FEDERAL COURT OF AUSTRALIA

Asden Developments Pty Ltd (in liquidation) v Dinoris [2017] FCA 37

ORDERS

THE COURT ORDERS THAT:

1.    Within 14 days of the date of these orders the appellant give security for the respondents’ costs of the appeal in the sum of $80,000 by:

(a)    paying the money into Court; or

(b)    providing to the Queensland District Registrar of this Court (Registrar) an unconditional bank guarantee from an Australian owned bank (as recognised by the Australian Prudential Regulation Authority) in a form acceptable to the Registrar.

2.    In the event that security is not provided in accordance with the terms of Order 1, the appeal be stayed.

3.    The costs of the interlocutory application filed on 20 December 2016, insofar as it seeks orders for security for costs, shall be the respondents’ costs in the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

MARKOVIC J:

1    Before the Court is an application for security for costs of an appeal brought by Asden Developments Pty Ltd (in liquidation) (Asden) from orders made by the Court on 19 August 2016. The primary judge found that the first respondent, Mr Dinoris, who together with Mr Combis was a joint and several liquidator of Asden, breached his duty owed to Asden pursuant to s 180(1) of the Corporations Act 2001 (Cth) (the Corporations Act), but dismissed Asden’s application. His Honour found that Asden had not established that any damage resulted to it from Mr Dinoris’ conduct as required by s 1317H(1) of the Corporations Act: Asden Developments Pty Ltd (in liq) v Dinoris (No. 3) [2016] FCA 788.

2    The respondents to the appeal, Messrs Dinoris and Combis, by their interlocutory application filed on 20 December 2016 relevantly seek orders that:

(1)    Asden give security in a form acceptable to the Deputy Registrar of this honourable Court for their costs of defending the appeal in the sum of $155,000 pursuant to r 36.09 of the Federal Court Rules 2011 (Cth) (the Rules);

(2)    the appeal be stayed or dismissed if Asden fails to comply with the order to provide security within the time specified; and

(3)    Asden pay their costs of and incidental to this interlocutory application.

3    Asden concedes that this is a case in which the Court would order security. The issue between the parties is the quantum for which security would be ordered by the Court.

the appeal and cross appeal

4    Asden’s grounds of appeal are set out in its amended notice of appeal filed on 19 September 2016. There are 11 grounds which can be conveniently summarised as follows:

(1)    grounds 1 to 8 concern evidence given by Melinda Nichols, the sole director and shareholder of Asden, and findings made by the primary judge about Ms Nichols’ evidence;

(2)    ground 9 alleges that the primary judge erred in not finding that Asden had suffered loss and was entitled to compensation as a result of Mr Dinoris’ breach of duty;

(3)    ground 10 challenges the primary judge’s costs order and alleges that his Honour’s discretion miscarried in not awarding Asden its costs or a proportion thereof; and

(4)    ground 11 alleges that the primary judge erred in not disqualifying himself from hearing the proceeding when such an application was made.

5    Messrs Dinoris and Combis have filed a cross appeal. In their amended notice of cross appeal they challenge the primary judge’s finding that Mr Dinoris breached s 180(1) of the Corporations Act; allege that the primary judge erred in finding that it was unnecessary to consider s 180(2) of the Corporations Act or alternatively in finding that s 180(2) did not apply; and allege that the primary judge erred in finding that it was unnecessary to consider the statutory defences under ss 1317S and 1318 of the Corporations Act.

statutory framework and legal principles

6    Section 56 of the Federal Court of Australia Act 1976 (Cth) (the Act) empowers the Court or a Judge to order an appellant to give security for the costs that may be ordered against him or her in such manner and form as the Court or a Judge directs and, if security is not given as ordered, to order that the appeal be dismissed. Rule 36.09 of the Rules applies to applications for security for costs of an appeal and sets out the nature of the orders that may be sought.

7    In their written submissions Messrs Dinoris and Combis have conveniently set out the principles which apply to the consideration by the Court of an application for security for costs of an appeal. In Dye v Commonwealth Securities Limited [2012] FCA 992 (Dye) at [26] Emmett J set out several matters that may be taken into account in exercising the discretion conferred by s 56 of the Act. They are:

(1)    the prospects of success of the appeal;

(2)    the risk that an order for costs will not be satisfied;

(3)    whether the making of an order for security would be oppressive in that it would stifle a reasonably arguable claim;

(4)    whether the appellant’s impecuniosity arises out of the conduct that is the subject of complaint in the relevant proceeding;

(5)    whether there are any aspects of public interest that weigh against the grant of security; and

(6)    whether there are any other particular discretionary matters peculiar to the circumstances of the case.

8    At [27]-[28] of Dye Emmett J made the following further observations:

27.    As a general rule, in relation to proceedings at first instance, impecuniosity, and even insolvency, does not mandate that an order for the provision of security for costs should be made. However, that principle does not necessarily apply in relation to an appeal, where the appellant has had the benefit of a decision of a court at first instance. An insolvent party will not be excluded from an appeal, but if he cannot find security, he may be prevented from taking his opponent from one court to another. The feature of an appeal that marks it out from a proceeding at first instance is that there has already been a decision given by the court that heard the matter at first instance. That is to say, the appellant has had his or her day in court and has had an opportunity to present his or her case, and has had a ruling that must be presumed to be correct. Security may not necessarily be ordered if an appeal is brought in good faith and raises substantial questions of law. However, the position will be different where the appeal turns largely on questions of fact and it does not give rise to any important question of law.

