Aquatic Air Pty Ltd v Siewert

[2016] NSWCA 130

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:	Aquatic Air Pty Ltd v Siewert [2016] NSWCA 130
Hearing dates:	23 May 2016
Date of orders:	30 May 2016
Decision date:	30 May 2016
Before:	Macfarlan JA
Decision:	(1) Order pursuant to s 1335 of the Corporations Act 2001 (Cth) that Aquatic provide security for Mr and Mrs Siewert’s costs of the appeal in the amount of $80,000. (2) Order the security to be provided by Aquatic paying the amount of it into Court or in such other manner as the Court orders or the parties agree. (3) Order that if the security is not provided within 14 days of the making of order (1), Aquatic’s appeal be stayed and any order staying enforcement of any judgment entered at first instance be dissolved. (4) Note that Mr and Mrs Siewert have agreed not to pursue their cross-appeal in the event that Aquatic’s appeal is stayed pursuant to order (3). (5) In the event that Aquatic’s appeal is stayed pursuant to order (3) above, order that Aquatic pay the costs of Mr and Mrs Siewert of the appeal and cross-appeal. (6) Order Aquatic to pay Mr and Mrs Siewert’s costs of this notice of motion.
Catchwords:	APPEAL – security for costs application – whether appellant impecunious – whether appeal would be stifled if security order made – whether undertaking by sole director should be accepted
Legislation Cited:	Corporations Act 2001 (Cth)
Cases Cited:	Singer v Berghouse [1993] HCA 35; 67 ALJR 708
Category:	Procedural and other rulings
Parties:	Aquatic Air Pty Ltd (Applicant) Dieter Siewert (First Respondent) Lieselotte Siewert (Second Respondent)
Representation:	Counsel: Mr DKL Raphael (Applicant) Mr B De Buse (Respondents)   Solicitors: A T Lawyers Pty Ltd (Applicant) Marsdens Law Group (Respondents)
File Number(s):	CA 2016/53050
Decision under appeal	Court or tribunal: Supreme Court Jurisdiction: Equity Citation: Aquatic Air Pty Limited v Siewert & Anor [2015] NSWSC 928 – 27 July 2015 Aquatic Air Pty Limited v Siewert (No 2) [2016] NSWSC 10 – 2 February 2016 Date of Decision: 27 July 2015 and 2 February 2016 Before: Brereton J File Number(s): SC 2012/169096

Judgment

1. HIS HONOUR: By notice of motion dated 3 May 2016 Mr Dieter Siewert and Mrs Lieselotte Siewert, who are respondents to the appeal, sought an order that the appellant, Aquatic Air Pty Ltd (“Aquatic”), provide security for their costs of the appeal from judgments of Brereton J sitting in the Corporations List of the Equity Division dated 27 July 2015 and 2 February 2016 ([2015] NSWSC 928 and [2016] NSWSC 10) respectively. The full circumstances of the dispute between the parties are set out in his Honour’s judgments. For present purposes, it is sufficient to say that by two share sale agreements and a security agreement, Mr and Mrs Siewert sold their shares in certain companies conducting aviation operations to companies controlled by Mr Ross Seller, an experienced tax lawyer with an interest in aviation. The latter companies purportedly assigned to Aquatic, another company controlled by Mr Seller, their rights in respect of claims against Mr and Mrs Siewert for misrepresentation and breach of warranty, and in respect of other matters, arising out of the sale.

2. After seven days of hearing, the primary judge found, in large measure, in favour of Mr and Mrs Siewert. Aquatic subsequently appealed to this Court, with Mr and Mrs Siewert filing a cross-appeal on limited issues.

3. Aquatic’s appeal raises complex issues and Mr and Mrs Siewert did not contend before me that the appeal was hopeless. On the other hand, Aquatic did not attempt to demonstrate to me that the appeal had strong prospects of success. In these circumstances, I shall proceed upon the basis that the appeal is bona fide and has some, although presently indeterminate, prospects of success.

4. Argument proceeded before me upon the basis that Mr and Mrs Siewert’s application was made under s 1335 of the Corporations Act 2001 (Cth) which is in the following terms:

“1335 Costs

(1)   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.

(1A)   Subsection (1) does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation.

Note: Similar provision is made in relation to Aboriginal and Torres Strait Islander corporations under section 581‑20 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006.

(2)   The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.”

Inability to pay the respondents’ costs

5. The Court may only order security under s 1335 “if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the Respondent if successful in his, her or its defence”.

6. Aquatic did not submit that this precondition was not satisfied. Its submissions in fact referred to Aquatic being “financially ‘cash strapped’”, albeit “due to the inappropriate and misleading conduct” of Mr and Mrs Siewert.

