Tyneside Property Management Pty Limited v Hammersmith Management Pty Limited

The Proceedings 2There are three appellants: Tyneside Property Management Pty Limited (Tyneside); Namlot Nominees Pty Limited (Namlot) and Roy Frederick Haggis (Mr Haggis). The two respondents are Hammersmith Management Pty Limited (Hammersmith) and Roche Group Pty Limited (Roche). 3The proceedings have a long and unfortunate history. They were commenced as long ago as May 2003. The trial, which continued for 25 hearing days, did not commence until February 2011, nearly eight years after the proceedings were instituted. Judgment was not given by the primary Judge until 28 May 2013, almost exactly two years after the hearing had concluded: Tyneside Property Management Pty Ltd & ors v Hammersmith Management Pty Ltd & ors [2013] NSWSC 635. 4In the proceedings, Tyneside and Namlot claimed damages against the respondents for their alleged repudiation of agreements entered into in connection with a land development project. Tyneside and Namlot sought many millions of dollars in damages for loss of bargain. 5Hammersmith cross-claimed to recover an advance of $100,000 made to Tyneside under a management agreement. The cross-claim joined Mr Haggis as the guarantor of Tyneside's indebtedness to Hammersmith. In the course of the proceedings, Hammersmith served successive creditor's demands on Tyneside. These actions prompted Tyneside to apply, both in the original proceedings and in separate proceedings, for orders pursuant to s 459G of the Corporations Act 2001 (Cth) setting aside the demands. 6The primary Judge: (i) dismissed Namlot's claim for breach of contract; (ii) dismissed Tyneside's claim for breach of contract; (iii) entered judgment against Tyneside, as principal debtor, and against Mr Haggis, as guarantor, for $100,000 plus interest; and (iv) ordered the appellants to pay the costs of the proceedings. 7Prior to the trial, the appellants were ordered to provide $100,000 as security for the respondents' costs of the trial. They complied with the order in February 2004. The orders made by the primary Judge provided for the amount of security to be paid to the respondents. 8It emerged during the trial that Ms Florence, Mr Haggis' daughter, paid hundreds of thousands of dollars towards the costs incurred by the appellants in the proceedings. The primary Judge described Ms Florence (at [67]) as a principal of Delamere Homes Pty Ltd (Delamere), the contractor for civil works undertaken as part of the development. His Honour also found that Ms Florence was to be repaid the contributions made by her towards the appellants' costs out of any judgment awarded in their favour. Ms Florence is also a shareholder in Tyneside, apparently holding 20 per cent of the issued shares. 9The orders requiring payment of costs and other moneys by the appellants are not subject to any stay. However, other than the sum of $100,000 provided by way of security, the appellants have not paid any of the costs awarded to the respondents and neither Tyneside nor Mr Haggis has discharged any part of the judgment debt.

The Appeal 10The appellants have filed a notice of appeal, appealing against the decision of the primary Judge. The notice of appeal contains 51 grounds, many of which are challenges to findings of fact. It was common ground at the hearing that Ms Florence paid the fee of $6,090 required to file the notice of appeal. 11There is no dispute that the appellants are unable to pay the respondents' costs of the appeal, should their own appeal be unsuccessful. Indeed, each of the appellants has formally conceded that in that event it or he will be unable to pay the respondents' costs. 12An affidavit sworn by a former partner of the firm acting for the appellants contains the following paragraphs: 26 The appellant's [sic] counsel has been prepared to be briefed in the appeal on a speculative basis such that he does not get paid if the appeal is not successful. 27 I am authorised by [the appellants' solicitors] to say that the firm is acting for the appellants on the basis that payment of its outstanding fees in relation [to] the hearing at first instance and its fees of the appeal will be deferred until the appeal hearing concludes and a decision is given. This is to enable the appeal to proceed. 13It follows that the appellants, despite their impecuniosity, will be represented if the appeal proceeds.

