FEDERAL COURT OF AUSTRALIA

Nazloomian v Jones [2018] FCA 44

ORDERS

THE COURT ORDERS THAT:

1.    The application for security for costs filed on 4 October 2017 by Peter Paul Royal, Judith Louise Royal and Michael Gregory Jones in his capacity as trustee of the bankrupt estate of Nathan El Ali (together the applicants) is dismissed.

2.    The applicants must pay John Rene Nazloomian’s costs as agreed or taxed.

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

REASONS FOR JUDGMENT

FARRELL J:

1    By an interlocutory application accepted for filing on 4 October 2017, the applicants, Peter Paul Royal and Judith Louise Royal (together the Royals) and Michael Gregory Jones in his capacity as trustee of the bankrupt estate of Nathan El Ali (Mr El Ali) sought orders that John Rene Nazloomian provide security for their costs in proceedings NSD 1793 of 2016 (Mr Nazloomian’s appeal) in the amount of $45,000 (or such other amount as the Court thinks appropriate) and, if that amount is not paid within 28 days of orders being made, that Mr Nazloomian’s appeal be dismissed or stayed until that security is given. This is the second application for security for costs made in relation to Mr Nazloomian’s appeal.

2    The first application was lodged on 14 February 2017 and accepted as filed on 27 February 2017. It sought security for the applicants’ costs in an aggregate amount of $213,500 in relation to Mr Nazloomian’s appeal and related appeals (the other appeals) being NSD 1794 of 2016 (Mr Stojanovski’s appeal), NSD 1798 of 2016 and NSD 1799 of 2016 (Mr El Ali’s appeals), NSD 1801 of 2016 (Mr Zreika’s appeal) and NSD 29 of 2017 (Mahmoud’s appeal). In the alternative, the applicants sought orders that Mr El Ali, Mahmoud El Ali (Mahmoud), Mr Zreika, Mr Stojanovski and Mr Naloomian (together the appellants) each pay security in an amount of $75,040.

3    The first application was heard on 16 June 2017 together with an application by Ottoman Investments Pty Ltd (in liquidation) for security for costs in Mr Zreika’s appeal and a challenge by the applicants to the competency of Mr El Ali’s appeals. In relation to Mr Nazloomian’s appeal, the first application was dismissed with costs on 21 July 2017 but orders for security for costs and other orders were made in relation to each of the other appeals (see [35] below).

4    These are the reasons for dismissing the second application with costs.

Litigation History

Decisions of the primary judge

5    On 16 December 2011, Mr El Ali was made bankrupt on the petition of the Royals. In proceedings NSD 1731 of 2013 and NSD 771 of 2014 (brought respectively by the applicants and Mr Jones), the applicants claimed that a number of share transfers and property transactions to which the appellants were parties were made with intent to defraud Mr El Ali’s creditors within the meaning of s 37A of the Conveyancing Act 1919 (NSW) and/or s 121 of the Bankruptcy Act 1966 (Cth).

6    NSD 1731 of 2013 and NSD 771 of 2014 were heard together. At [2]-[3] of Royal v El Ali (2016) 14 ABC(NS) 108; FCA 782 (Principal Decision), Davies J explained that:

2.    The transactions in issue in chronological order are:

(a)    The transfer of the shares owned by Mr El Ali in Isaac & Jacob Pty Ltd (“Isaac & Jacob”) to John Nazloomian (“Mr Nazloomian”) on 19 October 2010.

(b)    The Deed of Appointment of New Trustee dated 15 December 2010 by which Ottoman Investments Pty Ltd (“Ottoman”) resigned as trustee of the Ottoman Investments Unit Trust and Otsi Stojanovski (“Mr Stojanovski”) was appointed the new trustee.

(c)    The transfer by Ottoman of the property at Unit 2, 4 Hogben Street, Kogarah (“the Kogarah Unit 2 property”) to Mr Stojanovski on 16 December 2010.

(d)    The Deed of Retirement and Appointment of New Trustee executed on or around 21 or 28 April 2011 by which Ottoman resigned as trustee of the Ottoman Investments Unit Trust and Mahmoud Zreika (“Mr Zreika”) was appointed the new trustee.

(e)    The transfer by Ottoman of the property at 2 Woodlands Road, Taren Point (“the Taren Point property”) to Mr Zreika on 21 April 2011.

(f)    The transfer of the shares owned by Mr El Ali in Ottoman to his nephew Mahmoud El Ali (“Mahmoud”) on 22 August 2011.

(g)    The transfer of the shares owned by Mr El Ali in EasyChoice Home Loans Pty Limited (now ACN 092 879 733 Pty Ltd) (“EasyChoice”) to Mahmoud on 7 September 2011.

(h)    The transfer of the shares owned by Mr El Ali in Saracen Holdings Pty Limited (“Saracen”) to Mahmoud on 1 November 2011.

(i)    The Deed of Retirement and Appointment of New Trustee dated 8 December 2011 by which Saracen resigned as trustee of the Voyager Point Unit Trust and Mr Zreika was appointed the new trustee.

(j)    The transfer by Saracen of the property at 1 Sirius Road, Voyager Point (“the Voyager Point property”) to Mr Zreika on 8 December 2011.

(k)    The transfer by Saracen of the property at 1A McDonald Lane, Potts Point (“the Potts Point property”) to Mr Nazloomian on 22 November 2012.

OVERVIEW

3    Isaac & Jacob, Saracen, Ottoman and EasyChoice [Home Loans Pty Ltd] were each owned and controlled by Mr El Ali before the challenged share transfers. EasyChoice was the vehicle through which Mr El Ali conducted his mortgage broking business. Saracen and Ottoman were the vehicles through which Mr El Ali acquired and owned properties. Isaac & Jacob was, and still is, the sole unitholder of the Voyager Point Unit Trust, the Helensburgh Unit Trust and the Ottoman Investments Unit Trust. Saracen was the trustee of the Voyager Point Unit Trust and the Helensburgh Unit Trust. Ottoman was the trustee of the Ottoman Investments Unit Trust. Isaac & Jacob holds the units in the Voyager Point Unit Trust and Helensburgh Unit Trust as trustee for the Elali Family Trust, a discretionary trust of which Mr El Ali is a specified beneficiary, and holds the units in the Ottoman Investments Unit Trust as trustee for the Second Elali Family Trust, a discretionary trust of which Mr El Ali is within the designated class of beneficiaries. Mr El Ali, at all relevant times, was, and still is, the appointor of both family trusts. As appointor, Mr El Ali has, under the terms of both family trusts, the power to remove and appoint the trustee.

7    For ease of reference, I will use the same definitions as Davies J.

8    In the Principal Decision, Davies J found that:

(1)    Mr El Ali remained in control of each of Ottoman, Saracen, Isaac & Jacob and Easychoice and directed their affairs at all material times, notwithstanding the transfer of shares in those companies and his retirement as a director from each of Saracen and Ottoman;

(2)    Mr El Ali caused the transfer of shares in Isaac & Jacob to Mr Nazloomian;

(3)    Mr El Ali caused the transfer of shares in Ottoman, Saracen and Easychoice to Mahmoud;

(4)    Mr El Ali caused the transfer to Mr Zreika of the Taren Point property (from Ottoman) and the Voyager Point property (from Saracen);

(5)    Mr El Ali caused the transfer of the Potts Point property from Saracen to Mr Nazloomian and, despite the fact that Mr Nazloomian gave valuable consideration, he was not a purchaser in good faith;

(6)    Mr El Ali caused the transfer of the Unit 2 Kogarah property from Ottoman to Mr Stojanovski; and

(7)    Each of the transfers was made with the intent to defeat Mr El Ali’s creditors.

