Archer v Woodhead Australia Pty Ltd

[1995] SASC 5020

ARCHER PTY LTD V WOODHEAD AUSTRALIA PTY LTD

Lander J

Application by a respondent for security for costs, on an appeal from a judgment of the District Court to the Full Court of the Supreme Court.  The appellant, who was a defendant in the District Court, appeals to the Full Court of the Supreme Court from the judgment of Judge Kitchen which was delivered on 21 February 1995.

In that matter, Judge Kitchen entered judgment for the plaintiff in the sum of $40,000, allowed a claim for interest on judgment of $16,150, making a total of $56,150, and ordered the defendant to pay the plaintiff's costs.

I am told that the claim against the defendant was a claim in contract for architectural services delivered by the plaintiff to the defendant.  The claim, I am told by Mr Floreani, who appeared for the appellant in this court, was upon the basis that there was an oral agreement entered into in March of 1990, which was later reduced into writing on 23 March 1990.

I am told from the bar table that the course of the trial had some unusual features.  Firstly, notwithstanding there was an allegation of an oral agreement, the director of the defendant, who was present in court, was not called to give evidence.  Having regard to the fact that the respondent's case was not answered on oath in the court below, Mr Strawbridge, who appeared for the respondent in this court, asked me to infer from that, that the appellant's prospects of success in this appeal are very slight.

Mr Floreani contended, however, that the appellant argued the case upon the pleadings.  The pleadings claim that the oral agreement had been reduced into writing, and the appellant proved, through its defence of the action, that such could not have happened.  In due course, Mr Floreani told me, the learned judge found for the plaintiff on a matter not pleaded.  In those circumstances, he said there is nothing unusual about the director of the appellant not being called.

The appeal to this court was lodged on 28 February 1995, and immediately after the appeal was filed the respondent to the appeal made application for security for costs.

An application was then taken by the appellant seeking a stay of execution of the judgment of Judge Kitchen.  The application for the stay of execution was made specially returnable before me on 14 March 1995.

The appellant's application for a stay of execution was argued on that day, and it was the appellant's then contention that a stay ought not to be ordered because the respondent's financial position was so precarious, that if the judgment moneys were paid to the respondent and the appeal was successful, there was a real risk the respondent would not be able to repay the moneys paid.

After that argument was presented, Mr Strawbridge told me from the bar table that his client had offered to provide a bank guarantee to the Registrar of the court, such that if the appeal was successful, there would be in place a guarantee which would guarantee the return of the moneys paid pursuant to the order of Judge Kitchen.

After that was put to me on that day, the matter was adjourned, so that the appellant might consider its position as to whether or not it wished to pursue the application for the stay of execution.

When the matter resumed again before me this morning, Mr Floreani advised me that his client had considered the proposal put forward by Mr Strawbridge's client, but his client was unable to pay the amount of the judgment.  In those circumstances, he conceded the application for the stay of execution ought to be dismissed, and upon that concession, I ordered it dismissed.

The matter then proceeded as to the second of the applications; the respondent's application for security for costs.

In the original application that was brought on 7 March 1995, the respondent sought security for costs in the order of $7,290.  When the matter came on before me today, both parties agreed that if I was to make an order, the sum of $5,000  would be an appropriate amount to order for security for costs.

The application for security for costs is brought pursuant to r95.13, which provides: 

"Without restricting the generality of the jurisdiction, powers and authority conferred on the Full Court by the act or by any other enactments, the court when dealing with proceedings under this Rule:

(a)     ...

(b).... may if there are special circumstances order that such security as the court thinks fit be given for the costs of the appeal;

(c)..."

I need not discuss the inherent powers of the court in relation to the ordering of security for costs, because this application had been based only upon r95.13(b).

It follows, then, that if Mr Strawbridge's client is to be successful in the application, his client must establish that there are special circumstances in this matter whereby security for costs ought to be ordered.

The appellant is a company which is the trustee of the Archer Unit Trust.  The Archer unit trust was formed as a single purpose entity with its sole objective being the acquisition and development of certain land known as the LeCornu Furniture Centre site at North Adelaide in South Australia. The finance for the original acquisition of the site was provided by a then subsidiary of the then State Bank of South Australia, Beneficial Finance Corporation Ltd, to a company Haventide Pty Ltd.  Haventide Pty Ltd, in turn, advanced the funds to the Archer Unit Trust.  It seems it has subscribed for units in the trust.  As a collateral security for the advances made by Beneficial Finance Corporation Ltd to Haventide Pty Ltd.  Archer Pty Ltd has itself provided a mortgage over the land to the bank.

I have been told in an affidavit sworn by Vince Oberdan, a director of Archer Pty Ltd, that the current value of the property owned by Archer Unit Trust would not be sufficient upon sale, to satisfy the secured creditor.  It would therefore follow that at the present time the liabilities of the Archer Unit Trust exceed its assets, and so also the liabilities of the trustee will exceed its assets.  I am also told that the Archer Unit Trust, and therefore the trustee, does not receive any income from the assets owned by the Archer Unit Trust and the only source of funds available to the trust and the trustee are funds provided by other entities associated with the family of Vince Oberdan.