The Legislation and Rules 14The respondents submit that Tyneside and Namlot should be required to provide security for the appellants' costs of the appeal pursuant to s 1335(1) of the Corporations Act. Section 1335(1) provides as follows: Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. 15The respondents further submit that Mr Haggis should be required to provide security for the appellants' costs of the appeal, pursuant to Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 51.50. This rule provides as follows: (1) In special circumstances, the Court may order that such security as the Court thinks fit be given for costs of an appeal. (2) Subject to subrules (1) and (3), no security for costs of an appeal is to be required. (2A) If an appellant or cross-appellant fails to comply with an order under this rule, the Court may order that the appellant's appeal or cross-appellant's cross-appeal be dismissed. (3) Subrules (1), (2) and (2A) do not affect the powers of the Court under rule 42.21 (which relates to security for costs). There is no need to set out the terms of UCPR, r 41.21. 16Section 1335(1) of the Corporations Act confers a discretionary power on the Court to order a corporate appellant to provide security for the costs of the appeal. The power is not constrained by the requirement in UCPR, r 51.50, to establish special circumstances: Pioneer Park Pty Ltd (In Liq) & Ors v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344; 65 ACSR 383, at [21], per Basten JA; see also at [2], per Tobias JA (with whom McColl JA agreed), and authorities cited there; Prynew Pty Limited & Anor v Nemeth & Ors [2010] NSWCA 94, at [13]-[14], per Beazley JA. 17In Prynew, Beazley JA made these observations as to the application of s 1335(1) of the Corporations Act: 15 The rationale for the Court's jurisdiction to order security for costs against a corporate plaintiff is well traversed in the authorities. In Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 Street CJ (Moffitt P and Hutley JA agreeing) explained the rationale at 303-304, in the following terms: "In cases of contract the other party to the dealing would be on notice of the limited liability of the company and, the transaction being voluntary, he could be presumed to be competent to look after his own interests in that regard. Where, however, a company commences litigation against another party, that other party could find himself involuntarily prejudiced by the limited liability character of the plaintiff who had commenced proceedings against him. To protect the other party from this consequence of limited liability, there has always in companies legislation been a provision along the lines of [a predecessor to s 1335 of the Corporations Act]." (To the extent that Street CJ stated that the discretion was exercised with a predisposition to the making of an order for security, that is no longer the accepted position ... ) 16 The party who seeks security for costs (whom I will refer to as a defendant) bears the onus of establishing that the party against whom the order is sought will be unable to meet the defendant's costs, should the party be unsuccessful in the litigation. Once this is established, the evidentiary burden shifts to the party against whom security is sought, to establish a reason why security should not be granted ...

Tyneside and Namlot 18It is important to appreciate that the fact of a corporation's impecuniosity not only enlivens the Court's discretion under s 1335(1) of the Corporations Act, but is a substantial factor in the decision whether to exercise the discretion in favour of ordering security: Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWCA 271, at [40], per Mason P (with whom Stein and Giles JJA agreed on this point). 19It is quite clear in the present case that Tyneside and Namlot are impecunious in the relevant sense. Unless an order is made requiring them to provide security for the respondents' costs, the respondents will be forced to defend an appeal involving many issues of fact and law with no real prospects of recovering their costs should they succeed. It is true that Ms Florence, through the appellants' solicitors, has offered to provide a personal guarantee in respect of any adverse costs orders against the appellants. The difficulty with this offer is that the appellants say that Ms Florence's liabilities exceed her assets. If that claim is correct, their offer is of little or no practical value to the respondents. 20Mr Smallbone, who appeared for the appellants, gave two reasons why an order to provide security for costs should not be made against Tyneside and Namlot. The first was that the order would stultify their appeal to this Court. The second was that, if they were ordered to provide security, but Mr Haggis was not required to provide security, his appeal would proceed and it would be necessary to canvass much the same issues as would arise in the appeal by Tyneside and Namlot. 21Mr Smallbone also contended that the appeal has reasonable prospects of success. I am prepared to assume that, despite the appeal raising multiple challenges to factual findings (many of which appear to rest on findings as to credit), Tyneside and Namlot have an arguable case on appeal. 22I am not persuaded that the appeal by Tyneside and Namlot would be stultified by an order requiring them to provide security. On the evidence, there are two possible sources of funds required to provide security for the costs of the appeal (bearing in mind that the appellants' legal representatives are prepared to conduct the appeal without requiring payment of fees and disbursements in advance of the hearing). The first possible source is Ms Florence; the second is the appellants' solicitors. 23Ms Florence elected not to provide affidavit evidence as to her financial position and, in particular, her capacity to continue providing funds to enable the appellants to prosecute their appeal. The only evidence as to her means is contained in the appellants' solicitor's affidavit on information and belief. But the evidence is not in a satisfactory form and does not establish that Ms Florence is unable to contribute some or all of the funds that would be required if an order for security were to be made. 24The solicitor states in his affidavit that Ms Florence is the joint owner (with her husband) of a house worth approximately $400,000. The house is said to have mortgages over it to secure debts totalling over $720,000 (including $371,466 due to the appellants' solicitors by way of costs). However, the evidence of the value of the house consists of an unsupported assertion based on information and belief. The assertion is of no probative value. 25The affidavit also records what are said to be Ms Florence's "significant assets and liabilities". The affidavit does not explain the meaning of "significant". Nor does the solicitor annex a complete statement of Ms Florence's assets and liabilities or, for that matter, copies of her tax returns. 26The affidavit says that Ms Florence is an enrolled nurse, who is unable to work as the result of an unspecified injury. But the affidavit does not address the primary Judge's finding that Ms Florence was a principal of Delamere and, in that capacity, apparently was involved in undertaking work for the development. The affidavit does not address whether Ms Florence is or has been in a position to derive income from performing work other than as a nurse. 27As I have indicated, the evidence shows that the appellants' solicitors are owed at least $371,000 on account of costs and that they are prepared to defer their payment of costs and disbursements in relation to the appeal until judgment is delivered. Clearly the solicitors have a substantial interest in the outcome of the appeal: cf Ballard v Brookfield Australia Investments Ltd [2012] NSWCA 434, at [41], per Ward JA. Mr Smallbone asserted from the bar table that the solicitors would not be prepared to contribute towards an order for security, but there was no evidence to that effect. 28I am not satisfied on the evidence that the solicitors, given that they have such a large stake in the outcome of the proceedings, would not be prepared to advance further funds, if an order for security were made, to ensure that the appeal could go ahead. 29I am also not satisfied that if Tyneside and Namlot are ordered to provide security, but Mr Haggis is not, the appeal will proceed in any event and the same issues will be canvassed. The only issue in Mr Haggis' appeal is whether he should be held not liable on his guarantee. The amount involved is $100,000 plus interest. 30As I explain below (at [34]), it is difficult to see what the point would be of Mr Haggis proceeding with his own appeal, without Tyneside and Namlot being permitted to continue with their appeals. The appeals by the two corporations, if successful, would (according to the appellants) result in judgments in their favour for millions of dollars. An appeal by Mr Haggis alone, if successful, would relieve him from a judgment for $100,000 plus interest. But that judgment, on the evidence, is likely to be unenforceable in any event. Moreover, there is no evidence that Mr Haggis wishes to pursue his appeal even if the appeals by Tyneside and Namlot are stayed. 31For these reasons, I consider that Tyneside and Namlot should be ordered to provide security for the costs of the appeal.

