Barfly's Nominees Pty Ltd (ACN 080 123 057) v Kliger Partners (A Firm) (ABN 27 251 281 216)
[2018] VSCA 314
•23 November 2018
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2018 0105
| BARFLY'S NOMINEES PTY LTD (ACN 080 123 057) | Applicant |
| v | |
| KLIGER PARTNERS (A FIRM) (ABN 27 251 281 216) | Respondent |
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| JUDGES: | NIALL JA and ALMOND AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 14 November 2018 |
| DATE OF JUDGMENT: | 23 November 2018 |
| MEDIUM NEUTRAL CITATION: | [2018] VSCA 314 |
| JUDGMENT APPEALED FROM: | [2018] VSC 315 (Digby J) |
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PRACTICE AND PROCEDURE – Application for security for costs – Evidence of impecuniosity – Proposed grounds of appeal arguable – No public interest considerations – Amount of security sought oppressive – Lesser amount ordered – Just and reasonable –Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr P G Lovell | JPM Law |
| For the Respondent | Mr S M Anderson QC with Ms C M Pierce | Obst Legal |
NIALL JA
ALMOND AJA:
The applicant, Kliger Partners, seeks an order for security for its costs of a forthcoming application for leave to appeal and, if leave is granted, the appeal which has been brought by the respondent, Barfly’s Nominees Pty Ltd (‘Barfly’s’).
Background
In the proceeding below, Barfly’s sued its former solicitor, Kliger Partners, for breach of its duty of care in relation to its retainer. Barfly’s alleged that Kliger Partners provided erroneous advice concerning Barfly’s prospects of success in a claim brought in the Victorian Civil and Administrative Tribunal (‘VCAT’) against its former landlords and the landlords’ estate agent (‘the VCAT proceeding’) and other erroneous advice, including that Barfly’s should settle the VCAT proceeding and use the money received to pursue its former solicitor who had earlier acted for Barfly’s in the VCAT proceeding.
The loss and damage identified by Barfly’s as resulting from Kliger Partners’ alleged negligence included the damages which Barfly’s asserted it would have been likely to recover in the VCAT proceeding plus costs, but for the alleged incorrect advice and consequential settlement by Barfly’s of the VCAT proceeding. In the alternative, Barfly’s claimed damages for the loss of the opportunity to pursue such damages at VCAT and costs.[1]
[1]Summary derived from the trial judge’s reasons Barfly’s Nominees Pty Ltd v Kliger Partners (afirm) [2018] VSC 315, [1]–[2] (‘Reasons’).
Evidence
In support of the application Kliger Partners relies on an affidavit of Alexandra Leah Osborn.[2] Ms Osborn deposes that she retained Jenny Young, Costs Lawyer, to provide a report as to the costs likely to be incurred in defending Barfly’s application for leave to appeal and the appeal for the purpose of the current application. A report of Ms Young was exhibited to the affidavit.[3] Ms Young estimates Kliger Partners’ costs associated with the application for leave to appeal, the appeal and an application seeking security for costs in the total sum of $107,187.53.[4]
[2]Affirmed 19 October 2018 (‘Osborn affidavit’).
[3]Report of Jennifer Anne Young, Costs Lawyer, dated 2 October 2018, Exhibit ‘ALO-1’ (‘Costs Report’).
[4]Osborn affidavit [4].
Ms Osborn deposes that on 3 October 2018 she sent a copy of the Costs Report to Barfly’s solicitors and requested copies of Barfly’s financial statements for the financial years ending 30 June 2016, 2017 and 2018 and, alternatively, sought confirmation of the availability of funds to meet an adverse costs order. She requested that Barfly’s provide security in the amount of $100,000.[5]
[5]Ibid [5].
Barfly’s solicitors responded that the estimate of costs included the applicant’s costs of making an application for security for costs, and requested the applicant to provide an updated and reduced estimate of the applicant’s costs and the amount sought should agreement be reached without the need to make an application. Ms Osborn deposes that no financial statements of the applicant or other confirmation of the availability of funds to enable Barfly’s to meet an adverse costs order were included in the response.[6]
[6]Ibid [6].