7. In any event, there was substantial evidence of Aquatic’s impecuniosity. For example, when dealing in an affidavit of 15 December 2014 with a failure to comply with an undertaking to pay certain costs and expenses, Mr Seller said:

“10   It is no longer possible to fulfil the undertaking […] because to continue with it would see both Aquatic and I … seriously disadvantaged due to our impecuniosity. I could not have envisaged in June 2012 [when the undertaking was given] that what has occurred would have occurred. I cannot see from where funds would be derived in future to enable the undertakings to be met.”

8. Furthermore, Mr Seller relied before me upon his affidavit of 16 May 2016 which annexed an Asset and Liability Statement for Aquatic. Whilst that Statement showed assets of $2,770,000 and liabilities of $1,200,000, Mr Seller’s counsel conceded that the availability of each of the assets to Aquatic was dependent upon its success on the appeal in the present proceedings. Accordingly, if Aquatic fails on the appeal, Mr and Mrs Siewert will be unable to recover their costs of the appeal from Aquatic.

9. It being obvious that the precondition to exercise of the Court’s power in s 1335 has been satisfied, Aquatic’s counsel proceeded to identify as follows various matters that he submitted should lead the Court to refrain from exercising its power to order that security be given.

Security provided at first instance

10. Orders were made at first instance for provision of substantial security. Mr and Mrs Siewert have to a significant extent drawn on that security but $65,000 remains available. However, it is clear from the evidence of Mr Balasubramanian, a solicitor in the employ of Mr and Mrs Siewert’s solicitors, that presently unassessed costs incurred by them at first instance far exceed that figure. Accordingly, I reject Aquatic’s submission that “ample Security for Costs … has already been provided”.

Whether appeal would be stifled

11. Aquatic’s written submissions did not contend that the Court should not make an order for security because its effect would be to stifle the appeal. Nevertheless, it made the submission in the course of oral argument.

12. The submission is in my view answered by Mr Seller’s affidavit, which did not assert that the appeal would be stifled if security were ordered, and indeed implied the opposite. As well as the Statement of Assets and Liabilities of Aquatic referred to above, Mr Seller annexed a statement of his own assets and liabilities, he being the sole director of Aquatic. This showed a net asset position of $1,090,000, a figure far in excess of any security that might be ordered to be provided.

13. In the course of argument, counsel for Aquatic stated from the bar table, without objection from counsel for Mr and Mrs Siewert, that the existence of two assets said in the list to be valued at a total of $750,000 was dependent upon the outcome of certain litigation unrelated to the present. As Aquatic did not lead evidence to suggest any unlikelihood of recovery of those assets, I consider that Mr Seller’s affidavit should be taken as meaning what it says, namely, that he has assets of that value, as well as the other assets he listed.

14. As a result, the evidence before me does not suggest that Aquatic’s appeal would be stifled if I ordered security to be provided. On the evidence, the strong probabilities are that the security would be provided out of the resources of Mr Seller.

Delay in application for security

15. Aquatic’s notice of appeal was filed on 9 March 2016 and Mr and Mrs Siewert’s notice of motion was filed on 3 May 2016. Mr Seller gave evidence that by the latter date he had completed 80% of the work “required to finalise the Blue Book and Black Book” for use on the appeal.

16. Whilst applications for security should be made promptly, I do not consider that the passage of two months between the filing of the notice of appeal and the application for security should lead to the refusal of the present application. It is relevant in this respect that Mr and Mrs Siewert put Aquatic on notice of their application by an undated letter that I infer was probably sent soon after the notice of appeal was lodged. Although it was marked “without prejudice”, no objection was taken to its admission into evidence. By it, Mr and Mrs Siewert offered to accept $100,000 as sufficient security for the appeal and foreshadowed an application to the Court for security in the event that the offer was not accepted. Aquatic’s solicitors did not reply to the letter.

17. I do not consider that Mr Seller’s work in preparing the appeal books is of present significance. As the evidence does not suggest that the appeal will not be able to proceed if security is ordered, his work will not be wasted.

The relevance of the cross-appeal

18. In some circumstances it may be unfair to order an appellant to provide security where there is a cross-appeal. If the order for security stifles the appeal but the cross-appeal can proceed, unfairness may ensue. This will not occur in the present case because, as I have indicated, the evidence does not indicate that the appeal will be stifled. In any event, counsel for Mr and Mrs Siewert stated to the Court that the cross-appeal would not proceed if the appeal did not proceed.

19. Nor is it significant on the present application that there is a possibility that, because of a lack of success on their cross-claim, Mr and Mrs Siewert might not obtain a costs order against Aquatic. The real prospect that they might obtain one is sufficient to require serious consideration of an order that Aquatic to provide security for those costs.

20. Aquatic relied before me on the decision of Gaudron J in Singer v Berghouse [1993] HCA 35; 67 ALJR 708 at [7] where, in a Family Provision Act case, her Honour took into account on a security for costs application that there was a prospect that, even if unsuccessful, the appellant might not be ordered to pay the costs of her appeal. That her Honour placed weight on that consideration in the special circumstances of a Family Provision Act case does not in my view assist Aquatic on this application. In cases such as the present, it is rare for an unsuccessful appellant to avoid a costs order.