Mr Haggis 32The considerations engaged by the concept of "special circumstances" in relation to security for costs were summarised by Basten JA in Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247, at [18]: (1) no order for security should be made in the absence of "special circumstances"; (2) consideration of what may constitute special circumstances should not be fettered by some general rule of practice; (3) impecuniosity, without more, will usually be insufficient; (4) an order may be appropriate if the appeal is shown to be hopeless, unreasonable or of an harassing nature; (5) where a bona fide and reasonably arguable appeal would be stifled by an order for security, such an order should usually not be made, and (6) the subject matter of the appeal, including an issue as to the liberty of the individual, or a public interest may provide a reason for not imposing a security order which would stifle the continuation of the appeal. 33There is evidence, on information and belief, that Mr Haggis is on a carer's pension and has no assets worth more than a few thousand dollars. This apparent impecuniosity does not, of itself, constitute special circumstances warranting an order for security. 34However, as I have observed, it is not clear what practical value there would be in Mr Haggis pursuing an appeal on his own account. Given his impecuniosity, the judgment against him is likely to be unenforceable. It is true that a successful appeal would remove the judgment debt, but it is unlikely materially to change Mr Haggis' financial situation. On the other hand, an unsuccessful appeal will cause the respondents to incur substantial costs, all of which are likely to be irrecoverable. 35A further factor to be taken into account is that the many grounds of appeal do not appear to address specifically the grounds on which Mr Haggis (as distinct from Tyneside and Namlot) challenges the orders made against him. It is therefore extremely difficult to assess what issues Mr Haggis' own appeal would raise and how long they would take to deal with. 36Mr Smallbone insisted that Mr Haggis' appeal would involve many of the same issues as the appeal by Tyneside and Namlot. I am inclined to doubt that, but if it is correct it reinforces the point that the respondents will incur considerable costs on the appeal with no real prospects of recovery if the appeal fails. 37I appreciate that I have indicated that I am not satisfied that Ms Florence cannot and will not contribute more funds to the costs of running the appeal. Equally, however, the evidence does not enable me to conclude that her proffered guarantee in relation to costs orders on the appeal provides any worthwhile protection to the respondents. 38I am satisfied that there are special circumstances in the present case justifying an order for security being made against Mr Haggis, as well as against Tyneside and Namlot.

Quantum 39The parties disagreed as to the duration of the appeal, should it proceed. The respondents estimate four days, while the appellants estimate two. If the appeal is to proceed, it should be capable of being heard within two days, although this is likely to require the appellants to focus more clearly and precisely on what they say are the significant errors in the reasoning of the primary Judge. 40In my view, justice will be done if the appellants are required to provide security for costs in the sum of $80,000.

Orders 41The following orders should be made: (1)Order the appellants to furnish by 16 December 2013 security for the costs of the respondents of and incidental to the appeal in the amount of $80,000. (2)In the absence of agreement between the parties, such security to be provided by way of bank guarantee. (3)Stay the proceedings until security in accordance with these orders is provided. (4)Order the appellants to pay the respondents' costs of the motion filed on 4 October 2013.

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