Federal Court of Australia

Burhala v Yeo [2023] FCA 962

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant give security for the Respondents’ costs of and incidental to the proceeding in the amount of $55,840 to be provided by payment into Court in this proceeding pursuant to r 2.42 of the Federal Court Rules 2011 (Cth).

2.    In the event the security for costs is not provided within 28 days of the date of these orders, the proceeding be dismissed pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth).

3.    The Applicant pay the costs of the Respondents of and incidental to this interlocutory application.

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

REASONS FOR JUDGMENT

O’BRYAN J:

Introduction

1    The applicant, Mr Burhala, is an undischarged bankrupt who resides in Romania. On 10 August 2016, under a sequestration order made by the Federal Circuit Court under s 43 of the Bankruptcy Act 1966 (Cth) (Act), Mr Burhala became bankrupt on a creditor’s petition issued on behalf of the Deputy Commissioner of Taxation. The respondents (Trustees) were appointed as the joint and several trustees of Mr Burhala’s bankrupt estate.

2    The evidence discloses that Mr Burhala departed from Australia on 2 October 2015 and, in his words, returned to Romania, his country of birth, where he has been living ever since. Prior to departing from Australia, Mr Burhala was a legal practitioner who practised in migration law as a senior associate at Macpherson Kelley and then as a principal of his own legal practice, Florin Burhala and Associates.

3    On 1 November 2018, upon the acceptance of her debtor’s petition by the Official Receiver under s 54C of the Act, Mr Burhala’s wife, Tania Louise Burhala, also became bankrupt. On 6 March 2019, the respondents were appointed as the trustees of Mrs Burhala’s bankrupt estate. On 2 November 2021, Mrs Burhala was discharged from bankruptcy. Mrs Burhala also resides in Romania.

4    The Trustees have brought three proceedings in Romania relating to Mr Burhala’s bankruptcy. Specifically, the Trustees seek to challenge Mr Burhala’s purported transfer of Romanian real property to his children which vested in the Trustees.

5    On 14 March 2023, the Trustees filed an originating application in the Federal Circuit and Family Court of Australia Div 2 (Federal Circuit Court) seeking a declaration pursuant to s 90-15 of Sch 2 of the Act that:

(a)    the Trustees (as trustees of the bankrupt estate of Mr Burhala) are acting reasonably and therefore justified in seeking to recover sufficient assets in order to pay not less than $8,921,081.22 in the bankrupt estate in Romania; and

(b)    the Trustees (as trustees of the bankrupt estate of Mrs Burhala) are acting reasonably and therefore justified in seeking to recognise the bankruptcy in Romania.

6    The originating application in the Federal Circuit Court named Mr Burhala as first respondent and Mrs Burhala as second respondent. The Federal Circuit Court received evidence concerning difficulties in serving the originating application on the Burhalas in Romania, including a letter addressed to the Court from the Burhalas’ Romanian lawyer advising that he did not have instructions to receive service of Australian proceedings on behalf of the Burhalas. The evidence disclosed that the Trustees and the Burhalas had communicated with each other during the administration of the bankruptcies via email, but the Burhalas refused to accept service of the originating process by that means.

7    The Trustees subsequently applied to have the Burhalas removed as respondents to the originating application in the Federal Circuit Court on the basis that they were not a necessary party to the application as the application would not affect any of their substantive rights or interests.

8    On 28 March 2023, the Federal Circuit Court made an order removing the Burhalas as respondents to that proceeding and made declarations pursuant to s 90-15 of Sch 2 of the Act as sought by the Trustees.

9    On 11 May 2023, Mr Burhala filed an application in this Court for an extension of time in which to seek leave to appeal against the decision of the Federal Circuit Court. The application was accompanied by a draft notice of appeal which stated the following proposed grounds of appeal:

1.     The Appellant was denied natural justice by being removed from the proceedings thus preventing him from providing the Court with their defences for consideration.