9    On 23 September 2016, Davies J delivered judgment and made declarations and orders giving effect to the Principal Decision: see Royal v El Ali (No 2) [2016] FCA 1156 (the Orders Decision). In relation to proceedings NSD 771 of 2014, Davies J declared that the transfer of the Potts Point property to Mr Nazloomian was void (Order 1(b)) and ordered that Mr Nazloomian account to Saracen’s liquidator for the value of the Potts Point property by paying the liquidator $10,000 (Order 9). To aid understanding of material which follows it is useful to know that, in relation to proceedings NSD 1731 of 2013, Davies J ordered Mr Zreika to account for the value of the Voyager Point property in the sum of $800,000 by paying that sum to Saracen’s liquidator (Order 8). Justice Davies also ordered that $250,000 which Mr Zreika had paid into Court in substitution for the claim on the Taren Point property be paid to Ottoman’s liquidator (Order 11).

10    On 26 September 2016, Davies J stayed execution of Order 9 on the condition that Mr Nazloomian pay $10,000 into Court within seven days. The Court’s receipt indicates that Mr Nazloomian made that payment by bank cheque on 7 November 2016.

11    On 22 December 2016, Davies J delivered judgment and made orders concerning costs: see Royal v El Ali (No 3) [2016] FCA 1573 (the Costs Decision). In relation to proceedings NSD 771 of 2014, Davies J ordered the five respondents (including Mr Nazloomian) to pay Mr Jones’ costs in a fixed amount of $212,166. In relation to proceedings NSD 1731 of 2013 (to which Mr Nazloomian was not a respondent), Davies J ordered the respondents to pay the applicants’ costs fixed in an amount of $442,668. I will refer to these orders together as the fixed costs orders. The fixed cost orders were stayed until 2 February 2017 or until further order. A series of orders were subsequently made by consent staying the fixed costs orders subject to payment of the amounts of the fixed costs orders into Court. The Court’s receipts indicate that, on 5 May 2017, Mr Nazloomian paid an amount of $212,166 and Mr Zreika paid an amount of $442,668 into Court by bank cheques.

12    On 23 March 2017, (among other things) Davies J dismissed an application made by Saracen’s liquidator under s 477(2A) of the Corporations Act 2001 (Cth) for approval to an agreement which he entered into with Mr Zreika and Mr Nazloomian on 2 November 2016 (Compromise Agreement). Under the Compromise Agreement, Saracen’s liquidator agreed to compromise Order 8 (made against Mr Zreika) and Order 9 (made against Mr Nazloomian) in consideration of their agreement to pay the liquidator $70,000 in total. By 28 November 2016, Saracen’s liquidator had received that amount. Mr Zreika explained that he had not sought a stay of Order 8 because of the Compromise Agreement, but he did seek a stay of execution of Order 11. That application for a stay was refused: see Royal v El Ali (No 4) [2017] FCA 299 (the Compromise Decision).

The first application

13    These reasons only deal with submissions and evidence filed in relation to the first application and the orders made on 21 July 2017, insofar as it is necessary to assist consideration of the second application.

14    Section 56 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) provides:

56    Security

(1)    The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her.

(2)    The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs.

(3)    The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given.

(4)    If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed.

(5)    This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security.

15    Rule 36.09 of the Federal Court Rules 2011 (Cth) (Rules) provides:

36.09    Security for costs of appeal

(1)    A party may apply to the Court for an order that:

(a)    the appellant give security for the costs of the appeal, and for the manner, time and terms for giving the security; and

(b)    the appeal may be stayed until security is given; and

(c)    if the appellant fails to comply with the order to provide security within the time specified in the order – the appeal be stayed or dismissed.

(2)    An application under subrule (1) must be accompanied by an affidavit stating the facts in support of the application.

    Note:    Section 56 of the Act also deals with security for costs.

16    The principles to be applied on an application for security for costs in an appeal were not in dispute. They were usefully summarised by Katzmann J in Renshaw v Queensland Mining Corporation Limited [2016] FCA 994 at [5]-[6]:

5    Self-evidently the power to make an order under s 56 of the Act is broad. It is unconstrained by anything other than the requirement that it be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3–4. The “touchstone” is fairness: Madgwick v Kelly (2013) 212 FCR 1 at [92] (Allsop CJ and Middleton J). That said, without wishing to be prescriptive, a number of considerations will bear upon the exercise of the discretion. They include the matters referred to by Emmett J in Dye v Commonwealth Securities Ltd [2012] FCA 992 at [26] (“Dye”):

(a)    the prospects of success … ;

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

(c)    whether the making of an order for security would be oppressive insofar as it would stifle a reasonably arguable claim;

(d)    whether impecuniosity of an appellant arises out of the conduct that is the subject of complaint in the relevant proceeding;

(e)    whether there are any aspects of public interest that weigh in the balance against granting security; and

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

6    It is generally accepted that the party seeking security bears a legal onus of establishing that the party against whom the order is sought will be unable to pay its costs if it succeeds on the appeal: see, for example, Knight v Beyond Properties Pty Ltd [2005] FCA 764 at [27] (Lindgren J); Prynew Pty Ltd v Nemeth [2010] NSWCA 94 at [16] (“Prynew”). I say generally because, as I pointed out in Waters v Commonwealth (Australian Taxation Office) [2015] FCAFC 46; 108 ACSR 445 at [45] (North J agreeing), there is an ostensible conflict in the authorities about whether it is correct to speak of a burden of proof on an application for security for costs.

17    Further, as noted by Marshall J in Carey v Freehills [2014] FCA 325 at [16]-[17]:

16    In circumstances where the exercise of the discretion is sought to be invoked in appellate proceedings, the Court will more readily grant security against a litigant who is impecunious than may be the case at first instance; see Skyring v Sweeney [1999] FCA 61 at [6] per Spender J, Moore v Macks [2007] FCA 509 at [20] per Mansfield J, Clack v Collins (No 1) [2010] FCA 513 at [7]-[8] per Jagot J and Dye [v Commonwealth Securities Ltd [2012] FCA 992] at [27]-[28] per Emmett J.

17    Further, in Clack v Collins (No 1) at [11], Jagot J referred to the observation of Spender J in Tait v Bindal People [2002] FCA 322 at [3] that:

The difference is that, at the appellate level, there has already been a determination adverse to the person against whom security for costs is sought and, if it be shown that there is a substantial risk that even if successful the respondent… to an appeal, will be deprived of his costs, such an outcome would clearly be unjust.

The applicants rely in particular on Carey v Freehills [2014] FCA 325 at [17].