Whether Aquatic’s impecuniosity caused by Mr and Mrs Siewert

21. Aquatic submitted in this context that whilst it had succeeded in a claim of approximately $480,000 plus interest at first instance, it had erroneously been deprived of access to that amount by the primary judge’s decision that Aquatic’s entitlement should be offset against the judgment that his Honour found in favour of Mr and Mrs Siewert. Aquatic submits that this offset “contributed” to its impecuniosity.

22. Causation of a claimant’s impecuniosity by the defendant is of reduced significance on appeal because the defendant has the advantage of a judgment in its favour vindicating its actions. In any event, Aquatic’s submission cannot be accepted because there is no evidence to support the proposition that its hypothetical inability to fund a security for costs order was caused by Mr and Mrs Siewert. The submission as to causation was not founded on any evidence given by the logical person to give it, namely Mr Seller. Moreover, it has not established that it has such an inability. Mr Seller’s evidence, which indicated a personal net asset position of $1,090,000, in fact suggested that an order for security could and would be met.

Costs orders in favour of Aquatic

23. Aquatic submitted that it was relevant that it obtained a costs order against Mr and Mrs Siewert in earlier appeal proceedings and a costs order against them at first instance on 28 April 2016. I do not consider that these orders, which were made in separate proceedings, are relevant to the question of security on the present appeal. In any event the estimates of their worth (in total $45,000) given in Aquatic’s written submissions are unsupported by any evidence.

Undertaking by sole director

24. Aquatic’s written submissions state that Mr Seller, as sole director of Aquatic, “is prepared to give a personal undertaking to guarantee any shortfall in payment by the Appellant of the Respondents’ costs as eventually ordered”.

25. The evidence does not however inspire sufficient confidence that such an undertaking would be of sufficient value to Mr and Mrs Siewert to justify the Court declining to order security to be given in their favour. Although Mr Seller gave evidence of a substantial personal net asset position, the reality of that position was thrown into considerable doubt by the statements of Aquatic’s counsel from the bar table as to the contingent nature of some of his listed assets. That this qualification was not stated by Mr Seller in his affidavit raises doubts as to the reliability of his statement of financial position generally. Moreover, the statement is almost completely bereft of details concerning his assets and liabilities. For these reasons the statement cannot be acted upon.

The quantum of an order for security

26. Counsel were at issue as to the likely length of an appeal, the best estimate of counsel for Aquatic being one day and that of Mr and Mrs Siewert’s counsel being two days. Bearing in mind the nature of the judgments below and the multiplicity of issues raised by the notice of appeal, I consider that an estimate of one and half days is appropriate.

27. Both solicitors gave evidence of Mr and Mrs Siewert’s likely costs of the appeal. Their solicitor estimated them as likely to be between $93,700 and $170,900, plus disbursements and the costs of the present notice of motion. The estimate appears to be of solicitor/client, rather than party/party, costs. Mr Seller, as Aquatic’s solicitor, estimated Mr and Mrs Siewert’s costs for a one day hearing as likely to be in the order of $36,000.

28. A decision by the Court as to the amount of security to be ordered is necessarily based upon limited materials and therefore involves elements of intuition and even guesswork on its part. If an order for security is to be made, it should in my view be in the amount of $80,000. In arriving at this figure I have taken into account my estimate of the length of the hearing and the need to restrict consideration to party/party costs. As well, I have had regard to the absence of any suggestion that counsel who appeared at first instance will not be available to appear on the appeal.

CONCLUSION

29. For the reasons that I have given, none of the discretionary considerations upon which Aquatic relied suggests that the order for security sought by Mr and Mrs Siewert should be declined. As there is clearly reason to believe that Aquatic will be unable to pay their costs if the appeal fails, and there are no countervailing considerations, security should be ordered. This should be in the sum of $80,000.

30. I therefore make the following orders:

1. Order pursuant to s 1335 of the Corporations Act 2001 (Cth) that Aquatic provide security for Mr and Mrs Siewert’s costs of the appeal in the amount of $80,000.

2. Order the security to be provided by Aquatic paying the amount of it into Court or in such other manner as the Court orders or the parties agree.

3. Order that if the security is not provided within 14 days of the making of order (1), Aquatic’s appeal be stayed and any order staying enforcement of any judgment entered at first instance be dissolved.

4. Note that Mr and Mrs Siewert have agreed not to pursue their cross-appeal in the event that Aquatic’s appeal is stayed pursuant to order (3).

5. In the event that Aquatic’s appeal is stayed pursuant to order (3) above, order that Aquatic pay the costs of Mr and Mrs Siewert of the appeal and cross-appeal.

6. Order Aquatic to pay Mr and Mrs Siewert’s costs of this notice of motion.

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Decision last updated: 30 May 2016