2.     The Orders made at paragraph 1 of the Orders made by the Federal Circuit and Family Court of Australia under section 90-15 of Schedule 2 of the Bankruptcy Act 1966 (Cth), (the Act) are beyond the scope and powers given to the Court under that section and it denied the Appellant natural justice by making orders pursuant to it as to the amount of debts admitted under the administration of the bankruptcy of Appellant, such powers being specifically regulated by Division 1 Part VI of the Act which has specific provisions as to the admission of proof of debts and the Court’s powers to oversee such admissions of proof of debts.

10    On his application for an extension of time and leave to appeal, Mr Burhala provided an email address which matches the email address used by the Trustees to communicate with Mr Burhala in the administration of the bankruptcy, as referred to above, and by which the Trustees sought to serve Mr Burhala with the originating application in the Federal Circuit Court. Mr Burhala’s address for service was an address in Heidelberg, a suburb of Melbourne in Victoria.

11    On 15 June 2023, the Trustees filed an interlocutory application seeking security for their costs of and incidental to Mr Burhala’s application for an extension of time in which to seek leave to appeal.

12    These reasons concern the Trustees’ application for security for costs.

13    The Trustees seek security in the sum of $55,840 to be paid into Court. The application is supported by an affidavit of the first respondent, Andrew Yeo, sworn 15 June 2023. On 27 June 2023, the Trustees also filed written submissions in support of the application for security.

14    On 27 June 2023, Mr Burhala filed written submissions in opposition to the application for security. The submissions purported to give an address for service in the proceeding at an address in Romania. That is inconsistent with the address for service stated on Mr Burhala’s application for an extension of time in which to seek leave to appeal. On 25 July 2023, Mr Burhala filed an affidavit made by him on 21 July 2023. The affidavit purports to give a history of the circumstances of Mr Burhala’s bankruptcy, and makes allegations of maladministration on the part of the Trustees. The matters deposed to in the affidavit have no material bearing on the application for security for costs. Significantly, Mr Burhala provides no evidence concerning his financial capacity to meet an order for costs in this proceeding.

15    The Trustees have filed two further affidavits made by Mr Yeo. The first affidavit was made on 3 August 2023 and, in part, responds to Mr Burhala’s affidavit and, in part, provides additional information concerning Mr Burhala’s current financial position. The second was made on 11 August 2023 and supplements the affidavit of 3 August 2023.

16    Mr Burhala is self-represented on this application for security for costs.

17    For the reasons that follow, I consider it appropriate to order that Mr Burhala provide security for costs and that, if security is not provided within 28 days, that his application for an extension of time in which to seek leave to appeal be dismissed.

Relevant principles

18    Section 56(1) of the Federal Court of Australia Act 1976 (Cth) provides that the Court may order an applicant in a proceeding in the Court to give security for the payment of costs that may be awarded against the applicant. The security shall be such amount, and given at such time and in such manner and form, as the Court directs: s 56(2). The Court 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: s 56(3). If security is not given in accordance with an order made under s 56, the Court may order that the proceeding be dismissed: s 56(4).

19    The discretion conferred by s 56 to award security for costs is broad and unfettered, the only limitation being that the discretion must be exercised judicially: Bell Wholesale Co. Ltd v Gates Export Corporation (1984) 2 FCR 1 (Bell Wholesale) at 3. It is a discretion to be exercised according to the merits of each case and without any particular predisposition: Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 511 per French J. The Court’s discretion is to be exercised having regard to whether the interests of justice would be best served by making or refusing the order: Gentry Brothers Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 at 411 per Cooper J.