Applicants’ submissions

18    The applicants made a number of submissions which applied to the appellants in general and some in relation to each of the appellants individually. They submitted that there could be no confidence that any of the appellants would or can satisfy an adverse costs order if they were unsuccessful on their appeals because of:

(1)    The failure of any of the appellants to adduce evidence about their financial position or how they would be able to satisfy an adverse costs order “can only lead the Court to the view that their financial position is uncertain and at best the Court has only a selective picture of the true financial position of any of the appellants” so the Court is not able to assess the likelihood of the applicants recovering the costs of the appeals if they are successful;

(2)    The findings in the Principal Decision that each of the appellants were involved in fraudulently defeating Mr El Ali’s creditors and were generally untruthful witnesses; and

(3)    The fact that the appellants only recently consented to pay into Court the amount of the lump sum costs pursuant to orders made on 22 December 2016, six months after the Costs Decision was delivered.

19    The applicants further submitted that:

(1)    In the absence of evidence of the appellants’ financial position, the Court was entitled to assume that the making of a security for costs order would not stifle the appeals nor could it be said that any impecuniosity arose out of the conduct of the applicants;

(2)    The only interest sought to be vindicated by the appellants was their own private interest; and

(3)    There have been repeated applications since the Principal Decision including: in relation to the form of the final orders, whether costs should be ordered on a joint and several basis, whether the indemnity principal was satisfied in light of a conditional fee arrangement between the Royals and their lawyers, whether the agreement between Saracen’s liquidator and Messrs Zreika and Nazloomian relieved Mr Zreika of the obligation to comply with Order 8 and Mr Zreika’s attempts to obtain stays of Orders 8 and 11.

20    In relation to Mr Nazloomian specifically, Michael Edward France, a consultant employed by Watson Mangioni Lawyers Pty Ltd, the solicitors for the applicants, gave evidence that a search was conducted on 13 February 2017 which disclosed that Mr Nazloomian was one of several joint proprietors of a property in Nelson Bay. That property was subject to a charge in favour of Yates Amirbeaggi Pty Ltd (trading as Yates Beaggi Lawyers) for unpaid legal invoices, as evidenced by a caveat (dated 20 July 2015) which had been lodged against the property, apparently on 22 July 2015. A similar caveat had been lodged in relation to Mr Stojanovski’s property.

21    Counsel for the applicants, Dr Birch SC, tendered applicants’ exhibit 1 which contained an email dated 13 July 2015 from the office manager of Yates Beaggi Lawyers to Davies J’s Associate. The email indicated that Yates Beaggi Lawyers had ceased to act for Messrs Nazloomian and Stojanovski due to enforcement action it was taking against them for unpaid legal fees. As part of that exhibit, Dr Birch also tendered a letter dated 15 June 2017 from Farshad Amirbeaggi, solicitor director of Yates Beaggi Lawyers, to Mr France which said (as written):

We refer to your letter dated 31 May 2017.

We confirm that Yates Amirbeaggi Pty Ltd settled its costs dispute with 37 York Road Pty Ltd and Mr. Mahmoud Zreika on or around 28 August 2015. There is currently no funds owing by Mr. Nazloomian or Mr. Stojanovski to Yates Amirbeaggi Pty Ltd.

We confirm that Withdrawals of Caveats over both Mr. Nazloomian and Mr. Stojanovski’s properties have been filed with the LPI today, copies of which are *enclosed for your records.

Notices of withdrawal of caveats dated 15 June 2017 were included in the exhibit.

22    Dr Birch submitted that it can be inferred that Mr France’s letter of 31 May 2017 engendered the end of the costs dispute between lawyers for Messrs Nazloomian and Stojanovski and a company controlled by Mr Zreika. He submitted that, while the applicants do not know the full context, the letter suggests that Mr Zreika, or a company controlled by him, had been responsible for legal fees incurred by Messrs Nazloomian and Stojanovski throughout the litigation. He accepted that the Nelson Bay property was now not subject to the caveat but submitted that it is not clear whether Mr Nazloomian was a beneficial owner of the property. He further submitted that it was not clear who had raised the money to pay the amount of the fixed costs orders into Court, even though the Court’s receipt for $212,166 was in Mr Nazloomian’s name.

23    In response to the question of whether Mr Nazloomian had done everything which might reasonably be expected of him as a party to litigation, Dr Birch conceded that it could be said that Mr Nazloomian had performed the obligations that have been imposed upon him by orders of this Court. He submitted, however, that Mr Nazloomian was “just fencing with us” in relation to the issue of the risk of whether he would, in a satisfactory way, be able to pay any costs of the appeal which may arise in due course. While it can be inferred that Mr Nazloomian could prosecute an appeal because he had been able to field a legal team whenever there was an occasion that required him to take a role in the proceedings, that does not make it possible to know whether that is being done from his own resources or whether he is ciphers for others.

24    Dr Birch submitted that, in the context of an application for security for costs, the implication that Mr Zreika had been responsible for legal costs incurred by Messrs Nazloomian and Stojanovski at least required explanation from them and it raised questions of whether they were unwilling to fund the litigation themselves, whether they have the resources to pay a costs order and whether they would be willing to do so if their appeals were lost.

25    The applicants also sought to rely on Mr Nazloomian’s failure to attend, on 9 May 2017, a hearing in proceedings brought by him against the Royals in the District Court of New South Wales and his failure to pay to the Royals $5,000 pursuant to a gross sum costs order made against him in their favour on that day.

26    It was uncontested in the proceedings in this Court that the liquidator for EasyChoice had assigned claims it might have against the Royals to Mr Nazloomian in late 2016, as a result of which Mr Nazloomian commenced the action against them in the District Court of New South Wales on 15 December 2016. In his affidavit sworn and filed on 15 June 2017, Mr France gave evidence concerning the litigation history of the proceedings in the District Court. The District Court made timetabling orders on 14 February 2017 for Mr Nazloomian to file and serve an amended statement of claim and for the Royals to file a defence. A pre-trial conference was set down for 11 April 2017. Mr Nazloomian did not appear at the pre-trial conference. On 11 April 2017, orders were made by the District Court for Mr Nazloomian to provide particulars of his claims, for the filing of a defence, for notice of the orders to be given to him at his email address and for the proceedings to be dismissed if Mr Nazloomian did not appear on 9 May 2017. When Mr Nazloomian did not appear on 9 May 2017, the gross sum costs order was made and the proceedings were dismissed.

27    Dr Birch noted that Davies J did not accept any of the appellants as a witness of truth: see Principal Decision at [168]. Relevantly to Mr Nazloomian, Davies J did not accept that he made out a defence under s 37A(3) of the Conveyancing Act that he had acted in good faith in relation to relevant share transfers and the transfer of the Potts Point property or that he had given candid evidence; her Honour inferred that Mr Nazloomian’s role was, essentially, to do as instructed by Mr El Ali: see Principal Decision at [50], [56]-[59], [230].

28    In response, Mr Nazloomian’s counsel, Mr Fernon, tendered a copy of an affidavit sworn by Mr Nazloomian in Melbourne on 16 June 2017. That was the day of the hearing of the first application. Mr Nazloomian was not available for cross-examination. Dr Birch properly conceded that the applicants were not in a position to complain about that, given that the matter of Mr Nazloomian’s failure to attend the District Court on 9 May 2017 or to pay the costs order was first raised in Mr France’s affidavit sworn and served on 15 June 2017.

