A E Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd
[2020] VSCA 43
•10 March 2020
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2019 0120
| A E BRIGHTON HOLDINGS PTY LTD | Applicant |
| v | |
| UDP HOLDINGS PTY LTD | Respondent |
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| JUDGES: | OSBORN JA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 27 February 2020 |
| DATE OF JUDGMENT: | 10 March 2020 |
| MEDIUM NEUTRAL CITATION: | [2020] VSCA 43 |
| JUDGMENT APPEALED FROM: | [2019] VSC 688 (Ginnane J) |
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APPLICATION FOR SECURITY FOR COSTS – Real risk that costs order would not be satisfied – Impecuniosity arising out of conduct complained of in related proceedings – Appeal raising threshold question of law – Application refused.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant (Respondent to the Application for security for costs) | Mr J G Levine | The Law Professionals |
| For the Respondent (Applicant for security for costs) | Mr C Young SC with Mr P Annabell | Ashurst |
OSBORN JA:
The first respondent, UDP Holdings Pty Ltd (‘UDP’) seeks security for its costs of an application for leave to appeal by the applicant AE Brighton Holdings Pty Ltd (‘AEB’).
The application for leave to appeal is made with respect to orders made in the Trial Division by Ginnane J on 15 October 2019 in which his Honour:
(a) dismissed a summons issued by AEB seeking the removal of caveats lodged by UDP on the titles to four separate parcels of land (‘the properties’);
(b) required UDP within seven days to commence proceedings in the Supreme Court’s Property List to substantiate UDP’s alleged interest in the properties; and
(c) gave consequential directions enabling the expedition of the proposed proceeding.
In reaching his decision, Ginnane J recorded that he was satisfied that UDP has a prima facie case that Esposito Holdings Pty Ltd (‘Esposito Holdings’) held moneys on trust for UDP and breached its trust obligations to UDP by paying those moneys to AEB (a company in common ownership with Esposito Holdings) which AEB took as a volunteer and used in the purchase of the properties. In consequence, his Honour was satisfied that there was a prima facie case that UDP could establish a constructive trust under which it is a beneficiary and has an equitable estate or interest in the properties.
By writ filed on 21 October 2019, UDP instituted the proceedings contemplated by his Honour’s orders, seeking inter alia a declaration that it is entitled to trace the sum of $22,422,356 into, and has equitable title to, the properties to that extent, and that AEB holds the properties on trust for UDP to that extent (‘the constructive trust proceeding’).[1]
[1]Supreme Court Proceeding Number S ECI 2019 04810.
The properties are as follows:
(a) AEB is the sole registered proprietor of 2 Kinane Street, Brighton, Victoria, comprised in certificate of title volume 10042 folio 656;
(i) the Kinane Street property was purchased by AEB on 21 November 2013 for the sum of $10,800,000; and
(ii) the Kinane Street property is encumbered by mortgages in favour of Westpac Banking Corporation and J M Nominees Pty Ltd (‘J M Nominees’). UDP purchased the mortgage from J M Nominees on 18 November 2019. The assignment currently remains unregistered pending objections from the caveators on title. The caveators (other than UDP itself) are Margaret Mary Esposito (the former wife of the previous sole director and shareholder of AEB, Antonio Esposito) claiming an interest pursuant to a court order under the Family Law Act 1975 (Cth); Hagit Pty Ltd claiming an interest as mortgagee; Zhenni Yang claiming an interest as purchaser; and Goran Temelkovski claiming an interest as mortgagee;
(b) AEB is the sole registered proprietor of 92 The Esplanade, Brighton, Victoria, comprised in certificate of title volume 5656 folio 030, which was purchased by AEB on 28 February 2014 for the sum of $3,843,800 and is encumbered by a mortgage in favour of J M Nominees, which has now been purchased by UDP;
(c) AEB is the sole registered proprietor of 101 Trunk Lead Road, Bunkers Hill, Victoria, comprised in certificates of title volume 1511 folio 068 and volume 3222 folio 308, which was purchased by AEB on 25 July 2014 for the sum of $1,400,000 and is encumbered by a mortgage in favour of J M Nominees, which has now been purchased by UDP;
(d) AEB is the sole registered proprietor of 639 and 649 Williams Road, Werona, Victoria, comprised in certificates of title volume 9960 folio 044 and volume 9960 folio 045. These properties were purchased by AEB on 15 December 2014 for a sum of $1,600,000.
UDP lodged caveats over each of the properties on 1 July 2017 asserting an interest pursuant to an implied, resulting or constructive trust.