On the same day, 5 October 2018, Ms Osborn responded to the solicitors for the respondent by advising to the effect that should agreement be reached without the need to make an application Kliger Partners would accept $87,500 as security for its costs.[7]
[7]Obst Legal Letter to JMP Law dated 5 October 2018, Exhibit ‘ALO-1’, 28–9.
Ms Osborn deposes that on 10 October 2018 she received correspondence from Barfly’s solicitors, which included an offer that Barfly’s would provide $35,000 by way of security for the respondent’s costs. No financial statements for any of the financial years requested or other confirmation of the availability of funds to enable the applicant to meet an adverse costs order were included.[8]
[8]Osborn affidavit [8].
In opposition to the application, Barfly’s relies on an affidavit of Michael David Vertes, Australian legal practitioner and the director of the law practice JPM Law, the solicitors for Barfly’s.[9]
[9]Affidavit of Michael David Vertes affirmed 7 November 2018.
Mr Vertes deposes that on or about 9 October 2018 he received instructions from Barfly’s to offer on Barfly’s behalf an amount of $35,000 for security for its costs of the appeal, and that Kliger Partners did not accept that offer. On 1 November 2018 after Kliger Partners had filed its security for costs application, he received instructions to re-offer on Barfly’s behalf an amount of $35,000 for security for Kliger Partners’ costs of the appeal. The further offer was not accepted.
Barfly’s also relies on an affidavit of Mr Tony Hachem, its sole director.[10]
[10]Affidavit of Tony Hachem sworn 7 November 2018.
Mr Hachem deposes that Barfly’s cannot provide security in the amount sought by Kliger Partners ($107,187.53); that Barfly’s sole asset was the business formerly known as Barfly’s, which ceased trading in 2004; that it owns no real property, has no regular income, has no current assets, has carried forward losses in the amount of approximately $3.1 million, has current liabilities in the amount of approximately $2.3 million and otherwise has no access to funds other than those advanced to it by Mr Hachem on a piecemeal basis for the purpose of pursuing the appeal.
In relation to his personal financial capacity and the financial capacity of his immediate family, Mr Hachem deposes that:
(a)he does not own any real property or any other substantial asset to leverage in order to realise funds;
(b)he presently runs an events management business where the income is irregular, but together with his wife’s income is sufficient to cover his immediate family needs;
(c)in the financial year ended 30 June 2018 his taxable income was $31,000;[11]
(d)his wife is the registered proprietor of the residential property in which they live;
(e)the property is mortgaged to Westpac Bank;
(f)his wife drew down on her available equity in the property in order to part fund Barfly’s costs of the trial at first instance, and he believes that his wife is unable to draw down on any further equity in the property based on his dealings with their banking relationship manager;
(g)his wife is a project manager for a recruitment company and is presently on maternity leave after the birth of their third child four weeks ago and that she expects to return to part-time work after 12 months of maternity leave;
(h)his wife’s taxable income for the financial year ended 30 June 2018 was $57,223.[12]
[11]A Notice of Assessment for the financial year ended 30 June 2018 issued by the Australian Taxation Office (dated 16 August 2018, Exhibit ‘TH-1’) records a taxable income of $31,000 for Mr Hachem.
[12]A Notice of Tax Assessment for the financial year ended 30 June 2018 issued by the Australian Taxation Office (dated 14 September 2018, Exhibit ‘TH-1’) records a taxable income of $57,223 for Mr Hachem’s wife, Ms Jessica Hachem.
In summary, Mr Hachem deposes that he is only able to offer Kliger Partners $35,000 for security for its costs of the appeal because he has arranged to borrow that amount from his wife’s brother; that he is unable to borrow any further funds from any other source and if Barfly’s was ordered to provide security in the amount of $107,187.53 there would be no real prospect that he or his wife could provide such monies, with the consequence that Barfly’s could not pursue the appeal.
Submissions
Kliger Partners submits that the Court should award security for the costs of the appeal as:
(a)there is a significant risk that Barfly’s will not be able to satisfy a costs order;
(b)there are no real prospects that Barfly’s will succeed on the appeal; and
(c)there are no other relevant discretionary matters as to why an order for security for costs would not be made in the circumstances of this case.