29    In his affidavit, Mr Nazloomian deposed that the he had not been aware of the orders made on 9 May 2017 until he saw Mr France’s affidavit as he has received no correspondence from the District Court since 11 April 2017. Mr Nazloomian conceded that he had received correspondence advising of the orders made on 11 April 2017 and stated that he had asked his solicitor to appear on 9 May 2017. Mr Nazloomian stated that, after speaking with his solicitor in the District Court proceedings, Mr Massey, in relation to Mr France’s affidavit, he became aware that his solicitor overlooked attendance at the District Court because of “serious personal family difficulties” at that time. Mr Nazloomian stated:

7.    Now that I am aware that the proceedings were struck out due to my non-attendance on that day, I intend to apply to the District Court to reinstate the proceedings, given the oversight in my non-attendance.

8.    I will take immediate steps to pay the costs order that has been ordered to be paid.

30    Dr Birch noted that Mr Massey was Mr El Ali’s solicitor throughout the proceedings the subject of the appeals.

Mr Nazloomian’s submissions

31    Mr Fernon submitted that the onus is on the applicants to adduce evidence that suggests that Mr Nazloomian could not satisfy a costs order in the amount of $75,040 (being the amount sought against him individually). Mr Fernon submitted that until the applicants discharge that onus, Mr Nazloomian has no obligation to adduce evidence as to his financial position. Mr Fernon said that the applicants failed to discharge that onus and there is no evidence that Mr Nazloomian is impecunious. He argued that:

(1)    Mr Nazloomian has satisfied (albeit late) the Court’s order made on 26 September 2016 and paid $10,000 into Court on 7 November 2016 in relation to the value of the Potts Point property. The fixed costs order of $212,166 was complied with by payment into Court on 5 May 2017. The amount of $70,000 required to be paid to Saracen’s liquidator under the Compromise Agreement was paid. It cannot be said that Mr Nazloomian disregarded the Court’s orders;

(2)    Mr Nazloomian has advanced substantial moneys to Saracen and Mr El Ali: see the amount of $1.5 million referred to at [163] of the Principal Decision;

(3)    Mr Nazloomian is a joint holder of a Nelson Bay property, which is now unencumbered based on the evidence of the applicants’ searches and applicants’ exhibit 1. Albeit that no valuation was in evidence, the value of that property might be expected to exceed the amount sought by way of security against Mr Nazloomian individually. No inference could be drawn from the email dated 13 July 2015 included in the applicants’ exhibit 1 that Mr Nazloomian was unable to pay his debts because the letter from Mr Amirbeaggi dated 15 June 2017 indicates that all outstanding costs were settled in August 2015. The “flurry of activity”, which Dr Birch claims resulted from Mr France’s letter of 31 May 2017, did not relate to unpaid costs – it related to securing the withdrawal of a caveat which should have occurred almost two years previously;

(4)    Mr Nazloomian’s evidence that he had not known of the orders made by the District Court on 9 May 2017 must be accepted so that no adverse inference can be drawn from his failure to pay it. Although the applicants say that it is strange that Mr Nazloomian did not know of the order, the applicants have not explained why they took no steps to pursue those orders and simply relied on the District Court to advise Mr Nazloomian; and

(5)    Despite the general finding made by Davies J at [168] of the Principal Decision that none of the respondents were witnesses of truth and that she had largely not accepted the evidence of any of them, at [165]-[166], her Honour generally accepted Mr Nazloomian’s evidence concerning the transactions in relation to the Potts Point property. Against the opposition of the Royals, Davies J accepted that Mr Nazloomian subsequently sold the Potts Point property for its correct value of $10,000. The general propositions concerning the credit of the witnesses made by Dr Birch were primarily directed against Mr El Ali and Mr Zreika. There is no evidence that Mr Nazloomian has ever made any attempt to defeat his own creditors.

32    Mr Fernon submitted that the applicants’ reliance on the decision of Jacobson J in Addenbrooke Pty Ltd v Duncan (No 3) [2014] FCA 332 at [4], [17] and [38] is misplaced. That was a case which dealt with the prospect that someone who would benefit from litigation was not exposed to the risk of an award of costs. It was in that context that Jacobson J said that it was “incumbent” on the person who stood behind Addenbrooke Pty Ltd and gave undertakings to the Court concerning any costs award made against it to be “frank with the Court as to his financial position”. As an appellant, Mr Nazloomian is fully exposed to a costs order.

33    In relation to the merits of Mr Nazloomian’s appeal and issues of public interest, Mr Fernon submitted that:

(1)    There was a good arguable case that Davies J made a clear error in her Honour’s findings at [164] and [229] that Mr Nazloomian gave no credit of $30,000 to Saracen for the transfer of the Potts Point property in November 2012 (registered in January 2013), instead finding that Mr Nazloomian gave the credit to Mr El Ali, relying on the proof of debt lodged by Mr Nazloomian in relation to Mr El Ali’s bankrupt estate. This ground of the appeal is of very narrow compass. It will be argued on the appeal that this finding ignored Mr Nazloomian’s evidence that a credit was given to Saracen. Mr Fernon submitted that the running account operated by Mr Nazloomian (a copy of which was attached to Mr Nazloomian’s affidavit sworn on 21 April 2015 and relied on in the proceedings before Davies J) recorded that, on 17 December 2009, he made a loan of $440,000 to “Saracen/Nathan”, meaning that the loan had been made to Saracen and guaranteed by Mr El Ali in relation to the purchase of a property at Helensburgh. The running account indicated that a $30,000 credit was given on 9 October 2012. It was Mr Nazloomian’s evidence that this was in relation to the transfer of the Potts Point property by Saracen to him. Mr Fernon submitted that, in light of the guarantee, it was appropriate that Mr El Ali’s liability also be reduced as disclosed in Mr Nazloomian’s proof of debt. That proof of debt dealt only with Mr El Ali’s affairs, not Saracen’s, so that it says nothing about the impact on Saracen. Mr Fernon argued that there was no net loss to Saracen since its liability was reduced by the transfer and therefore there is a good arguable case that Mr El Ali’s creditors were not affected by the transactions in the Potts Point property. Mr Nazloomian has paid the $10,000 value of the Potts Point property into Court.

(2)    Insofar as Mr Nazloomian’s appeal relates to costs, it raises the appropriateness of the joint costs order and the substantive issue of the operation of the indemnity principle on the facts of this case which requires the Court’s determination.

(3)    Mr Nazloomian’s appeals raise issues of public interest in relation to the scope of s 37A of the Conveyancing Act and s 121 of the Bankruptcy Act.

(4)    Mr Nazloomian’s grounds of appeal also raise a significant issue concerning the powers of a liquidator under s 477(2A) of the Corporations Act, in particular, in relation to whether the liquidator should be constrained in compromising a claim arising out of a judgment in favour of a company in liquidation obtained by another party to litigation. In brief, Davies J erred by finding that the liquidator required the consent of the other party to litigation before the compromise could be effective.

Orders made following first application

34    At the conclusion of the hearing, I gave the parties a general indication of the orders that I might be minded to make but reserved decision. In accordance with the Court’s invitation, after the hearing the parties conferred and provided draft orders; their positions were agreed in some respects and not in others.

35    On 21 July 2017, the following orders (among others) were made:

(1)    In Mahmoud’s appeal, that Mahmoud pay the sum of $21,000 into Court by 14 August 2017 as security for the applicants’ costs. Mahmoud appealed only against the costs order made against him on 22 December 2016.