It is important to recognise that the constructive trust proceeding arises out of, and is derivative from, the caveat proceeding which gave rise to the decision which AEB seeks to appeal. As such, the constructive trust proceeding seeks to resolve and finalise the nature of UDP’s interest (if any) in the properties. The two proceedings are, in a fundamental sense, related.
On 4 November 2019, AEB sought leave to appeal Ginnane J’s decision. The proposed grounds of appeal allege that the trial judge:
(a) should have held that UDP’s claimed interest in the properties was a mere equity that would not maintain a caveat; and
(b) erred in a series of four ways in making the evidentiary findings that he did.
I note that the first ground raises a threshold question of law as to the caveatable nature of any interest held by UDP. UDP maintains that it is the beneficiary of an institutional trust of the kind analysed by Sloss J in Focus Metals Pty Ltd v Babicci.[2]
[2][2014] VSC 380, [111]–[115].
AEB submits that UDP’s interest (if any) is a mere equity in the sense contemplated by Brooking J (with whom Southwell and Teague JJ agreed) in Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd.[3]
[3][1994] 1 VR 672, 675–6.
The application for security for costs was filed by UDP on 16 December 2019. It is made under r 64.38(2) of the Supreme Court (General Civil Procedure) Rules 2015, and in the alternative, under s 1335 of the Corporations Act 2001 (Cth). It is made on the following grounds:
(a) AEB is a corporation and there is reason to believe AEB will not be able to pay the costs of UDP;
(b) the making of the order would not be oppressive to AEB in the sense that it would stifle a reasonably arguable claim; and
(c) the application for leave to appeal has limited prospects of success.
AEB opposes the application for security costs for the following reasons:
(a)AEB is able to pay UDP’s costs if the application for leave to appeal is dismissed;
(b)There is no reason to believe that AEB will be unable to pay UDP’s costs if the application for leave to appeal is dismissed;
(c)The application for security for costs should be dismissed by the Court in the exercise of its discretion;
(d) The costs sought in the application for security for costs is excessive.
Section 1335(1) of the Corporations Act 2001 (Cth) provides:
Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
The power to order security for costs under s 1335 is discretionary and may be exercised on an appeal.[4]
[4]See eg Winnote Pty Ltd (in liq) v Page (2005) 64 NSWLR 244, 247–8 [15]–[19].
The Court’s power to award security for costs under r 64.38(2) is also discretionary. A number of authorities of the Court have referred to the following factors as relevant to the exercise of the discretion:[5]
[5]Maher v Commonwealth Bank of Australia [2008] VSCA 122, [80] (Dodds-Streeton JA; Redlich JA agreeing). See also Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2015] VSCA 169, [11] (Tate and McLeish JJA); Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd (No 3) [2016] VSCA 185, [19] (McLeish JA).
(a) the prospects of success on the appeal;
(b) the magnitude of risk that a costs order would not be satisfied;
(c) whether the making of the order would be oppressive in that it would stifle a reasonably arguable claim;
(d) whether any impecuniosity of the appellant arises out of the conduct complained of in the proceeding;
(e) whether there are aspects of the public interest which ought to be weighed in the balance; and
(f) whether there are any particular discretionary matters peculiar to the circumstances of the case. .
In Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd,[6] Whelan and Hansen JJA observed:
It is axiomatic that the discretion to order security is exercised in the light of the facts and circumstances of the particular case. Past decisions are useful in indicating factors that might be relevant in that consideration. But, whatever the factors, it is the overall consideration of the particular facts and circumstances that will determine the matter. That was so under the former rule which required that special circumstances be shown. That is all the more so now that the rule merely provides that security ‘may’ be ordered and ‘on such terms as [the Court of Appeal] thinks fit’.[7]
[6][2017] VSCA 213.
[7]Ibid [21].
UDP’s potential costs of the appeal have been independently estimated at $85,319.
The risk that costs of the appeal will not be paid
UDP submits that there is a clear risk that a costs order against AEB would not be satisfied:
(a) AEB is a corporation with a paid-up share capital of $12;
(b) Antonio Esposito, previously the sole director and shareholder of AEB, was declared bankrupt on 8 August 2019;
(c) on 7 July 2019, one month prior to his bankruptcy, Mr Esposito transferred his shareholding in AEB to his new partner, Violetta Esposito;
(d) Esposito Holdings, which was controlled by Mr Esposito until 14 April 2016 and by Violetta Esposito from 14 April 2016 onwards, was placed into liquidation on 5 December 2018. On 22 October 2019, the solicitors for the liquidators indicated they did not anticipate that there would be any return to creditors;
(e) the properties registered in the name of AEB are subject to mortgages and caveats. The remaining equity in the properties is the subject of the constructive trust proceeding.