20    The applicable principles were explained by Tamberlin J in Cooper v Universal Music Australia Pty Ltd [2006] FCA 642 at [11] and [12]:

11     The Court has a wide discretion in relation to the grant of security for costs. There is no general rule because each case depends upon its own circumstances. In relation to an appeal, Courts have given weight to the injustice that might be caused to a successful litigant if the litigant is compelled to contest the matter for a second time without the probability of obtaining the costs if ultimately successful: Cowell v Taylor (1885) 31 Ch D 34 at 38. In Equity Access v Westpac Banking Corp (1989) ATPR 40-972, Hill J at 50,635 listed some of the relevant matters to be considered when deciding whether security for costs ought to be awarded:

•    the prospects of success;

•    the quantum of risk that a costs order will not be satisfied;

•    whether the making of an order would be oppressive in that it would stifle the reasonably arguable claim;

•    whether any impecuniosity of the appellants arises out of the conduct complained of;

•    whether there are aspects of public interest which weigh in the balance against such an order;

•    whether there are any particular discretionary matters peculiar to the circumstances of the case.

12     Although Courts will be reluctant to make an order for security for costs against a natural person on account of his or her impecuniosity, there is no general principle that prevents the making of such an order.

21    In Commissioner of Taxation v Vasiliades (2016) 344 ALR 558; [2016] FCAFC 170 (Vasiliades), Kenny and Edelman JJ observed (at [72] and [86]) that the parties against whom proceedings are brought are not respondents by choice but because someone else has chosen to sue them. The purpose of an order for security for costs is to ensure that a successful respondent to a claim will have a fund available within the jurisdiction of the Court against which the successful respondent can enforce a judgment for costs in the respondent’s favour. The policy of the law in this regard is related to the accepted understanding in Australian courts that normally costs follow the event. In respect of an applicant who is ordinarily resident outside Australia and has no assets within the jurisdiction, their Honours observed (at [75]):

The fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction is clearly a significant circumstance militating in favour of an applicant for security for costs. As the above passage highlights, however, there is no rule that security for costs will be awarded as of course where an applicant is resident out of the jurisdiction and has no assets within the jurisdiction. A case may disclose countervailing circumstances that properly justify refusing an application.

22    As observed by Colvin J in Frigger, in the matter of Computer Accounting & Tax Pty Ltd (in liq) (No 2) [2018] FCA 612 (at [8]):

An applicant may have access to funds from outside the jurisdiction or from a third party to enable the prosecution of a claim in Court. However, the problems that a successful respondent may face in enforcing a costs order obtained against the applicant due to difficulties or an inability to resort to that same source of funds has long been recognised as a significant factor that supports the making of an order for security for costs.

Should security be ordered?

23    Mr Burhala placed reliance on the decision of the Court in Allison v Murphy [2021] FCA 1551 in which Downes J refused to order security for costs on an application for extension of time in which to appeal the making of a sequestration order, stating (at [38]):

... My principal reasons are that the application for extension of time has reasonable prospects and the appeal has sufficient potential merit to tell against a grant of security for costs, any order for security will likely stifle the appeal and the appeal relates to the status of the applicant as a bankrupt.

24    Mr Burhala submitted that the same circumstances prevail in this case.

25    I reject that submission. The circumstances of this case are entirely different, not least of which there is no evidence before me that an order for security will stifle Mr Burhala’s application for an extension of time in which to seek leave to appeal, and Mr Burhala’s application does not relate to his status as a bankrupt. It is unnecessary to consider the merits of Mr Burhala’s application in any detail. Even assuming it is an arguable application, on the evidence before me there is every reason to order security for costs and no reason not to order security.

26    Mr Burhala has been out of Australia since 2 October 2015. As far as the evidence reveals, he has no assets within this jurisdiction in order to meet an adverse costs order in this proceeding. That is a significant factor militating in favour of an award for security: Vasiliades at [75].

27    The fact that Mr Burhala is an undischarged bankrupt in Australia, and does not own any assets in Australia, does not mean that he is impecunious and unable to meet an adverse costs order. Mr Burhala has neither submitted, nor adduced evidence to establish, that he is impecunious. To the contrary, the evidence adduced by the Trustees establishes that Mr Burhala is in paid employment in Romania with Intercereal SA and that his salary is 23,000 RON (approximately $7,800) before tax and 13,455 RON (approximately $4,600 AUD) after tax. The evidence also establishes the likelihood that Mr Burhala has control of significant real estate assets in Romania and has funds available to retain lawyers. Mr Yeo’s affidavit dated 15 June 2023 discloses that:

(a)    On a date not earlier than 1 October 2015, Mr and Mrs Burhala executed a Romanian assets Binding Financial Agreement purportedly under s 90C of the Family Law Act 1975 (Cth). The document states that Mr Burhala owns various properties in Romania which are in his name and for his sole use and that they have always been acquired by agreement of Mr and Mrs Burhala for the benefit of the children of their marriage.