It is clear that the matters contained in Mr Oberdan's affidavit as to the financial circumstance of the company have been known to the appellant's advisers for some little time. In fact, on 7 November 1994, KPMG Peat Marwick, chartered accountants, wrote to Mr Floreani, solicitor for Archer Pty Ltd, in these terms: 

"In summary, if a liquidator was appointed to Archer Pty Ltd there would be insufficient assets to satisfy the secured creditor and therefore no surplus assets available for unsecured creditors."

That letter was written on 7 November 1994.  The contents of that letter were made known by Mr Floreani to Mr Strawbridge on 8 November 1994.

The other matter of relevance, of which I have been advised, is contained in an affidavit of the solicitor for the appellant, Mr DeSousa.  He deposes to the fact that there were other proceedings in this court, before these proceedings were commenced and completed in the District Court, in which the appellant has obtained an order for costs against the respondent.  I am told that that order for costs upon the completion of taxation will require the respondent to pay to the appellant somewhere between $6000 and $7000 by way of legal costs.  In answer to that submission, Mr Strawbridge brought to my attention that the respondent had obtained an order for costs in the District Court against the appellant and it was thought, in relation to that order for costs, the appellant would become liable to the respondent in the order of $15,000.  Whatever of all of that, as neither order has been taxed, it seems to me that neither fact is material for the purposes of the inquiry that I must make today.

An application for security for costs on appeal involves a consideration of different principles than the principles that bear on an application for security for costs in a trial. That follows because of the rules of court.  Rule 100 of the rules of court provides circumstances where a party may obtain security for costs in a trial.  There are four specific circumstances, and one general circumstance. The circumstances envisaged in rule 100 are quite different than those that relate to an application for security for costs on an appeal which, as I have said, is governed by rule 95.13.  Indeed, in an application for security for costs at trial, no special circumstance necessarily needs be made out, but a party must bring itself within the four specific matters or the one general matter contained within r100.

In an application for security for costs on appeal, some special circumstance must be made out. 

In Cowell v Taylor (1885) 31 Ch D 34 at 38 Bowen LJ said:

"The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule at common law, and also, I believe, in equity.  There is an exception in the case of appeals, but there the appellant has had the benefit of a decision by one of Her Majesty's Courts, and so an insolvent party is not excluded from the Courts, but only prevented, if he cannot find security, from dragging his opponent from one Court to another.  There is also an exception introduced in order to prevent abuse, that if an insolvent sues as a nominal plaintiff for the benefit of somebody else, he must give security ...  Those are the common cases, I do not say that there may not be others."

His Lordship there identified the distinction between an application for security for costs on appeal and an application for security for costs in a trial.

The appellant submits in this case that mere impecuniosity itself is not sufficient for an order to be made for security for costs. The appellant relies upon Fletcher and Ors. v The Federal Commissioner for Taxation (1992) 110 ALR 233. In that case Hill J drew together a number of decisions of the Federal Court, some of which were unreported and some of which were reported, and reached the conclusion that, in a consideration of a rule in equivalent terms to rule 95.13, that is dealing with appeals, mere impecuniosity of itself will not generally result in an order being made for security for costs.

In the course of his discussion, he made reference to a decision of the court of appeal in New South Wales of Kennedy v McGeechan (1978) 1 NSWLR 314, where the court said at p.315, in discussing the question of mere impecuniosity:

"The impecuniosity of an appellant may constitute a `special circumstance' leading the court to order security, in that it is a circumstance which may deprive or delay a respondent receiving his costs of the appeal, if the appeal fails, which costs a successful respondent can usually expect he will actually receive.  In an appellate situation, a respondent seeking security is in a stronger position than a defendant at first instance, to the extent that he has a decision in his favour, which is presumably right until displaced.

However, impecuniosity may not conclude the matter. Considerations of possible frustration of an apparently genuine appeal or concerning the subject matter of the appeal, such as appeals involving matters of great moment or the liberty of the subject, may provide reasons to refuse an order. The foregoing observations are made not to circumscribe the discretion, but in order to indicate its width."

It may be that there is only a difference in emphasis between the decision of the Federal Court and the New South Wales Court of Appeal, but if there is not, I prefer the statement of the Court of Appeal in New South Wales as to the appropriate practice and procedure in relation to applications for security for costs.  I think I ought to approach this application in conformity with what that court said.  That would lead me to approach the matter upon the basis that depending upon the circumstances of the case, impecuniosity may constitute special circumstances.

In my opinion, having regard to the fact that it has been known to the appellant for some considerable time, and before, in fact, the appellant went to trial, that there was a real possibility that, even if the respondent was successful at trial, which the respondent in due course was, the respondent would not be able to collect its judgment money.

The circumstances of the appellant are still such that its liabilities apparently exceed its assets and as upon the application for the stay of execution the appellant could not pay into court, in exchange for the guarantee that was offered by the respondent, the amount of the judgment, I think there is a very great risk in this case that if the appellant was to be unsuccessful on this appeal that the appellant would not be able to meet an order for costs, if an order was made in favour of the respondent, which would ultimately follow if the appellant was unsuccessful.

I think in the circumstances of this case that the respondent has made out sufficient grounds and established special circumstances, and as such, I ought to make an order that the appellant do give security for costs on this appeal.

I therefore order that the appellant give security to the extent of $5000 for the respondent's costs of the appeal.