(2)    In Mr El Ali’s appeals, that (1) Mr El Ali’s appeals against the Principal Decision were dismissed with no order as to costs; and (2) Mr El Ali pay the sum of $21,000 into Court by 14 August 2017 as security for the applicants’ costs. In effect, the only order against which Mr El Ali’s appeal remained on foot was against the costs orders made on 22 December 2016.

(3)    In Mr Zreika’s appeal, that (1) Mr Zreika pay $50,000 into Court by 14 August 2017 as security for the applicants’ costs; (2) Mr Zreika pay $25,000 into Court by the same day as security for Ottoman’s costs; and (3) in satisfaction of Order 8, Mr Zreika pay the amount of $730,000 into Court by 22 September 2017 (taking into account the fact that an amount of $70,000 had been paid to Saracen’s liquidator in November 2016).

(4)    In Mr Stojanovski’s appeal, that Mr Stojanovski pay $45,000 into Court by 14 August 2017 as security for the applicants’ costs.

(5)    The Court dismissed the application for security for costs in Mr Nazloomian’s appeal and ordered that Mr Jones pay Mr Nazloomian’s costs of the application.

36    For completeness, when the security for costs orders were made, the orders included a notation that if security was not provided by the designated date, a short time later the Court would consider whether the relevant appeal should be dismissed. On 14 August 2017, an amount of $162,000 was paid into Court by means of a personal cheque written by two persons who are not parties to the appeals. On 16 October 2017, Mr Zreika paid into Court a bank cheque for $730,000. Timetabling orders have been made in the appeals with a view to a hearing of the appeals on four days in early June 2018.

The second application

37    The applicants and Mr Nazloomian relied on the submissions and evidence in the first application in relation to the second application. The applicants and Mr Nazloomian filed submissions on the second application.

38    The applicants accepted that they could not be successful on the second application unless they could demonstrate that, since the contested hearing and determination of the first application, there has been a material change of circumstances or the discovery of new material which could not reasonably have been put before the Court on the hearing of the first application: see Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46.

39    The applicants relied on the affidavit of Mr France sworn on 29 September 2017. Mr France’s evidence was that:

(1)    Contrary to Mr Nazloomian’s affidavit sworn on 16 June 2017, Mr Nazloomian did not “take immediate steps to pay” to the Royals the gross sum costs order (of $5,000) obtained on 9 May 2017 in the District Court proceedings. Instead (and contrary to a request made on 19 June 2017 to deposit the amount in the Royals’ solicitors’ trust account), Mr Nazloomian deposited $5,000 with the District Court on or about 3 July 2017. Accordingly, what Mr Nazloomian said in the affidavit sworn on 16 June 2017 was “just false”. That deposit was not released to the Royals until 4 August 2017 and the Royals were obliged to seek orders for that outcome and incur unnecessary cost.

(2)    Mr Nazloomian filed a notice of motion in the District Court on 22 June 2017 seeking to set aside the orders made on 9 May 2017. That set aside motion was heard on 7 July 2017 and it was dismissed on jurisdictional grounds. The Registrar was directed to pay the $5,000 deposited with the Court to the solicitors for the Royals. Mr Nazloomian was ordered to pay a lump sum of $4,500 for the Royals’ costs within 28 days. That amount of $4,500 was not paid until 8 September 2017, outside the 28 days’ period set out in the order.

(3)    On 23 August 2017, Mr Nazloomian commenced proceedings against the Royals in the Local Court of New South Wales in relation to an unjust enrichment claim relating to a Mercedes Benz vehicle. The Royals filed a defence on 15 September 2017. The claim agitates the same issue which had been raised in the proceedings in the District Court. That issue had been finally determined in a decision of the Supreme Court of New South Wales on 3 June 2011 in proceedings number 2010/52671 (Supreme Court proceedings): see Royal v El Ali [2011] NSWSC 602 and relevantly at [30], [47], [58] and [74]. The Supreme Court found (at [74]) that the value of the Mercedes vehicle ($55,000) had been applied in October 2004 to reduce the amount of a loan from the Royals to Mr El Ali. On 23 June 2011, the Royals obtained orders in those proceedings reflecting the judgment delivered on 3 June 2011. The Supreme Court ordered Mr El Ali to pay the Royals $1,099,456.74 plus costs, and it those orders which founded the creditor’s petition which resulted in a sequestration order being made against Mr El Ali. Mr Nazloomian agreed to file a notice of discontinuance in the Local Court proceedings on terms agreed to by the parties.

(4)    On 21 August 2017, Mr Nazloomian gave notice that he intends to file an application for costs assessment against the Royals in relation to orders made on 29 July 2010 and 3 June 2011 in the Supreme Court proceedings referred to above. The question of EasyChoice’s entitlement to costs had been raised by the Royals with the liquidator of EasyChoice, Mr Max Donnelly, in their solicitors’ letter dated 24 October 2014 to him. That letter stated that:

(a)    The Supreme Court proceedings had been discontinued as against EasyChoice on 29 July 2010 and on 23 June 2011, Mr El Ali was ordered to pay the Royals’ costs of the proceedings. While it is true that the Supreme Court ordered the Royals to pay EasyChoice’s costs on 29 July 2010, only EasyChoice’s costs incurred on or before 29 July 2010 could be claimed. EasyChoice claimed an aggregate of $72,235.27 relating to four invoices, but three of the four invoices relate to costs which post-date the discontinuance against EasyChoice. Further, the invoices appear to relate to costs incurred by both Mr El Ali and EasyChoice, without apportionment.

(b)    The costs claimed are excessive. They do not reflect an average rate of between $220 and $500 per hour, which would have been the rate applied to solicitors’ costs in 2010, having regard to experience and qualification. Rates charged were for between $300 (for a first year lawyer) and $685 to $780 (for partners). The proceedings were discontinued against EasyChoice at an early stage, before pleadings were closed. The claim against EasyChoice was incidental to the claim against Mr El Ali. Therefore “the costs incurred by the Company ought to have been less than $7,500.00”.

(c)    There are a number of items for which the Royals would not be liable, such as “research house price index”, preparing and attendance to file consent orders and notice of intention to cease acting, amending a working file and research concerning a freezing order.

(d)    As EasyChoice was a registered entity for claiming input tax credits, the Royals would not be liable for GST associated with costs paid by EasyChoice.

(e)    On 14 October 2010, the Fair Work Ombudsman made a determination that EasyChoice had underpaid Mr Royal $9,011.63. That determination was made on the basis of the “modern wage” or “minimum wage”, not on the basis of the employment contract between Mr Royal and EasyChoice. On that basis, the total amount owing to Mr Royal was $21,310 as at 31 December 2010. The Royals’ solicitors were instructed that there was correspondence between the EasyChoice and Mr Royal which bore this out, but which could not then be located, but Mr Donnelly should be able to establish its truth from EasyChoice’s books and records.

(f)    In the circumstances, any claim of EasyChoice to costs based on the Supreme Court’s orders should be set off against the amounts to which Mr Royal is entitled.

(5)    On 8 September 2017, Mr France wrote to Mr Fernon about issues identified in relation to the Local Court and District Court proceedings, foreshadowing the second application and inviting Mr Nazloomian to agree to a consent order for security for costs in the amount of $45,000.

