v Interlux Projects Pty Ltd

Judgment

1. BASTEN JA: The appellant, Tomanovic Multiown Pty Ltd ("Multiown"), was the unsuccessful plaintiff in proceedings in the Equity Division. The proceedings, seeking to recover repayment of a loan, were dismissed against each of four defendants on the basis that the loan agreement was unjust within the meaning of the Contracts Review Act 1980 (NSW) or, with respect to the involvement of the company, the result of undue influence on the individuals who controlled the company. The principal judgment was delivered by Emmett AJ on 11 March 2021. [1]
2. Having foreshadowed the basis of relief in favour of the first three defendants, the Court provided an opportunity for the plaintiff and the fourth defendant to make further submissions. No further submissions providing an alternative basis upon which the claim against the fourth defendant could be maintained were made. In a second judgment, delivered on 29 July 2021, the Court ordered that the proceedings be dismissed against each of the four defendants. [2] Further, the judge made a gross sum costs order against Multiown in the amount of $124,000, in favour of the first, second and third defendants; the fourth defendant was ordered to pay Multiown 60% of that sum.
3. On 28 October 2021 Multiown filed a notice of appeal seeking to set aside the orders made in the Equity Division and seeking judgment in its favour against the four defendants (the respondents in this Court) in an amount of $371,555 plus interest.
4. On 2 February 2022 the first, second and third respondents filed a notice of motion seeking that the appellant provide security for their costs in an amount of $55,000 by way of bank guarantee or payment into court. On the hearing of the motion they read an affidavit of Mr Stephen Noss, solicitor, who obtained instructions to act for them in November 2021. He filed a notice of appointment of solicitor on 22 November, two days before the return date on the notice of appeal.
5. On 24 November, being the first return date, the Court noted that a security for costs motion would be filed. The matter was then stood over to 2 February 2022. On that date, directions were given and the motion was listed for hearing today, 16 March 2022. There has been, therefore, no delay in seeking security.

Relevant criteria

1. The appellant being a corporation, the Court has an unfettered discretion with respect to orders for security pursuant to s 1335 of the Corporations Act 2001 (Cth). [3]
2. The so-called "jurisdictional requirement" for the engagement of s 1335 has been described as credible testimony providing reason to believe that the corporation will be unable to pay the respondents' costs if the appeal fails. [4] It has been described as an "undemanding" test. [5]
3. Satisfaction of that test does not require that an order for security be made, nor does it say anything about the amount of security which may be appropriate. In Livingspring Pty Ltd v Kliger Partners, [6] Maxwell P and Buchanan JA identified the foremost consideration in determining whether to order security as whether such an order would work an injustice. Thus, it is necessary to assess the degree of likelihood that costs may not be paid if the appeal fails against the possibility that an order for security may stifle the appeal. In considering that balance, such other factors as may be apparent from the limited materials usually available on a security application can be taken into account. One such factor is the apparent merit of the appeal; another is the scope of the appeal, so far as that may be gleaned from the notice of appeal. The conduct of the parties in the course of the trial proceedings may also be relevant.
4. Although the respondents submitted that the Court could be satisfied that there were "special circumstances", enlivening the power to make an order for security for costs under the Uniform Civil Procedure Rules 2005 (NSW), r 51.50, there is no need to consider that issue, the power under s 1335 being available.