(b)    On 26 October 2015, Mr Burhala purchased a further property in Romania in his sole name located at Strada Erou Iancu Nicoale, 95 Bis for a total contract price of approximately €1,370,000 (which was equivalent to approximately $2,079,880 AUD as at 17 December 2015).

(c)    On 26 May 2016, Mr Burhala purportedly transferred to his children six properties in Romania under a Contract of Donation. The Contract of Donation expressly reserved to Mr Burhala a life interest in the properties and the beneficial interest in the properties, and stated that all income generated by the beneficial interest would be the income of Mr Burhala.

(d)    The Trustees have sought information from Mr Burhala about the income generated by the properties. Mr Burhala’s lawyer in Romania has denied that any rental income has been received by Mr Burhala. The Trustees have pressed for information about the income generated by the properties, but that information has not been provided.

(e)    Mr Burhala has retained a lawyer in Romania. Mr Burhala has also previously retained lawyers in proceeding in this Court and in the Federal Circuit Court.

28    Having regard to the foregoing, I am not satisfied that Mr Burhala is impecunious or that an order for security would stultify Mr Burhala’s application for an extension of time in which to seek leave to appeal. The onus of establishing that an order for security will stultify a proceeding lies on the party asserting stultification: Bell Wholesale at 4. Mr Burhala has failed to discharge that burden.

29    There is no other factor that weighs against an order for security. The following additional matters can be noted.

30    First, the proceeding before the Federal Circuit Court related to declaratory relief only. In so far as the proceeding concerned Mr Burhala, the Federal Circuit Court declared that the Trustees were acting reasonably in seeking to recover assets in Romania in respect of debts owed in Mr Burhala’s bankrupt estate. That is the limited extent of the relief granted to the Trustees.

31    Second, the Trustees gave notice of the Federal Circuit Court proceeding to Mr Burhala, including through his Romanian lawyer. However, Mr Burhala instructed his Romanian lawyer not to accept service of the proceeding and otherwise elected to require service in accordance with the Hague Convention. Mr Burhala is entitled to respond to the Federal Circuit Court proceeding in that manner. But having responded in that manner, and now wishing to apply for an extension of time in which to seek leave to appeal against the decision of the Federal Circuit Court, Mr Burhala should be required to provide security for the costs of the Trustees on his application.

32    Third, Mr Yeo deposes that, throughout the course of the administration of Mr Burhala’s bankrupt estate, Mr Burhala has on numerous occasions stated to Mr Yeo both in person and in telephone conversations that his intention in litigating against the Trustees is to delay the administration of the bankrupt estate by delaying and appealing all court processes and decisions, thereby increasing the costs of both the Trustees and the Australian Tax Office. That evidence was not challenged by Mr Burhala. The evidence raises considerable doubt about the purpose for which Mr Burhala has filed the application for an extension of time in which to seek leave to appeal.

33    As to the quantum of security, a breakdown of the requested security of $55,840 was provided in a letter from the Trustees’ solicitors, McInnes Wilson, to Mr Burhala dated 4 May 2023. Mr Burhala made no submissions about the quantum. I am satisfied that the description of the legal work required to be undertaken in opposing the application for an extension of time and leave to appeal, and the estimated costs of the legal work to be undertaken, are reasonable.

Conclusion

34    For the foregoing reasons, I consider it appropriate to order security to be provided by Mr Burhala in the amount sought by the Trustees.

Associate:

Dated:    15 August 2023