40    The applicants say that Mr Nazloomian’s conduct is capable of leading the Court to draw the following inferences and conclusions:

(1)    It can be inferred that Mr Nazloomian has complied (late in some cases) with orders in this Court, the District Court and the Local Court so as not to jeopardise his ability to continue to litigate his appeal. If he loses his appeal, he will have no such incentive to pay any award of costs. While some dilatory behaviour in complying with orders of the Court might not warrant the second application, harassing conduct involving abuse of the processes of the Local Court and the District Court does justify the application and the making of an order for security for costs. Vexatious conduct warrants the making of an order for security for costs at first instance (see Mbuzi v Hall [2010] QSC 359 at [60], [68], [70] and [71]). It would be perverse if Mr Nazloomian’s conduct was not regarded as relevantly vexatious just because the conduct occurs in other courts and not directly in relation to the appeal.

(2)    Mr Nazloomian procured the payment into this Court of money (amounting to over $220,000) only when pressed to do so and it is not clear that he was the source of the funds used to make the payment.

(3)    Despite his assurances to the Court in his affidavit sworn on 16 June 2017, he did not proceed to pay the gross sum costs order promptly to the Royals’ solicitors (as requested); instead the $5,000 was obtained by the Royals only after they made further application to the District Court. Mr Nazloomian did not pay the $4,500 costs order made by the District Court on 7 July 2017 within the 28 days period required by the order; it was paid only on 8 September 2017. The applicants concede that that payment was not prompted by the letter from the Royals’ solicitors dated the same day which foreshadowed the second application.

(4)    The proceedings in the District Court and the Local Court were an abuse of processes of those courts; they should never have been brought. The costs assessment of which Mr Nazloomian gave notice is misconceived for the reasons set out in the Royals’ solicitors’ letter of October 2014. All of these proceedings are designed to harass the Royals. The District Court proceedings filed in December 2016 were dismissed without any trial on the merits and had no prospects of success. The set aside motion was also dismissed with costs on jurisdictional grounds. The proceedings in the Local Court had no prospects of success in that they were time barred (the Mercedes Benz car was transferred in 2005), there was no standing to bring a claim against Mrs Royal but she has been joined nonetheless, and they purported to rely on misstatement of the Supreme Court’s reasons at [30], [47], [58] and [74], agitating matters already decided. The independent liquidator of EasyChoice had elected not to pursue costs assessment of the order made in the Supreme Court proceedings on 29 July 2010 following receipt of the Royals’ solicitors’ letter of October 2014. No moneys could be recovered under the assessment unless the assessment could appropriately be made in excess of approximately $21,000 and it cannot.

(5)    There is no apparent reason for Mr Nazloomian to involve himself in matters which arise out of the affairs of Mr El Ali and EasyChoice. There is no basis to conclude that the purchase of the rights from the EasyChoice liquidator was done as an investment. There was no co-operation with the liquidator. The recitals to the deed of assignment dated 2016 include the following (as written):

A    The Assignee [Mr Nazloomian] believes the Assignor [EasyChoice] has potential causes of action against the Royals.

B    The Liquidator has made repeated requests for information and documents relating to a claim against the Royals, but has not been provided with any information to quantify a claim against the Royals or to ascertain the merits of any claim against them.

C    The potential causes of action relating to the Assignor are:

(i)    costs incurred by the Assignor in Supreme Court proceedings 2010/52671;

(ii)    monies paid to or for the benefit of the Royals and which have not been repaid or accounted for to the Assignor;

(iii)    the transfer of Mercedes Benz Registration OOC200 from the Assignor to Peter Royal; and

(iv)    the potential causes of action that the Assignor has or may have that arise out of the facts, matters or circumstances relating to the employment of Peter Royal by the Assignor

(together the Assignor’s Claims).

…

F    At a meeting of creditors of the Assignor held on 6 October 2015, a resolution was passed “That the Company’s right (if any) to bring proceedings against Mr Peter Royal be assigned to Mr John Nazloomian on the terms set out in Annexure A of the Official Liquidator’s report to creditors dated 4 September 2015, subject to the execution of a Deed of Assignment to be prepared by the lawyers acting for Mr Nazloomian on terms satisfactory to the Official Liquidator”

(6)    Mr Nazloomian was represented in the District Court and Local Court proceedings by Mr El Ali’s solicitor. (The applicants accept that Mr Nazloomian’s solicitor failed to appear on 9 May 2017 in the District Court proceedings due to personal family reasons). In all of the circumstances, it should be concluded that Mr Nazloomian is acting at the instigation of, and in concert with, Mr El Ali and those actions were undertaken to harass the applicants.

(7)    This conduct leads to the conclusion that there is a substantial risk that Mr Nazloomian will not pay costs orders made against him on the appeal or he will take steps to seek to frustrate or delay enforcement of any order made against him. If the applicants had been in a position to rely on these matters at the hearing on 16 June 2017, the first application would have been much stronger in relation to Mr Nazloomian.

41    Through Mr Fernon, Mr Nazloomian submitted that:

(1)    The District Court proceedings, including issues in relation to the Mercedes Benz car, were before the parties at the time the first application was heard. On 9 May 2017, the District Court proceedings were dismissed on procedural grounds, but that fact and the fact that gross sum costs order had been made only became apparent to Mr Nazloomian on the day before the hearing of the first application.

(2)    Mr Nazloomian had every right to challenge the orders made on 9 May 2017; the proceedings had not been dismissed as an abuse of process but on the basis of a failure to appear. In his affidavit sworn on 16 June 2017, Mr Nazloomian said that he would pay the gross sum costs order. In seeking to preserve his right to challenge the 9 May 2017 orders he did not, strictly, do what he said he would do. The payment to the District Court was to demonstrate that the money to pay the gross sum costs order was there, a place where it could be obtained readily if he was not successful in his challenge to the orders made on 9 May 2017 and that is what occurred on 7 July 2017. The course adopted by Mr Nazloomian sought to balance preservation of his rights and compliance with the order made on 9 May 2017, it cannot properly be described as harassing. The costs awarded on 7 July 2017 have been paid.

(3)    In relation to the Local Court proceedings, Mr Nazloomian does not challenge the submission that the Supreme Court found that there was an offset of the value of the Mercedes Benz car ($55,000) against amounts owning by Mr El Ali to the Royals. The Court can infer that legal advice was given to Mr Nazloomian as a result of which the Local Court proceedings were discontinued: so much can be seen from Mr France’s affidavit. But the fact that the proceedings were commenced and discontinued is not, of itself, evidence of an intention to harass or intimidate. Indeed, the Royals did the same thing in the Supreme Court proceedings; they originally brought proceedings against both Mr El Ali and EasyChoice but discontinued against EasyChoice. The $1,500 in costs which the Royals’ solicitors suggested that their clients would accept if the proceedings were discontinued has been paid. While it is true that the Local Court proceedings should not have been commenced, they were discontinued quickly and Mr Nazloomian paid the price for that.