Barfly’s does not oppose an award of security for Kliger Partners’ costs of the appeal but opposes an order for security of $107,187.53 on the basis that security of that amount would be oppressive (by stifling a reasonably arguable appeal) and would not be just and reasonable in all the circumstances.
Applicable principles
Both parties rely on the principles summarised in Timbercorp Finance Pty Ltd (in liq) v Tomes,[13] in which McLeish JA said:
[13][2015] VSCA 322 [16] (citations omitted) (‘Timbercorp’).
It has regularly been held that the power of the Court to order security for costs in relation to an appeal (including an application for leave to appeal) is unconfined, but that the following matters are relevant to the exercise of the Court’s discretion:
(a) the prospects of success of the application, and any appeal;
(b) the extent of the risk that a costs order will not be satisfied;
(c)whether the making of an order for security would be oppressive by stifling a reasonably arguable claim;
(d)whether any impecuniosity of the applicant/appellant arises out of the conduct complained of;
(e)whether there are aspects of the public interest which militate against the making of an order for security; and
(f)whether there are particular discretionary matters peculiar to the circumstances of the case.
Analysis
Impecuniosity
It is apparent from the affidavit evidence that Barfly’s is impecunious (and the individuals who stand behind Barfly’s are, at least presently, impecunious). So much was conceded at the hearing for the purposes of the application.
Kliger Partners therefore satisfies one of the reasons it advances in support of its application.
Prospects of success
Kliger Partners contends there are no real prospects that Barfly’s will succeed on the appeal. The applicant is critical of the proposed grounds of appeal, submitting that:
(a)Barfly’s asserts areas of disagreement with the trial judge’s reasons rather than referring to any findings that were not open to the trial judge;
(b)Barfly’s has not sought to challenge the findings of the primary judge:
(i)that his Honour was not satisfied that Barfly’s acted on or as a result of any advice given by Kliger Partners,[14] that Kliger Partners gave any advice in relation to the VCAT proceeding which was incorrect or lacking in care, skill or diligence; or that the relevant advice caused or materially contributed to Mr Hachem deciding to settle the plaintiff’s VCAT proceeding on the terms he did and, in particular, for the sum of $341,500;[15]
(ii)that Mr Hachem, utilising his own judgment, decided to settle the plaintiff’s VCAT proceeding against the landlord and the agent, and that he [Mr Hachem] decided upon the sum which he considered commercially acceptable in relation to that settlement absent any specific advice in that regard from the defendant; and
(iii)about the creditworthiness of its main witness Mr Hachem notwithstanding adverse credit findings; and
(c)there is no reason for the Court to interfere with the trial judge’s orders given that there was no evidence led at trial that would have enabled the trial judge to find that Barfly’s had suffered any loss and damage, even if the respondent was found to have been negligent.
[14]Including by its employees Rothfield and Cain, Reasons [280].
[15]Reasons [283].
In response to the criticism that Barfly’s asserts areas of disagreement with the trial judge’s reasons rather than referring to findings that were not open to the trial judge, Barfly’s notes that the criticism, though expressed in general terms, refers only to ground 7(a), ground 4(a) and ground 6 of Barfly’s proposed appeal grounds, when there are in total seven proposed grounds. Barfly’s submits that it does assert (at least in its written case) that it was not open on the evidence for the trial judge to have made a finding of fact that Barfly’s did not rely on the advice in deciding to settle the VCAT proceeding and that there was no basis for the trial judge to reject Barfly’s evidence as to reliance on the advice.[16]
[16]Written case for Barfly’s [33].
It is apparent that the proposed grounds include grounds that the trial judge mischaracterised Barfly’s case with respect to changes in retail tenancies legislation, namely the Retail Tenancies Reform Act 1998 by the Retail Leases Act 2003 and the Retail Leases (Amendment) Act 2005, and erred in holding that the 1998 Act required a landlord to maintain premises in a state of ‘good repair’.
It seems to us that the mischaracterisation ground will only be able to be assessed after hearing argument, presumably with recourse to the arguments put below to determine whether there was any mischaracterisation of Barfly’s case (or a mischaracterisation of any consequence).