The affidavit filed in respect of the application further states:
The Properties are yet to be sold. UDP is taking steps to effect a mortgagee sale of the Brighton Property. The receivers have been in contact with Mr Esposito and requested that he provide vacant possession (but he has not done so). Ashurst [the solicitors for UDP] has been liaising with the Sheriffs Office concerning the execution of a warrant over the Brighton Property. Once vacant possession has been obtained (either by consent or by warrant), a sales campaign will commence. I am informed by Craig Shepard and I believe that the purchaser (Zhenni Yang) still wishes to purchase the Brighton Property at the same price that he had offered AE Brighton (namely, the sum of $15,006,789.00). I am also informed by Mr Shepard that there are other potential parties interested in the Brighton Property.
…
As a result of the current litigation, any proceeds from the sale of the Properties will be paid into court, and be unavailable for use by AE Brighton to meet any adverse costs order.
By letter dated 21 November 2019, UDP’s solicitors wrote to AEB’s solicitors seeking confirmation as to whether AEB had any ability to pay adverse costs and, if so, evidence of AEB’s financial position.
By an affidavit sworn on 10 February 2020, the solicitor for AEB asserts that the fair and reasonable costs that should be incurred by UDP upon the hearing of the appeal should be no more than $15,000. Evidence of indicative payout figures for each of the mortgages affecting the Kinane Street property was also produced.
Whilst the evidence as to AEB’s financial position does not purport to comprehensively state its overall assets and liabilities, it is common ground that if the interest claimed in the constructive trust proceeding is not substantiated, AEB will have the capacity to meet any costs orders made against it on the appeal.
Likewise, it is common ground that AEB will have difficulty in liquidating any assets of substance until the constructive trust proceeding is resolved.
The payment of moneys into court upon the sale of any of the properties and pending the resolution of the constructive trust proceeding (as UDP submits should occur) will not solve this problem.
Likewise the giving of a charge by AEB over the Werona property (as AEB submits could happen) will result in no meaningful security for costs if the constructive trust proceeding succeeds.
The risk of stifling the appeal
AEB submits that the making of the order sought for security of costs may have the effect of stifling the appeal because AEB cannot presently realise any equity it has in the properties. Whilst I accept that this is a real possibility, in the absence of satisfactory evidence as to AEB’s full financial position, I do not accept prejudice of this kind has been established.
The prospect of success on the appeal
This takes me to the prospects of success in the appeal. Unless an application for leave to appeal is patently without merit, the Court will ordinarily be reluctant to express a concluded view on this question upon the hearing of an application of this kind.[8] I am prepared to proceed on the basis that at this stage the questions raised by the application for leave to appeal are arguable (although attended by substantial doubt). Counsel for UDP fairly conceded in argument that the application for leave could not be characterised as hopeless.
[8]Eg Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd [2017] VSCA 213, [14] (Whelan and Hansen JJA).
The connection between AEB’s impecuniosity and the dispute as to UDP’s interest in the properties
In the present case, the impecuniosity of AEB arises out of UDP’s claim in the constructive trust proceeding relating to the interest which is the subject of the caveats impugned on the application for leave to appeal. In these circumstances, the impecuniosity of AEB is of less weight than might otherwise be the case.[9]
[9]Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2015] VSCA 169, [13] (Tate and McLeish JJA).
Conclusion
Putting these matters together the critical question is whether AEB’s right of appeal with respect to the caveat issue should be conditioned by a requirement for security for costs in circumstances where its principal assets are in effect frozen pending the outcome of the constructive trust proceeding.
I accept that there is reason to believe AEB will not be able to pay the costs of UDP in respect of the appeal. Nevertheless, I am not persuaded that in the circumstances of this case security should be ordered.
(a) At present AEB is the registered proprietor of substantial property assets.
(b) On its face AEB has sufficient interest in the value of these assets to cover the costs in issue.
(c) It remains for UDP to substantiate its claim pursuant to the constructive trust proceeding.
(d) AEB’s liquidity and ultimate potential impecuniosity are inextricably tied up with the progress and outcome of the constructive trust proceeding.
(e) The assets at issue in the caveat proceeding and in the constructive trust proceeding are very considerably greater than the costs in issue on the appeal.
(f) The appeal raises a threshold question as to the caveatable nature of UDP’s interest which AEB should in all circumstances be permitted to run unconditioned by a requirement to provide security for costs.
Accordingly, the application for security for costs should be dismissed.
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