28.    While impecuniosity ought not to be a bar to a person prosecuting a reasonable claim at first instance, the position on appeal is fundamentally different. At the appellate level, there has already been a determination adverse to the person against whom security for costs is sought. If there is a substantial risk that, if successful, the respondent will be deprived of costs, that outcome would clearly be unjust. In a sense, it is giving to a person who has been on the receiving end of an adverse determination by the courts, a free hit at great cost to the other party in the appeal proceeding. It is against those principles that I shall consider the matters addressed by the parties.

9    If the Court decides to exercise its discretion to order security then it has a wide discretion in relation to quantum but, as Emmett J noted at [104] of Dye, the purpose of security is not necessarily to provide a full indemnity. Rather, an order for security “should provide a substantial capacity to meet an order for costs for an appeal that fails.”

consideration

10    As noted above, Asden accepts that this is a case in which security would be ordered. Even if that were not so, I am satisfied that I should exercise my discretion in favour of making an order for security.

11    Asden is in liquidation. The evidence before me is that as at August 2015 it held approximately $450 in a bank account; it holds no real property; its liabilities significantly outstrip its assets in value; and as at March 2014 the liquidator reported that the likelihood of a return to creditors was dependent on the success of future recovery actions. Asden is clearly impecunious.

12    The evidence is also that Mr George Nichols funded the proceeding before the primary judge and, it seems, continues to fund this appeal. In the proceeding before the primary judge, Mr Nichols provided a statement disclosing his net asset position and an undertaking to pay Messrs Dinoris and Combis’ costs in the event that a costs order was made against Asden. I note that no such undertaking is before the Court in the appeal.

13    Subject to the issue of prospects of success of the appeal, none of the factors that are relevant to and might tend towards a refusal to make an order for security for costs are evident here. As to prospects of success, no evidence was tendered or submissions made on that issue and I would treat that factor as neutral.

14    That then leaves the issue of the quantum of security that should be ordered, the real issue between the parties. Messrs Dinoris and Combis seek security in the sum of $155,000. They rely on a report prepared by Mr Adam Bloom, a specialist costs consultant, who has calculated that amount.

15    Asden contends that the amount sought as security is too high. It relies on a report prepared by Mr Paul Garrett, who is also a specialist cost consultant. Mr Garrett’s opinion is that the likely costs to be incurred by Messrs Dinoris and Combis in defending the appeal are approximately $51,000. In reaching that opinion Mr Garrett has had regard to Mr Bloom’s report.

16    The principal areas of difference between Messrs Bloom and Garrett are:

(1)    in relation to the amounts claimed. Mr Garrett is of the view that in many cases the amounts estimated by Mr Bloom for particular items are too high, and opines that the estimates include amounts for the preparation of the cross-appeal;

(2)    whether senior counsel is required on the appeal. Mr Garrett is of the opinion that there is complexity in the cross appeal but not the appeal and that, for the purposes of the security for costs application, allowance should only be made for junior counsel; and

(3)    the appropriate rate for senior counsel, if allowed. Mr Bloom includes senior counsel at $7,400 per day, while Mr Garrett says the appropriate rate for senior counsel is $6,400 per day.

17    I do not propose to, in effect, undertake a taxation of the amount sought by Messrs Dinoris and Combis for security. That is not the role of the Court. Rather, in determining quantum, the Court attempts to make an order which provides a substantial capacity to meet an order for costs should it be made. While Mr Bloom’s report is well reasoned, in my opinion, a claim of $155,000 for security represents the high water mark for a one day appeal and in this case is excessive.

18    Mr Garrett’s report also provides sound analysis of the appropriate amount to be ordered for security. However, the allocation of time to the appeal as opposed to the cross appeal seems to be arbitrary and, with respect to Mr Garrett, whether senior counsel is required for the appeal is a matter on which minds may differ.

19    Submissions made by counsel appearing for Messrs Dinoris and Combis, on the one hand, and senior counsel appearing for Asden, on the other, went to the issue of time to be allocated as between the appeal and the cross appeal. But at this stage it is not possible for the Court to ascertain how time might be allocated and, in any event, the matter has from the start been listed for one day. The hearing has not been extended by the filing of the cross appeal.

20    The issues are the allocation of time between the appeal and cross appeal and, more generally, whether the items included and calculation of the amount sought for security by Messrs Dinoris and Combis are too high; and whether security should be ordered in the amount sought. In my opinion, it should not. The appropriate amount for security is $80,000.

21    In coming to that view, I have had regard to the reports of Messrs Bloom and Garrett and have excluded or reduced the following amounts sought, which appear either excessive or unnecessary:

    first, the amount sought for the security for costs application;

    second, the amount sought for the item titled “Advice on Prospects on Appeal”;

    third, the attendance to research cases requested by counsel, which seems excessive and unnecessary in light of other attendances and where two counsel are briefed;

    fourth, the amount sought for senior counsel to settle part C of the appeal book, and part of the amount sought for the solicitors’ time in relation to that task;

    fifth, the time for preparation for the hearing by the solicitors, given other attendances and the fact that senior and junior counsel are briefed;

    sixth, preparation time for both senior and junior counsel;

    seventh, the amount sought for skill and care; and

    finally, the majority of costs described as “Past Costs”, which in part go to the issue of the cross appeal.

22    I will make orders accordingly.

Associate:

Dated:    30 January 2017