Further, the effect of any amendments to the Retail Tenancies Reform Act 1998 by the Retail Leases Act 2003 and the Retail Leases (Amendment) Act 2005 on any accrued rights of the applicant will only be able to be assessed after hearing argument on the merits with an understanding of the legislative framework and the factual background as it applied to the applicant.
It is not appropriate at this stage to say too much about the prospects of success. For present purposes, it is sufficient to say that we are not satisfied that there is no genuinely arguable question of law.[17] Nevertheless, it seems to us that an order for security for the costs of the respondent and further costs of Kliger Partners is clearly warranted.
[17]Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2015] VSCA 169 [14]; Timbercorp [2015] VSCA 322 [18].
Other factors
Neither party relies on any aspect of public interest, which might militate against the making of an order for security or any particular discretionary matters peculiar to the circumstances of the case.
Would an order for costs stifle the appeal?
The substantive remaining question in this application is whether the making of an order for security in the amount of $107,187.53 would be oppressive by stifling a genuinely arguable claim in light of the financial circumstances addressed above.
Barfly’s submits that if the application is granted in the terms sought it would stultify the application for leave and, if leave is granted, the appeal, and that this would be unjust, particularly as Kliger Partners has the benefit of a statutorily mandated insurance policy and is therefore better able to absorb its costs. Kliger Partners submits that it is not unjust to stultify an appeal which has no prospects of success.
In our view, given the considerations addressed above, it is enough to say it would be oppressive to make an order for security to be provided in the amount of $107,187.53.
The Costs Report contains the estimated costs of Kliger Partners calculated on the standard basis on the Supreme Court Scale.
The Costs Report is divided into sections with different subject matter for each section as follows: security for costs, respondent’s written case, summary for Court of Appeal, application book, respondent’s list of authorities, combined folder of authorities, agreed list of transcript references, directions hearing, preparation for hearing and hearing. Estimates of costs and disbursements are sub-totalled under each section.
The report includes an estimate of $19,657.72 for the costs of and incidental to obtaining security, an estimate for costs already incurred in the preparation of Kliger Partners’ written case of $17,698.98, and for the Summary for the Court of Appeal of $8,647.71.
There is no corresponding expert report on costs or expert critique of the costs report prepared on behalf of Barfly’s.[18]
[18]Barfly’s solicitor, Mr Vertes, makes informed observations about the Costs Report, though does not, in his affidavit, purport to qualify himself as an expert.
It remains for the Court to determine what amount is a sufficient amount for security for costs in this case. We are mindful of the observations made by this Court in Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd,[19] where the Court summarised the approach to this task as follows:
In determining a sufficient amount for security for costs, the court does not undertake precise mathematical calculations. Rather, it adopts a ‘broad brush’ approach involving ‘guesstimates as much as estimates’. However, the broad brush approach does not involve an abstract process. It must have an evidentiary basis. The court must have regard to the evidence adduced by the parties as to quantum — whether in the form of an affidavit by an experienced litigation lawyer or an expert report by a costs consultant — although it is not bound by the parties’ estimates. The court may scrutinise the individual items in the parties’ estimates, but not to the extent of minute examination akin to a taxation.
The amount ultimately fixed by the court must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide the security. The amount must be ‘just and reasonable’ in all the circumstances of the particular case.[20]
[19][2017] VSCA 293.
[20]Ibid [64]–[65] (citations omitted).
In determining a sufficient amount, we consider that the costs of and incidental to the application for security ($19,657.72) should be dealt with by making orders with respect to costs of the application in the usual way. Accordingly, we would reduce the amount sought by $19,657.72.
We would also exclude, for present purposes, the estimates for costs already incurred for preparation of the respondent’s written case ($17,698.98) and the summary for the Court of Appeal ($8,647.71). We would also make a ‘broad brush’ adjustment to the 12% loading for care and skill. Though this loading may prove to be justifiable on a taxation, for present purposes it is supported only by a general assertion by the expert. We consider it should be discounted.
Taking these matters into account and exercising our discretion without making a precise mathematical calculation, we consider that the amount of $55,000 offers substantial protection to Kliger Partners, but it is not so high that it presents an insurmountable burden to Barfly’s, notwithstanding the evidence as to impecuniosity. In our view, the amount is just and reasonable in all the circumstances.
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