Jurisdictional and discretionary requirements

1. To demonstrate a real doubt as to the ability of the appellant to meet an adverse costs order, the solicitor for the respondents noted that he had written to the solicitors for the appellant on 18 January 2022 noting that the appellant had failed to pay the gross sum costs order of $124,000 and that the grounds of appeal were lengthy. Security was sought in the form of a bank guarantee in an amount of $60,000. There was no response.
2. Mr Noss also noted that a personal property securities register check of the appellant's assets revealed a motor vehicle subject to finance, and a land titles search identified no real property in New South Wales.
3. In reply, the appellant filed an affidavit of Zoltan Tomanovic, the sole director of the appellant, noting that the appellant was the trustee of a superannuation fund of which he (Tomanovic) was the only member and beneficiary. He acknowledged that the appellant owned a motor vehicle but provided no evidence as to the value of the vehicle or the outstanding loan. Mr Tomanovic identified three properties, "amongst other assets", held by the appellant in Queensland. It may be inferred that the other (unspecified) assets were not material. One of the items of real estate was a residential property at Nambour with equity of approximately $200,000. He attached a residential valuation report dated 7 June 2021. It may be inferred that, as Mr Tomanovic lives in western Sydney, the property is subject to a residential tenancy. The only accounting document for the company was a loan activity statement of the Nambour financier indicating that loan repayments were up to date.
4. Mr Tomanovic also provided evidence that the appellant owned two blocks in Kingaroy worth $85,000 and $80,000 respectively. The latter was subject to a contract of sale which was due to be completed on 1 March 2022 (four days after the date of the affidavit). It may be inferred that the appellant has the settlement price available to it in cash. However, as no accounts for the appellant have been provided, there is no information as to any other indebtedness.
5. The outstanding costs order in favour of the respondents has neither been paid, nor stayed. The order resulted from proceedings brought by the appellant, which were unsuccessful, but which are now under appeal. Nevertheless, no reason has been given for failure to pay the costs and, had a stay been sought, it may be assumed that security would have been required for a significant amount of the debt as a condition of a stay. It may be accepted that the appeal challenges the liability to pay that amount, however, it is open to infer that an application for a stay has not been made because of doubt as to the appellant's ability to provide such security. That is not inconsistent with the statement in Xenos v FAL Healthy Beverages Pty Ltd, [7] that the mere existence of an outstanding debt resulting from the judgment under appeal does not amount to "special circumstances".
6. On the basis of this evidence, I accept that there are real doubts as to the ability and willingness of the appellant to meet an adverse costs order if the appeal were to be dismissed.
7. These factors also support an exercise of the discretionary power to order security. As the respondents noted, there is no evidence as to the power of the trustee to access trust assets to meet adverse costs orders made in the course of litigation. Further, the necessary steps to enforce costs orders against the trust assets, particularly the major asset, a residential property subject to a tenancy, might well take time and involve further expenditure on the part of the respondents. On the other hand, because there appears to be cash available to the appellant, there is no reason to suppose that an order for security would stifle the appeal. Indeed, the appellant's position is that it is fully able to pay an adverse costs order.

Amount of security

1. Mr Noss calculates the likely costs of the appeal in an amount of $78,120, including $34,320 by way of counsel's fees. I do not accept those figures.
2. First, the amount charged by the solicitors includes seeking and taking instructions, reviewing the proceedings at first instance, briefing counsel and instructing counsel in respect of interlocutory hearings, and particularly one day with respect to the security for costs application. The security for costs will be assessed by reference to the amounts not yet incurred. In addition, largely duplicative steps were provided for in preparation for the hearing of the appeal. It is appropriate to be conservative in assessing party and party costs in ordering security.
3. With respect to counsel's fees, the primary expense will be preparation for the hearing of the appeal and appearing on the hearing. Counsel's fees anticipated nine days' work. Given that counsel appeared below, that figure is too high. However, it must be accepted that more work than might usually be required for a one-day appeal may be necessary because the grounds of appeal are lengthy and raise numerous factual issues. However, I do not accept that the hearing of the appeal will take more than a day. In the circumstances, I anticipate that counsel's fees should be in the order of $20,000 and solicitors' fees of $25,000. Accepting Mr Noss' figure of 70% recoverable on a party/party basis, the result is to require payment of $31,500. That amount should either be paid into court or be made available by way of a bank guarantee lodged with the Registrar.
4. Although the orders sought in the notice of motion merely refer to the provision of security, the appropriate order is to stay further proceedings on the appeal until security is provided. The next step to be taken is the filing of written submissions by the appellant.
5. Accordingly, the Court makes the following orders: 1. Order that the proceedings on the appeal be stayed until the appellant provides security for the legal costs of the first, second and third respondents in an amount of $31,500, such security to be in the form of a bank guarantee to be lodged with the Registrar, or the payment into court of that sum by way of security for the costs of the appeal. 2. Direct that the costs of the motion be the costs of the first, second and third respondents in the appeal.

Endnotes

1. Tomanovic Multiown Pty Ltd v Interlux Projects Pty Ltd [2021] NSWSC 190.
2. Tomanovic Multiown Pty Ltd v Interlux Projects Pty Ltd (No 2) [2021] NSWSC 923.
3. See, generally, Pioneer Park Pty Ltd (In liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344 at [20]-[21] (in my judgment, Tobias JA and McColl JA agreeing).
4. Treloar Constructions Pty Ltd v McMillan [2016] NSWCA 302 at [9] (Beazley ACJ).
5. Treloar at [11].
6. (2008) 20 VR 377; [2008] VSCA 93 at [17].
7. [2017] NSWCA 240 at [45] (Gleeson JA); see also Pi v Zhou [2017] NSWCA 16 at [62]-[63] (Payne JA). 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: 16 March 2022