(4)    In relation to the costs assessment proceedings, the mere fact that the Royals’ solicitors wrote a letter to Mr Donnelly in October 2014 does not establish the validity of the matters which are set out in it. There is an outstanding order for costs which Mr Nazloomian, as assignee, is entitled to have assessed. There may well be an available set off, but that can only be determined on the basis of the assessment, not by simply accepting the matters asserted in the Royals’ solicitors’ letter. The evidence does not support a finding that the cost assessment is being pursued for the purpose of harassing the Royals.

(5)    The judgment in Mbuzi v Hall proceeds on the assumption that the litigant against whom security is sought is impecunious, but there is no suggestion that Mr Nazloomian is impecunious; the applicants have not demonstrated that he is and the onus is on them to do so. The reference to unmeritorious conduct (unpaid costs orders arising out of interlocutory or related applications) at point 4 in paragraph [70] of Mbuzi v Hall has no application in this case because there are no unpaid costs orders.

(6)    It is not open to the Court to find that the litigation undertaken by Mr Nazloomian in the District Court and the Local Court was vexatious or an abuse of process. The proper place for that assertion to be made was in the court in which the proceedings took place. No application has been made to declare Mr Nazloomian a vexatious litigant and no such application could succeed on the basis of the District Court and Local Court proceedings.

(7)    That Mr Nazloomian has an ongoing relationship with Mr El Ali is not news. It was accepted that this was the case in the proceedings which are the subject of the appeals.

42    In reply, Dr Birch submitted that:

(1)    There is ample evidence on the basis of which to find that Mr Nazloomian’s actions were designed to intimidate and harass the Royals. Mr France’s letter of 8 September 2017 to Mr Fernon put squarely that the instigation of the proceedings in the Local Court and District Court was, in the circumstances, an attempt to harass and intimidate the Royals and put them to unnecessary cost. The letter also put squarely that Mr Nazloomian acquired the right to take proceedings against the Royals from EasyChoice’s liquidator in order to arm himself with the means to harass the Royals. It is a “black mark” against Mr Nazloomian that he was prepared to lend aid to Mr El Ali to bring actions which Mr El Ali could not have brought himself because of his status as a bankrupt. Mr Nazloomian has nonetheless declined to give evidence and therefore, in light of the accumulation of suspicious circumstances, he has an “uphill task” in inviting the Court to conclude that his reasons for instigating litigation against the Royals were bona fide.

(2)    In light of the submissions filed in the District Court proceedings concerning the findings made by the Supreme Court in relation to the reduction of the loan to Mr El Ali of $55,000 arising from the transfer of the Mercedes Benz car to Mr Royal, (which was also the subject matter of the Local Court proceedings), it is difficult to see how the Local Court proceedings could have been commenced by mistake.

(3)    The Local Court proceedings were discontinued before any application could be made on the basis that they were vexatious.

43    Mr Fernon responded that the Supreme Court did not, in making its orders, specify how the judgment sum was calculated. Accordingly, despite the language employed in the Supreme Court’s reasons that it would be necessary to give credit for $55,000 in respect of the transfer of the Mercedes Benz car in October 2004, it was not clear that the Court had in fact done so and the submissions made in the District Court proceedings did not address that issue.

Consideration

44    As the applicants accepted that it is necessary for them to demonstrate that there has been a material change of circumstances or the discovery of new material which could not reasonably have been put before the Court on the hearing of the first application, I have set out the submissions and circumstances of the first application in some detail as well as the submissions made in relation to the second application. I have taken into account the submissions made by the parties on both applications and legal principals recorded above.

45    The parties did not require reasons for the orders made on 21 July 2017. In the context, it is useful to record that:

(1)    I was satisfied that the grounds of appeal on which Mr Nazloomian seeks to rely are arguable and there are aspects of the appeal concerning the scope and application of s 37A of the Conveyancing Act, s 121 of the Bankruptcy Act and s 477(2A) of the Corporations Act to the complex factual matrix which are of public interest. As I will be one of the judges sitting on the appeals, I understand that it is accepted by the parties that it would be inappropriate to analyse the prospects of success of the appeal any further.

(2)    I was not satisfied that the applicants had demonstrated that Mr Nazloomian was or might be impecunious; rather, they established that he was a registered joint proprietor of unencumbered land at Nelson Bay. Davies J did not reject Mr Nazloomian’s evidence that he had lent around $1.5 million to Mr El Ali. This would indicate that he was not impecunious. There was no evidence that he was disposing of assets.

(3)    Mr Nazloomian had paid into Court over $220,000 in respect of orders made by Davies J in the Orders Decision and the Costs Decision. While the source of those funds was not entirely transparent, the orders had been met.

(4)    There was no evidence contradicting Mr Nazloomian’s evidence that he had only become aware of the gross sum costs order on 15 June 2017 and that he was willing to meet that order promptly.

46    On 16 June 2017, I indicated to the parties that I was minded to dismiss the application as against Mr Nazloomian, but that position was finely balanced. The factors which made the decision finely balanced were Mr Nazloomian’s reticence to explain his financial position and the fact that the source of funds for payment of the costs orders was unclear in circumstances where applicants’ exhibit 1 would imply that Mr Zreika (or an entity associated with him) had been responsible for legal fees at least until August 2015. However, any concern arising from those factors was outweighed by the facts that (save for the gross sum costs order) there was no evidence of Mr Nazloomian having failed to meet costs orders in the past and a substantial costs order of $212,166 and an order for payment of $10,000 made against Mr Nazloomian in the proceedings in this Court had been met by payment into Court. In my view, the applicants’ reliance on the decision of Jacobson J in Addenbrooke Pty Ltd v Duncan (No 3) was misplaced as Mr Nazloomian was fully exposed to an adverse costs order. Although there was no evidence that a security for costs order would stymie Mr Nazloomian’s appeal, in all of the circumstances, in my view it was not appropriate to make an order against Mr Nazloomian for security for costs.

47    The “new” matters on which the applicants rely are Mr Nazloomian’s decisions to seek to have set aside the orders made on 19 May 2017 and the related decision to pay the amount of the gross sum costs order into Court, the pursuit of an action in the Local Court in relation to a Mercedes Benz car and the pursuit of an application for costs assessment in relation to an order made against the Royals in favour of EasyChoice in July 2010. The force of the submission was that these actions were taken at the instigation of Mr El Ali, they lacked merit and were simply designed to harass the Royals.

48    The applicants have relied on the following statements of principle set out in Mbuzi v Hall at [60], [68] and [70] and the statement made by Applegarth J at [71] in considering the application of those principles (emphasised words were emphasised by the applicants in submissions, footnotes deleted):

60    [In Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75; HCA 43 at [91]] Heydon J stated:

“Mere impecuniosity is not an absolute barrier to ordering security for costs against a natural person, although it is a factor against doing so. In particular, there are instances additional to those listed in r 42.21(1)(a)-(c) and (e) where it can be done. They include the vexatious conduct of litigation by a plaintiff who had failed to set aside an earlier judgment, instances where the plaintiff has dissipated assets and/or not paid previous costs orders (particularly costs orders in favour of the defendant), instances where the plaintiff brings a weak case to harass the defendant and instances where the plaintiff brings a case for the benefit of others, but not solely for that benefit. Hence the supposed ‘general principle … that poverty is no bar to a litigant’ is a severely qualified one. So is the ‘overriding principle of open access to justice’ (or, more realistically, at least access to the courts).”

Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd and Weger v Boola Boola Petroleum and Natural Gas Co (No Liability) were cited in support of these propositions.

…

68    As a general rule, the law requires defendants to accept the risk that natural persons who litigate viable claims in good faith for their own benefit might not be able to satisfy an order for costs. However, a claimant who “has adopted a vexatious mode of conducting the litigation” may fall outside the general rule. There may be other processes by which such vexation may be remedied, including a stay of proceedings. Still, where a party has adopted a vexatious mode of conducting the proceedings, the interests of justice in the case may justify an order for security for costs.

…

70    The relevant principles for the purpose of determining whether security for costs should be ordered in respect of the applicant’s judicial review proceeding include the following:

1.    …

4.    The unmeritorious conduct of interlocutory or related applications that result in unpaid costs orders may evidence a vexatious mode of conducting the litigation. The bare fact that unpaid interlocutory costs orders exist is not sufficient to conclude that a party has adopted a vexatious mode of conducting the litigation. An interlocutory application may have been brought or resisted on reasonable grounds by an impecunious litigant, and the determination of the application may have been finely balanced. In other cases, the unmeritorious prosecution or defence of interlocutory applications, resulting in unpaid costs orders, will evidence a vexatious mode of conducting the litigation.

71    The applicant has failed to pay the costs ordered by White J, which have been assessed. There are other costs orders made in AAMI’s favour. These include the costs ordered by the Court of Appeal on 24 December 2009, by Chesterman JA on 19 February 2010, by Alan Wilson J on 10 May 2010, and by P Lyons J on 30 July 2010. There is no evidence that these costs orders have been assessed. The protracted process by which the applicant has contested the assessment of costs ordered by White J would make a reluctance to be involved in too many similar contests over costs at the same time understandable. So does the applicant’s apparent inability to meet the costs that have already been assessed. AAMI and the Directors have sought to resolve the assessment of costs in the Court of Appeal, without response from the applicant.

49    There are many points of distinction between this case and Mbuzi v Hall. The applicants argued on the first application that the appellants had made repeated unsuccessful applications since the Principal Decision (see [19(3)]). I do not accept that, insofar as Mr Nazloomian was a party to those applications, they fall into the same category as the interlocutory applications under consideration in Mbuzi v Hall; it was entirely open to him to raise arguments about the proper basis for awarding costs. It does not follow from the fact that the Compromise Decision was decided adversely to Mr Nazloomian (among others, including the liquidator of Saracen) that that application was vexatious or harassing. It cannot properly be said that Mr Nazloomian has “adopted a vexatious mode” of conducting proceedings in this Court since the Principal Decision was handed down. Further, the “new” matters which have arisen since the hearing on 16 June 2017 have had no impact on the progress of Mr Nazloomian’s appeal or the other appeals, unlike the interlocutory applications under consideration in Mbuzi v Hall. There are no costs orders against Mr Nazloomian which are unpaid, either in these proceedings or others.

50    The most important point of distinction is that the applicants have not demonstrated that Mr Nazloomian is impecunious and none of the “new matters” go to that issue. The applicants are concerned that Mr Nazloomian will be unwilling rather than unable to pay a costs order if he is unsuccessful on his appeal. Whether or not that is the case, Mr Nazloomian is exposed to the risk of an adverse costs order and there is no evidence that he has taken steps to divest himself of assets or that he will not meet his obligation to pay costs should he be unsuccessful in the appeal.

51    I do not exclude the possibility that harassing conduct in these proceedings or in other proceedings between the parties to Mr Nazloomian’s appeal might inform the Court’s discretion to make orders for security for costs on the appeal. However, where the person against whom security is sought is not impecunious, it is difficult to see how that person’s conduct of other litigation can be relevant to the exercise of the discretion to make an order for security for costs unless the conduct results in a quantum of liability for costs which threatens the person’s capacity to pay a costs order in the proceedings in which security is sought or it demonstrates a pattern of failure to satisfy assessed costs orders. Neither of those elements is present here.

52    The action in the District Court was undertaken soon after the assignment to Mr Nazloomian of rights of action against the Royals held by EasyChoice (if any) was effected in late 2016. While Mr Nazloomian’s decision to seek to set aside the orders made on 19 May 2017 and pay the amount of the gross sum costs order into Court was inconsistent with the intention stated in his 16 June 2017 affidavit, he did not seek to evade that costs order (as he paid the amount of the gross costs order into Court) and he paid the further order as to costs of $4,500 made in those proceedings.

53    The Local Court proceedings, in which Mr Nazloomian also made claims concerning the Mercedes Benz car, were misconceived in light of the finding in the judgment in the Supreme Court proceedings at [74] that a credit had been allowed in October 2004 for $55,000 in respect of the transfer of the Mercedes Benz car to Mr Royal. Mr Fernon did not challenge Dr Birch’s assertion that there had in fact been an offset. As conceded by Mr Fernon, the Local Court proceedings should not have been brought.

54    It is likely that Mr El Ali had a role in encouraging Mr Nazloomian to enter into the deed of assignment and to commence the District Court and Local Court proceedings. The applicants did not submit direct evidence of that, however, it is conceded that Mr Nazloomian and Mr El Ali have a continuing relationship and Mr Nazloomian employed a lawyer in the proceedings in the District Court who has appeared for Mr El Ali in the proceedings in this Court. Having said that, I am not able to conclude that Mr Nazloomian entered into the deed of assignment and commenced the District Court or Local Court proceedings to assist Mr El Ali to harass or intimidate the Royals (or to do so himself) rather than to make a recovery. The fact that Davies J found (at [58] of the Principal Decision) that Mr Nazloomian was prepared to act in Mr El Ali’s interest and at his direction in relation to the preservation of assets for the benefit of the El Ali family to whom Mr Nazloomian was a creditor does not lead to the conclusion that Mr Nazloomian would be prepared to undertake harassing or intimidating conduct in the course of which he would expose himself to costs orders. The fact is that Mr Nazloomian did discontinue the Local Court proceedings within a matter of weeks and he paid $1,500 to the Royals for costs.

55    The third “new matter” is Mr Nazloomian’s foreshadowed application for assessment of costs order made against the Royals in the Supreme Court proceedings in July 2010. While it is difficult to see that any application will have much prospect of a return to Mr Nazloomian in the light of the matters raised in the Royals’ solicitors’ letter of 24 October 2014, as the person entitled to the benefit of the order, he is entitled to have it assessed.

56    I accept that the Royals are annoyed and have been put to effort by the steps taken by Mr Nazloomian to enforce the rights which he acquired from the liquidator of EasyChoice. I do not accept that the steps taken to date amount to harassment and it is difficult to see that they are intimidating. In any event, in my view the appropriate approach is to deal with any such matter in the venue in which any action is taken. The power to order security for costs is not designed to protect a party to litigation from poor conduct in other litigation or to punish that conduct. None of the “new matters” have any bearing on Mr Nazloomian’s capacity to pay costs orders adverse to him and he has paid costs on such of those matters as orders were made by a court or required to be paid in connection with any discontinuance.

Conclusion

57    For the reasons set out above, the application for security for costs filed on 4 October 2017 should be dismissed with costs.

Associate:

Dated:    6 February 2018

SCHEDULE OF PARTIES